Tax enquiries taking longer

Average enquiry time up by a fifth

According to data obtained by Professional Fee Protection (PFP), the average length of time taken by HMRC’s local compliance teams to bring an enquiry to a close has increased by 20% over the last year.

In 2012/13 the Revenue averaged 2 ½ months to conclude their investigations but this rose to 3 months in 2013/14. What contractors would give for an IR35 enquiry to only last 3 months, when most investigations of this nature double this time and many are now exceeding a year and some even longer.

The more protracted an enquiry, the more stress it heaps upon the taxpayer. This is mainly because of the uncertainty and disruption that a tax investigation creates, despite the best assurances and attention of an experienced adviser. Also though, the longer the enquiry then the higher the cost of professional representation. This is echoed by PFP managing director, Kevin Igoe, quoted as saying, “Innocent individuals are often drawn into tax enquiries, which are both distressing and costly, so a 20% jump in the average time taken means a rise in levels of stress and cost to the potentially innocent individual.” You need not look for any better reasons as to why it is so important and crucial for contractors to avail themselves of tax enquiry insurance. Quite simply, it’s a ‘no brainer’.

A factor that has led to longer enquiries is the wide range of sources of information that are available to the Revenue that enable the department to identify potential ‘victims’. These include banks, local government, online merchants, social media, insurers and even hospitals.

HMRC are committed to 250 new IR35 enquiries each year. That might sound like a drop in the ocean when compared to the size of the freelancing community as a whole but you could be the unlucky one, so it is not worth gambling with tax enquiry insurance especially given the relatively modest premiums involved. Over the last few years I have defended a number of contractors who either did not have the insurance or let their policies lapse because they were lulled into a false sense of security by not having been troubled by the Revenue. When they were selected for enquiry it was too late and they ended up having to pay for professional representation themselves.

Even those who have been subjected to an IR35 investigation in the past cannot afford to be complacent, as I am currently tending to a contractor whom I successfully defended a good number of years ago. Unfortunately, HMRC have picked on them again but thankfully they kept their insurance going and now have one less thing to worry about.