When HMRC opens an enquiry into you or your business’ tax affairs, it doesn’t mean that they think you’ve done anything wrong.
HMRC routinely checks a percentage of the tax returns that it receives to ensure that they are correct. For HMRC to do this they sometimes require additional information to understand the figures. HMRC also selects tax returns for enquiry at random.
HMRC commences an enquiry
HMRC will normally write to you and your advisor (if you have one) to notify you that they intend to start an enquiry and whether they are looking at the whole of your tax return or just certain specific entries.
The letter from HMRC will advise you of what information they require from you, the date that they should receive the information by, and your rights and responsibilities.
It is important that you do not ignore this letter and that you bring it to the attention of your professional advisor/tax specialist as soon as possible as they may not have received notification from HMRC that your tax return is under enquiry.
Please note that even if you have a professional advisor/tax specialist representing you that HMRC will regard you as personally responsible for your own tax affairs and the accuracy of all information supplied to HMRC.
What information will HMRC request?
The information that HMRC will request will depend on the type of enquiry that they are undertaking but will usually be based on the information/records used to complete the tax return. As such HMRC will expect that you will be able to supply the information/records by the reply date shown in the letter.
HMRC will normally allow you 30 days from the date of their letter to send them the information/records. This is not always the case and reply deadlines can be both longer and shorter than this.
A full enquiry is where HMRC will review every entry on your tax return and it will involve HMRC carrying out an in-depth review of the records on which your tax return was based. This includes, if relevant, your business records.
In most cases HMRC will request that any information/records are sent to them. They may also state that they would like to review the information/records at the business premises, the Tax Office, your home, or your professional advisor/tax specialist’s office.
Please note that there is no obligation on you to attend a meeting with HMRC, but should you choose to do so, it is advisable to ensure that you are accompanied by your professional advisor/tax specialist.
What happens once HMRC have completed their review?
Following the review of the information/records, if HMRC find nothing wrong they will send you a ‘closure notice’ advising you that they have completed their review, are now closing their enquiry and no changes to your tax return will be made.
If HMRC find that you have overpaid tax, they will amend your tax return to the revised figures and issue you with a tax repayment. They will also pay you interest from the date of your incorrect payment up to the day you get a repayment.
If HMRC find that you have underpaid tax, they will advise you of the changes that they believe are needed to correct your tax return and try to agree these changes with you. HMRC will ask you to pay any tax due within 30 days of receiving the closure notice confirming the change.
It should be noted that even if HMRC advise you that they believe that your tax return is incorrect, that you can and should challenge their view if you disagree with it.
Interest and penalties
Depending on the circumstances, you may have to pay interest and penalties on any tax that HMRC advise is underpaid.
You have a right to appeal against decisions or penalty charges following an enquiry. You can also appeal to stop an enquiry if you feel there aren’t any grounds for it to continue.
How can Qdos help?
It is important to recognise the seriousness of these enquiries and to treat the letters accordingly, taking action without delay.
Qdos Contractor’s Tax Consultancy team is made up of experienced tax professionals and ex-HMRC Inspectors. They specialise in assisting individuals and businesses that are under enquiry. They have a proven track record of successfully resolving disputes and have built up a wealth of experience in this specialist area.
For further information on how to protect your clients, and how we can assist you with issues surrounding tax enquiries, call 0116 269 0999 or learn more about tax enquiry insurance.
This article was written by Nigel Nordone, Head of Tax at Qdos Contractor (www.qdoscontractor.com). Nigel is a former Investigation Inspector for HMRC, and has been at the forefront of IR35 since its implementation, representing numerous contractors in IR35 enquiries.