A HMRC tax investigation can feel intrusive and open-ended, especially where requests for information escalate quickly. However, HMRC’s powers are not unlimited, and taxpayers have clear statutory rights. Understanding those rights early can help control the scope, cost and impact of an enquiry.
HMRC have the legal right to open a tax enquiry but must normally do so within 12 months of a return being submitted. That enquiry can be into an individual, business or company but can also encompass their related VAT returns. In certain circumstances, HMRC can even “look-back” and open a tax investigation into the previous up to 20 years! This typically applies where HMRC suspects deliberate behaviour or significant errors.
A HMRC investigation (or compliance check as they call it) normally starts with a letter or phone call asking for further information, records, explanations or even a meeting. These initial overtures are looking for voluntarily compliance, but HMRC can use their statutory information powers if they feel that the information is reasonably required to check that the correct tax has been paid. By correct, that can refer to past, present or future tax liabilities!
HMRC frequently gets the information it wants just by asking and without resorting to its formal powers. However, care should be taken not to provide too much information or non-relevant details which could widen the scope of an enquiry.
It should also be remembered a taxpayer has their own statutory rights to defend themselves against a HMRC “fishing expedition”. Before volunteering information or documents, a taxpayer should consider the following:
Understanding these boundaries can materially affect the outcome of a HMRC tax investigation.
If a statutory request is issued by HMRC, there can be penalties of up to £3,000 for serious non-compliance. Although there is a right of appeal against a formal information request, tax-payers and advisors should check the validity of any information notice to ensure that it is reasonably required. It’s always possible to engage with HMRC to narrow the scope of the request, however early engagement with the officer will be required.
Facing a HMRC tax enquiry or investigation can be stressful, time-consuming and financially risky. Early, specialist advice can make a significant difference.
We support individuals and businesses with:
For a confidential conversation about a HMRC tax investigation or enquiry, please contact our Tax Investigations Director, Graham Caddock, at grahamcaddock@lubbockfine.co.uk.
