Being subjected to a tax investigation can be a very stressful experience. Any person or business can be selected for an HM Revenue & Customs (HMRC) investigation at potentially any time – meaning you never know when an enquiry might be just around the corner.
If selected, the process will typically begin with the recipient receiving a letter from HMRC notifying them that an investigation is being undertaken. HMRC is not under any obligation to provide a reason for the investigation, but this letter will usually request a response within a tight timeframe – usually of between 30 and 35 days.
The first step to take is to seek specialist advice before responding to this letter within the set timeframe to avoid the likelihood of any penalties. This applies to any written requests received by HMRC throughout the investigation process. The level of enquiry HMRC chooses to pursue will be described in the letter as either an ‘aspect enquiry’ or a ‘full enquiry’.
What are the differences between the two types of enquiry?
A full enquiry will delve into much greater detail and will usually require the recipient to provide HMRC with business records for the entire year of enquiry, while an aspect enquiry may only focus on an individual aspect of a tax return and is likely to be resolved much more quickly.
Aspect enquiries typically take between three and six months, while a full enquiry could run on for 16 months or longer. By seeking specialist advice early, it is easy to ensure that the matter is resolved quickly.
What might an enquiry involve?
What the investigation involves will depend largely on the level of enquiry, but in most instances, HMRC will request the likes of bank statements, paying-in slips, VAT records, payroll records and more.
If a business’ records are kept electronically, they will be asked to provide details of the cloud accounting software package they use as well as a copy of their records on a disk.
Those under investigation should respond to any enquiries received from an HMRC investigator within the timescales given and should receive replies to each response within 28 days. They may also be asked to attend a meeting with an inspector.
Once the investigation has concluded, the inspector will inform the person or business under investigation of any minor or larger adjustments required to any previous errors or misstatements in their tax returns.
In some cases, a penalty may be payable or the investigation could even result in criminal prosecution. In others, however, HMRC might confirm that no adjustments whatsoever are required and no further action will be taken.
At Thomas Coombs, we offer our clients a Tax Investigations Service which includes additional benefits to best meet your needs.