HMRC has sent out 14,000 “nudge” letters to individuals who have sold a property in the year 2018/19 requiring them to check whether they owe Capital Gains Tax. It is important not to ignore these letters and you should seek legal advice as soon as possible.
What is Capital Gains tax?
If you sell or ‘dispose of’ and asset i.e. a property and make a profit, you should pay capital gains tax to HMRC on the profit received. You should pay capital gains tax, where applicable, on chargeable assets such as:
- most personal possessions worth £6,000 or more, apart from your car
- property that’s not your main home
- your main home if you’ve let it out, used it for business or it’s very large
- shares that are not in an ISA or PEP
- business assets
When do I have to pay Capital Gains Tax?
If you have sell a chargeable asset, Capital Gains Tax should be reported and paid within 30 days.
You should keep records evidencing your capital gains such as invoices, receipts which show the amount you paid for the asset and the amount you received and also any valuations or correspondence relating to the asset.
What is a compliance check?
A compliance check is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A HMRC tax investigation can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; income tax; corporation tax and capital gains tax.
The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing them that an investigation has been opened into their tax affairs and may include a request for information.
It is strongly recommended that you consult a tax lawyer as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC.
What triggers a compliance check?
Typically, HMRC will not specifically detail what has initiated an investigation into your tax affairs in the letter sent by HMRC notifying you that an investigation has commenced. There is limited HMRC guidance on the criteria of a civil tax investigation, however, the following are common triggers of a government audit:
- Mistakes, Omissions or Inconsistencies on a Company or Personal Tax Return: for example, the submission of inaccurate figures and the submission of frequent inaccuracies could cause HMRC to investigate in order to ascertain a clearer picture of your finances.
- HMRC receiving a tip-off can be the catalyst for an investigation: examples of informers include disgruntled former employees and embittered divorcees.
- Part of a HMRC target area: HMRC regularly set up taskforces to target either geographic areas or specific job sectors thought to be at high risk of tax fraud. Job sectors such as the medical profession, those with multiple sources of income and landlords have been targeted using HMRC’s Connect investigative software, which provides an indication of industries where there are potential tax shortfalls.
- HMRC Campaigns
- Random check: this is unlikely but larger businesses that have undergone a rapid period of growth may attract the attention of HMRC based on this sudden change.
- Suspicious activity that attracts the interest of HMRC: for example, the fluctuation of numbers by a large margin; years of unprofitability for a business; your figures are inconsistent with industry standards for those in the same profession; an omission of income.
I have not declared Capital Gains Tax
Often individuals instruct accountants to manage their tax affairs and sometimes errors are made where the tax or the accurate amount has not been declared to HMRC. This can result in HMRC taking serious action and issuing a penalty assessment and they can also take criminal action.
Once you have become aware of the need to pay tax to HMRC, you should seek advice in making a voluntary disclosure.
If you consider your accountants or other advisers have been negligent and have failed to carry out your instructions to manage your tax affairs correctly, we can advise you on a potential complaint for professional negligence against tax advisers or accountants.
Should you make a voluntary disclosure?
It is important to note that HMRC exercise their discretion when reducing or waiving penalties and consider each case separately. HMRC have by their own admission stated that where there are systematic fraudulent matters they will not hesitate to commence prosecution even if the disclosure of the information came as a result of a campaign. Although it is safe to assume that if you disclose your financial information voluntarily then the HMRC are likely to be more lenient when deciding what penalties to impose. It is advised to disclose the information now rather than later or never, regardless of which industry you belong to. This is due to the fact that HMRC are likely to impose harsher penalties if they later discover that you haven’t disclosed the information.
If you find yourself in a position where you need to disclose elements of your earnings or elements of your financial information for previous years then you should contact us as we work with specialist tax advisers who will be able to establish your tax liability. Our specialist solicitors are subsequently able to robustly negotiate the terms of any tax settlement with HMRC. Alternatively, we are able to work with your accountant to ensure that collectively we are able to obtain the best possible outcome for you.
Expert London Tax Investigation Lawyers
If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation.
Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability.
Want legal advice from Tax Solicitors on your case?
Our simple enquiry form goes immediately to our tax litigators in Middle Temple, London. Call us on +442071830529 from 9am-6pm.
HMRC APPEAL DEADLINES – WARNING
HMRC decision letters containing penalties or imposing assessments offer time limited deadlines within which to appeal. Often these short deadlines (e.g. 30 days) can run from the date of the letter which means you have less time than you think. Your legal rights will become irreversibly time-barred if you fail to take legal action. Therefore, you should seek specific legal advice about your HMRC tax dispute at the very first opportunity so that you understand the time you have left. Failure to take advice or delay in taking action can be fatal to your prospects of success.