HMRC is a powerful investigating authority and has an arsenal of legislative penalties to conduct civil tax investigations and criminal investigations where it is suspected that tax or duty has been evaded, underpaid or under declared, or that a tax fraud has taken place. VAT registered traders can face accusations of failing to declare their true liability on VAT returns by suppressing sales and/or inflating purchases.
Our expert team of established Tax and Duties Specialist Solicitors and Barristers have first-hand experience and knowledge of the internal workings of HMRC. We have extensive experience in advising individuals, employees, directors and corporate clients in relation to serious tax investigations and prosecutions conducted by Her Majesty’s Revenue and Customs (HMRC). The way a taxpayer responds to HMRC enquiries and investigations can have a substantial bearing on any tax penalties imposed, even where errors are made innocently.
Therefore, it is important to take professional legal advice early to minimise tax fines, mitigate tax exposure as far as possible and ensure a settlement is reached on favourable terms. If you require advice on any tax investigation against you, contact our London Tax Solicitors and Barristers for a confidential consultation.
Tax Investigation Advice
Our Tax Solicitors and Barristers are highly experienced in dealing with voluntary tax disclosures and will advise you on the best strategy and manage the entire process on your behalf. We can advice on all of HMRC’s investigatory areas, including:
- Civil Evasion and Fraud Tax Investigations:
– Personal Tax Return Section 9A TMA 1970 Enquiry;
– Code of Practice 8 (suspicion of serious Tax Avoidance using schemes such as EBT/PBT structures);
– Code of Practice 9 (suspicion of serious Tax Fraud); and
– Code of Practice 11 (Self Assessment Tax Investigations).
- Criminal Tax Investigation:
- Corporate Tax Evasion:
– Code of Practice 14 Investigation (Company Tax Return Enquiries)
- Partnership Tax Return Enquiry:
– Section 12A TMA 1970 Notice Investigations.
- Self Assessment Tax Investigations:
– Code of Practice 11 Investigation (Local Compliance Offices).
- VAT and PAYE Investigations:
– PAYE Audit Tax Investigation
-VAT Evasion Investigation
Tax Investigation Advice for Directors
Our specialist tax team regularly provide market leading advice to directors of companies and limited liability partnerships. Our work has featured in KSA Group‘s Worried Directors Guide 2018, including our authoritative guide on HMRC tax disputes and investigations.
What is a Tax Investigation?
A tax investigation 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 HMRC investigation?
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.
The triggers for a criminal investigation by HMRC are more clearly elucidated by the government here and HMRC will generally consider starting a criminal, rather than civil investigation where:
- organised criminal gangs attack the tax system or systematic frauds where losses represent a serious threat to the tax base, including conspiracy;
- an individual holds a position of trust or responsibility;
- materially false statements are made or materially false documents are provided in the course of a civil investigation;
- pursuing an avoidance scheme, reliance is placed on a false or altered document or such reliance or material facts are misrepresented to enhance the credibility of a scheme;
- deliberate concealment, deception, conspiracy or corruption is suspected;
- cases involve importation or exportation breaching prohibitions and restrictions;
- cases involve money laundering;
- the perpetrator has committed previous offences or there is a repeated course of unlawful conduct or previous civil action; and
- where there is a link to suspected wider criminality.
How will you know if you are subject to a HMRC investigation?
HMRC will notify a taxpayer in writing when it commences to examine their tax affairs. Typically, if HMRC starts a formal civil investigation, a letter will be sent requesting more information. For example, a taxpayer may receive a request for information on a property transaction or further information about a tax return from a local compliance audit.
However, if HMRC suspects criminal VAT fraud or high amounts of tax evaded then it may commence criminal investigations. Typically, unlike for a civil investigation, HMRC are unlikely to notify you at the start of the process but instead you will be informed once you receive a letter requesting attendance to a voluntary interview under caution or when you are arrested.
Alternatively, even where criminal tax evasion is suspected, HMRC may wish to deal with the investigation through the civil route under Code of Practice 9. This process offers a taxpayer a civil solution for potentially criminal evasion by allowing a full disclosure under contract (Contractual Disclosure Facility).
It is crucial that once under review, specialist Tax Investigation Lawyers are instructed. We regularly liaise with HMRC at formal meetings, agree what the scope of the disclosure should be and prepare the report on your behalf and reach a civil settlement with HMRC. We have wide-ranging experience in assisting those facing a COP 9 investigation whilst helping to navigate the rigid time-limits and strict rules.
How far back can HMRC investigate tax returns?
An investigation will often start by enquiring into last year’s tax return and the time HMRC can go back into your tax affairs varies depending on the seriousness of the charge against you. The tables of time limits in HMRC’s Compliance Handbook provides a full summary. The time limits for Captial Gains Tax, Corporation Tax, Income Tax, PAYE and VAT are all the same. Instead, the amount of time HMRC can go back depends on whether the mistake made was innocent, careless or deliberate according to the Taxes Management Act 1970.
HMRC will first investigate the most recent tax return. If they find no mistakes, then the investigation will be closed. If HMRC find a mistake was made innocently, then the investigation is permitted to go back 4 years. If HMRC decides the mistake was due to negligence or careless behaviour then the investigation can go back 6 years. If the mistake is construed as a deliberate attempt to avoid the payment of tax, then the investigation can go back 20 years.
In any investigation, especially one scrutinising tax returns over many years, it is important to obtain professional legal advice at an early stage. We ensure that you make the right decisions at every stage and challenge HMRC’s requests if appropriate in the circumstances.
How long will a tax investigation last?
It depends on the scope and nature of the HMRC investigation. The opening letter issued by the HMRC is usually a good guide on the potential length of any investigation. Some tax investigations finish after one letter; other investigations can take months with HMRC consistently requesting more information; and some investigations can be extending to longer than a year if involving complex tax structures or large businesses.
It is important to engage professional advice early on to minimise the length of any investigation as we identify any problems quickly and efficiently to get to the heart of the matter.
How will HMRC deal with you?
This varies dependent on the type of investigation conducted. HMRC tax investigations are subject to the specific circumstances of your case, but the relevant Code Of Practice will provide guidance on the process of your tax investigation.
In any event, as specialist Tax Investigation Solicitors we will ensure your rights are protected and that HMRC operate strictly within the limits of their power. More information on the procedure of each Code of Practice investigation can be found here.
What information will you need to provide during a tax investigation?
The initial letter sent by HMRC will normally outline the information required. If the investigation is uncomplicated and in a specific area, then the amount of paperwork will be self-contained. However, other cases will involve years of financial documentation, bank statements and information. HMRC have extensive powers to request information from both you and third parties. As a last resort, HMRC have the statutory power to issue determinations if there is no co-operation. A formal detailed disclosure report is generally only required when an enquiry is opened under Code of Practice 8 or Code of Practice 9.
As specialist Tax Disputes Solicitors we are able to acquire, organise, interpret and present the information required to HMRC on your behalf.
Are you required to attend a meeting or interview with HMRC?
Generally during civil investigations, HMRC often request a meeting but HMRC are not entitled to require you to attend a meeting or interview. The requirement to be transparent and openly communicate with HMRC (to mitigate any potential penalties) can be adequately addressed in correspondence or in meetings between us and HMRC.
However, in serious tax evasion cases where there is a criminal investigation, HMRC can request an interview under caution. It is essential to seek legal representation- as specialist and experienced tax investigation lawyers we can accompany and represent you at this interview.
More information on HMRC Interviews can be found here.
Are tax investigations made public?
The majority of HMRC investigations are conducted privately. Only criminal prosecutions become public. However, under HMRC’s Name and Shame policy, under section 94 Finance Act 2009, HMRC can publish details of tax defaulters. These are people who have received penalties either for:
- making deliberate errors in their tax returns; or
- deliberately failing to comply with their tax obligations.
HMRC have reserved the right to publish information about the deliberate tax defaulter where:
- HMRC has carried out an investigation and the person has been charged with one or more penalties for deliberate defaults; and
- Those penalties involve tax of more than £25,000.
What are you liable to pay in a HMRC tax investigation?
The amount of tax payable at the end of the investigation depends on how much has been found to have been underpaid. Even if HMRC do not push for criminal prosecution, you will be liable for any tax found to be due with related interest and penalties. If tax is underpaid, then often penalties will also be payable. Depending on the circumstances and nature of the tax irregularity, HMRC penalties can vary from 15% of the tax you owe, up to 200% (for overseas offences). The first stage is for HMRC to decide on the penalty range which depends on whether the tax loss was due to:
- lack of “reasonable care”;
- a deliberate error such as intentionally providing false information; and
- concealed deliberate error where false information is intentionally covered up.
The second stage involves HMRC considering factors to mitigate any penalty in the above range. These factors include cooperation with HMRC, the gravity of the wrongdoing and confessions.
During the investigation we may find factual variations and technical issues which may mitigate the amount of tax due. The regulations relating to penalties is complex and the amount owed can be mitigating if the correct procedures are followed. It is therefore strongly recommended to consult us as specialist Tax Solicitors as soon as an investigation commences into a tax irregularity.
Can you get a prison sentence for tax offences?
HMRC can conduct investigations on either a criminal or civil basis. It is important to seek legal representation as a potential prison sentence is an option at the conclusion of a criminal tax investigation. However, not all criminal evasion investigations result in criminal prosecutions. HMRC have the option to utilise different Disclosure Protocol when seeking a resolution on a civil basis. For example, the COP 9 procedure can protect you against prosecution if the correct criteria are met and full disclosure and co-operation is provided.
Can you appeal against a tax investigation?
No, unfortunately you cannot appeal against an investigation being opened.
However, once HMRC have concluded their investigation and issued a penalty, then you have 30 days to appeal the decision. You can appeal in writing by giving Notice of Appeal to HMRC. HMRC will either confirm their first decision, amend their decision or agree with your assessment.
If your position cannot be agreed with HMRC then two further options are available. HMRC could offer an internal review of the disputed decision (or you can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer.
You could also appeal to the First Tier Tax Tribunal if you cannot agree your position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if you do not agree with the decision.
We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one.The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.
Detailed advice on HMRC Tax Appeals can be found here.
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.
We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [email protected].