Your HMRC investigation questions answered

We love questions! If you have any please ask us in an email an we’ll answer them here.

What is a HMRC tax investigation?

HMRC call tax investigations complacence checks. A compliance check can be anything from a five-minute phone call (to sort out an obvious arithmetical mistake) to a major investigation into a sizeable company’s fraudulent activities – and everything in-between. So it is an investigation into your tax return.

This concise and informative answer comes from the ebook General Information about Compliance Checks Decoded which is available in the shop.

Why was I chosen for a HMRC investigation?

There could be any number of reasons and HMRC might be willing to tell you – or maybe not. Here tax director Anne Eager ACA, CTA,Tax Director from the Robert James Partnership explains why you might have been picked.

Do the innocent have nothing to fear from HMRC?

HMRC assumes that you are guilty unless you can prove otherwise. If you are not frightened at this point you have simply not been paying enough attention. Listen to this horror story to start to understand how HMRC works.

Do I need good representation?

If HMRC operated a more egalitarian system I’d say yes, however because of the devious practices HMRC uses I have to say: if you have the cash for a good tax advisor then that’s likely to be money well spent. Notice I say “good” because bad tax advisers (and there are many) will be next to useless. Here tax director Anne Eager ACA, CTA from the Robert James Partnership explains why representation is a good idea.

How do I find a good representation?

If an investigation has been opened you need to find an accountant / tax advisor with experience in this area – many are just glorified number crunchers. Be prepared to interview a string of tax advisers: you are looking for somebody who appears to be a dove but is capable of turning hawkish should the occasion demand. Ideally the tax advisor will already know the member of HMRC who has opened the investigation and will have dealt with them in the past – successfully. If you can find a former HMRC inspector to represent you – there are quite a few about – that is a good start.

A good question to ask the prospective accountant is: “I’ve been invited to an interview, should I go alone?” If the tax advisor says “Yes” then avoid like the plague. A good tax advisor – if they decide to go to the meeting at all – will ask HMRC for a full meeting agenda and also get details of the depth of the problem. We can give you 30 minutes of free expert advice to get you going. Contact us here.

What will a tax investigation specialist cost?

High street or home workers start at about £35 per hour and an agent from a big tax firm (like PWC) will bill at around £500 per hour. Tax director Anne Eager ACA, CTA from the Robert James Partnership comments.

Can I get free help?

TaxAid is a UK charity providing tax advice to people who cannot afford to pay a professional adviser. The service is independent and confidential. They are an organisation doing a great job with very limited amount of funding. If you contact them be patient, if you speak with a tax advisor remember that they are volunteering their time to help you – a complete stranger. Use this link for more details.

The Citizens Advice Bureaux helps people resolve their legal, money and other problems by providing free, independent and confidential advice, and by influencing policymakers.

The Low Incomes Tax Reform Group (LITRG) is an initiative of the Chartered Institute of Taxation to give a voice to the unrepresented in the tax system. The Group aims to persuade politicians and the Revenue to make the tax system easier and fairer.

TaxHelp for Older People is a charity providing free advice on tax to older people on low incomes who could not otherwise afford any professional help.

GOV.UK is a government run website and therefore presents a rather glossy view of HMRC. It’s worth a look for basic information.

I have no paperwork to show HMRC, what should I do?

Tax director Anne Eager ACA, CTA from the Robert James Partnership offers advice.

Do HMRC have the power to check bank accounts?

Yes, and not just in the UK either they have managed to get the banks in Liechtenstein (a well known tax haven) to give up account information. They can also open up security deposit boxes. The media often makes out that HMRC are a bit stupid, they are not and they have a huge amount of power.

Can HMRC open up past years to investigate?

If HMRC find something wrong in your return they are likely to make an assumption that you were also incorrect in earlier years. They can then either open up the earlier years for investigation or simply “scale back” which is a process where by HMRC estimate how incorrect your figures were in earlier years, then add penalties and interest then send you a bill.

HMRC have ‘invited me’ to an interview, should I go?

Interviews are almost entirely for the benefit of HMRC. They will try to interpret a refusal to attend an interview as non co-operation but provided you answer all their questions in full and on time you can argue that you have complied with the investigation. Tax director Anne Eager takes a slightly softer line, but is still very cautious. The second video go into much more detail about the interview.

If I go to the interview should I record it?

Don’t go to the interview! A recording will almost certainly put the investigator on the back foot. If you decide to go to the interview on your own (this is high risk) then you should certainly record what is said – when the tape runs out end the interview.

What documents can HMRC ask to see?

HMRC will ask for documents that they are not necessarily – legally – entitled to see, I know cheeky! Here, tax director Anne Eager ACA, CTA from the Robert James Partnership explains what documents HMRC are legally entitled to see.

What is a penalty?

In tax investigations it’s a fine for underpaying tax. The amount is a percentage of your underpayment. The percentage will depend on how badly HMRC feel you have behaved, if they feel you went out of your way to hide your income it will be high, if you can show them you made an innocent mistake it can be reduced to zero. There are also fixed penalties for specific actions such as late returns.

Can I avoid this penalty?

You can either reduce the penalty or have it completely removed depending on your conduct with HMRC and why you underpaid tax. You need to prove that you acted in a ‘reasonable’ way. If you made mistakes, but did not underpay tax, there is no penalty to pay (this does not include fixed penalties).

Can You Give Me A 20 Minute Briefing About The New Penalty Changes?

Yes, here’s an extract from a 2013 TaxAid talk, Surviving in the Compliance Jungle, where Andrew Gotch talks about the new penalty regime.

• New draconian regime in Sch.24 FA 2007
• Careless or Deliberate
• Prompted and Unprompted
• Maximum and Minimum Penalties
• What Unprompted means
• Quality of disclosure
• Careless error is eligible for suspension – even for second offences
• Appealing and ADR

Is it possible to email HMRC?

HMRC don’t like using email and don’t publish individual email address on their headed paper, indeed finding out their first names can be a tricky business! Once you know the full name of the individual it’s straightforward to work out the email address: it’s normally so Permanent Secretary for Tax Jon Thompson can be mailed as