In a tax investigation, what is “Helping”?
The HMRC factsheet, Penalties for inaccuracies in returns and documents, is issued when HMRC believes a penalty is likely to be due. The document is full of crucial information most of which is buried in the text. The ebook Penalties for inaccuracies in returns and documents DECODED is an analysis of the HMRC document; digging up true meanings and telling you what you need to know.
There are three voices; the voice of HMRC is in green, the voice of the person being investigated is in blue and the voice of the expert is in black.
What you can do to reduce any penalty we may charge
We can reduce the amount of any penalty we charge depending on our view of how much assistance you gave us. We refer to this assistance as the ‘quality of disclosure’ or as ‘telling, helping and giving’.
… Helping us understand your accounts or records.
HMRC are understaffed and deskilled; yet there are demands on them to bring in more cash. So this is HMRC getting you to do their job. They want you to confess. But if you have made a genuine mistake in your return you are unlikely to be able to explain what that mistake is.
Replying to our letters quickly.
What is quick?
You normally have 30 days to respond to a HMRC letter. If they ask for documents that will take longer to gather then ask for an extension and explain why.
Don’t feel pressured with the threat of a penalty on this matter – as long as you stay within the law there should be no punitive action.
Don’t let HMRC rush you; responses need to be clear and factual.
Generally HMRC are flexible, if you (or your agent) have a holiday booked – for example – they will give you extra time to respond.
Answering our questions in full.
Hey, didn’t we just have this under telling? (see here)
Yes, but it’s so important to HMRC that they’ve put it down twice.
Once again: don’t answer questions that don’t deal directly with the tax investigation and do everything in writing. If you have a good tax advisor, make them the first contact.
Agreeing to attend meetings, including any visits to your business premises, at a mutually convenient time.
You are not legally required to attend a meeting and not attending a meeting should not have an impact on a penalty providing you’ve given HMRC the information they asked for and are legally entitled to see.
The same is true of a HMRC visit to your business premises. You don’t have to allow them entry. The worst they can do is slap a £300 fixed penalty on you – they need the proper paperwork from the Tax Tribunal before they do this.
See factsheet CC/FS4. Unless the officers already have approval from the Tax Tribunal they can’t charge you the penalty. Note after the £300 fixed penalty for obstructing the inspection there can be a penalty of up to £60 for each day the obstruction continues following the fixed penalty.
Penalties like this may well be worth paying to give you the breathing space to get your ducks in order. Unannounced visits are risk based, so if HMRC do turn up on your doorstep you need to get expert advice and fast.
Checking your own records to identify the extent of the inaccuracy.
Again, this is HMRC asking you to do their job for them. When you put your records in you must have believed they were accurate, in an investigation it’s really up to HMRC to say what is wrong.
Using your private records to identify sales or income that was not included in your tax return.
HMRC has the right to see records that are reasonably required to check the return. If you feel that it’s not reasonable for HMRC to see your private records you will have to argue your corner.
What’s a significant error? Can you give me an example?
If you used your personal account for business usage, for example you put a business check through your personal account (it’s easy enough to get the cards mixed up at the bank) and the other way around.
Allowing HMRC to see private records, such as personal bank statements will open up a can of worms. Everything will be picked apart, they’ll want to source all the cash and cheques coming into your account, even really small amounts. Cash will be assumed as undeclared income unless you can prove otherwise and cheques will have to be accounted for.
This is an extract from Penalties for inaccuracies in returns and documents DECODED which costs £10. You can get more information and buy the ebook here.