Your Investigation: The Heart Of The Storm
Can I amend my tax investigation figures? Have I been careless or negligent? Have I made a deliberate inaccuracy? Can HMRC open up more years? Can HMRC look at personal records? Who can I complain to and should I? How can I use the Data Protection Act? You’ve got questions, let’s get some answers.
Can I amend my figures?
Yes! In an investigation most of the cards are stacked against you, but here is one that falls in your favour.
HMRC have 12 months from the date of your tax return to launch an investigation. You have the same period to amend your return.
This means that after an investigation is launched you can go through your figures with an expert and they can give you pointers. You then say to HMRC: “I wish to amend my return from X to Y because of A, B and C.”
HMRC say, if you make a mistake on your tax return you’ve normally got 12 months from 31 January after the end of the tax year to correct it. This is called an ‘amendment’. For example, for the 2016-17 return you have until 31 January 2019 to make an amendment..
The best-case scenario is that you will talk to an expert who will say things along the lines of: “Did you ever work from home? In that case you can claim a percentage of your gas, electricity, water, council tax… etc.” Or “Did you ever use your car for work?” If so, it’s the same deal or “Did your partner ever work for you as an advisor or clerical assistant and get paid a wage? – Well in that case, bingo…”
HMRC may well say you can only claim for expenses used, “wholly and exclusively” for business use but this is misleading.
If you buy and use something “wholly and exclusively” for work you can claim 100 percent of it as a deduction, but if an item or service has been used partially for work it’s normal for you to claim a percentage of that item.
Here’s the HMRC wording, “…some dual purpose expenses include an obvious part which is for the purposes of the business. We usually allow the deduction of a proportion of expenses like that.”
Details on apportioning expenditure here: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim47815
Have I been careless or negligent?
This is a trick question because HMRC regard carelessness and negligence as the same thing.
Here is what HMRC say in their Compliance Handbook;
“Careless” means a failure to take reasonable care in relation to your tax affairs. Carelessness can be likened to the longstanding concept in general law of “negligence”.
Let’s take a non-tax example, just to give this some real world context: if you have ever installed software on a computer you will have clicked the box saying that you’ve read the contract and agree to it. You click a button – it installs. Have you read it? No, because you’ve got a life to get on with. But HMRC would say that by not reading the contract you had been careless and therefore negligent.
You can see the HMRC official examples of carelessness on the page CH81145 – Penalties for Inaccuracies: Types of inaccuracy: Examples of careless inaccuracy, which is here; www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch81145
Basically, if you get anything wrong, HMRC is likely to call it carelessness because that single word allows them to accuse you of negligence, which can both broaden the investigation and increase penalties.
If HMRC says you have been careless you must respond as though they have called you negligent. If you feel you have not been negligent, take the issue to the Alternative Dispute Resolution (www.gov.uk/guidance/tax-disputes-alternative-dispute-resolution-adr) or a Tribunal (www.gov.uk/courts-tribunals/first-tier-tribunal-tax) and ask them to make a judgment on this single point.
Have I made a deliberate inaccuracy?
Once again this is HMRC using language in a very unusual way. When HMRC say deliberate inaccuracy what they mean is fraud.
Fraud is simple to understand. You have earned cash that you knew should have been taxed, but you tried to hide that income from HMRC to avoid paying tax.
For example you go to a dentist and the dentist says, “I’ll replace that molar for £800, but if you pay me cash it’s just £500.” Then if the dentist does not declare that £500 as part of his earnings, that’s fraud on the part of the dentist.
So if you are accused of deliberate inaccuracy HMRC are making an extremely serious allegation.
If HMRC start to talk about a deliberate inaccuracy that’s also been concealed, what they mean is that it’s fraud and you’ve tried to block the HMRC investigator from finding out about it.
This now carries a hefty penalty – up to 100 percent!
Can HMRC open up more years for investigation?
There is a strong chance that your initial enquiry will drag on for more than a year. This means that you will make one tax return while the investigation is ongoing.
HMRC can open that year for investigation without needing to provide any sort of justification. But if they want to open up earlier years they will need to have made some sort of ‘discovery’.
Broadly speaking HMRC needs to have found something that is the result of at the very least “careless’’ behaviour, or that “when the time limit for issuing a notice of enquiry into the return passed, or the enquiries were completed, the officer of the Board could not have reasonably been expected, on the basis of the information made available to him, to be aware of the situation.’’
Let me translate that for you:
…when the time limit for issuing a notice of enquiry into the return passed, or the enquiries were completed
This is a year after you submitted your tax return.
the officer of the Board
could not have reasonably been expected, on the basis of the information made available to him, to be aware of the situation.
Did you provide enough information to HMRC about your tax returns to give them a clear picture of what you were doing or have HMRC discovered something it could not have reasonably been expected to have known at the start of the investigation?
If HMRC can answer yes to this question then there is a good chance they can claim a ‘discovery’ and open up earlier years.
Can HMRC look at my personal records?
To look at your personal records HMRC have to either ‘break’ your business records (make a ‘discovery’ that something was wrong) or show that your personal finances are inconsistent with the business records, so you couldn’t live the way you live on the income you declare.
But increasingly HMRC are asking for personal records right at the start of the investigation.
Mark Morton, head of tax at Mercia, said, ‘I’m increasingly coming across requests for private bank account details in opening letters and in early meetings HMRC have focused purely on the private affairs, have ‘interrogated’ the taxpayer and demanded private accounts.’’
Anne Eager, Tax Director at Robert James Partnership, confirmed the new approach: ‘’I’ve had requests for bank records for my clients in opening letters, when I challenged the request the Inspector said that it was to save time as he felt it was very likely there were issues with the records and added this was a ‘standard approach’ under the new regime.’’
This new hard-nosed approach contravenes Article 8 of the Human Rights Act, which sets out the right to privacy.
Chris Chadburn, director of tax specialists at Venntax said: ‘’I go to a football match with a five friends, I put all the tickets on my credit card. My friends give me cash, which I use to pay the card. HMRC can look at that cash entering my account and say it is undeclared earnings. That’s just one of the dangers of allowing your personal records to be seen. Inspectors can be overzealous and when that happens we have to remind them that they need to ‘break’ the business records before they can look at personal statements. If they insist we can take the issue to a Tribunal.’
Who can I complain to and should I?
Here are the people you can complain to and the likely results.
Complain to the person who is investigating you
The HMRC factsheet Complaints says, “If you are unhappy with our service, please let us know as soon as possible. We can usually put things right quickly if you phone the person or office you have been dealing with.”
Complaining to the person or office you have been dealing with is often futile, but is a necessary first step.
HMRC already know they are being unreasonable; it’s their job to get as much money out of you as possible. Obviously you are going to be unhappy and want to complain.
Remember this: phone calls will result in notes being made, and what’s written down in your file by HMRC will be slanted in their favour. It’s always best to write.
Complain to the boss of the person who is investigating you.
This person might be called the ‘complaints handler’ or ‘services advisor’.
This too is likely to be futile. There is a possibility that HMRC will apologise but they will then just continue with the investigation as if you’d never complained.
At this point HMRC will say, “This ends our complaints process. You have now received our final response.” Over 50% of complaints don’t go past this point. And you can see why when HMRC are sending out this information.
But actually – for you – this is just the start.
Apply for Alternative Dispute Resolution
Alternative Dispute Resolution (ADR) is – in the words of HMRC a service, “that aims to help resolve disputes or get agreement on which issues need to be taken for a legal ruling.”
At any point in the investigation you can ask for ADR – you don’t have to wait for the investigation to end or for HMRC to invite you to complain.
HMRC say, “ADR gives you the option of having someone who’s not been involved in your dispute, to work with you and the HMRC officer dealing with it. The person leading the ADR will act as a neutral, third party mediator. They don’t take over responsibility for the dispute. They’ll work with you both to explore ways of resolving the dispute through meetings and telephone conversations. They’ll help you focus on the areas that need to be resolved and, if needed, help re-establish communications between both parties.”
ADR is well worth going for, particularly if an overzealous investigator is bullying you.
Go to a Tribunal
You are also entitled to present your case at a Tribunal.
Often just the threat of a Tribunal will be enough to make an investigator stop in their tracks and reconsider – particularly if they are bending the rules.
Most of the literature handed out by HMRC suggests that you have to wait for the case to conclude before you appeal, then you have to appeal the whole thing. This is not true on either count.
You can appeal on any aspect of the case and the Tribunal will judge it on a point of law at any time.
So let’s say HMRC are asking for personal records right at the start of the investigation – and they are being quite persistent. You can just say, “You have no right to ask for these records and if you persist I’ll take this to a Tribunal.” And that should stop them in their tracks.
You can take your case to the Adjudicator and then to the Ombudsman. The Adjudicator has a one-year waiting list and the Ombudsman will only look at your case once the Adjudicator has finished with it. You will also need a letter from your MP, so it’s a long journey.
Your best bet for complaining while your case is running are ADR and the Tribunal. Here are the links;
More about ADR and to apply:
More about Tax Tribunals and how to apply:
The Adjudicator’s website with how to apply on the front page:
Complain to the ombudsman:
How can I use the Data Protection Act?
Before you complain you should use the Data Protection Act to make a Subject Access Request.
The Data Protection act allows you to ask to see the files HMRC hold about you. This could be anything from documentation showing simple appointment dates to detailed meeting notes and it may also contain notes about what HMRC feels are the strengths and weaknesses of your case. This request is called a Subject Access Request or SAR.
To make a ‘Subject Access Request’ you can apply online here: https://online.hmrc.gov.uk/shortforms/form/DPU_SAR or you can apply in writing. Here’s the strategy for applying in writing. Call the HMRC office you’ve been dealing with and ask to speak to the ‘Data Protection Officer’. When you get through you need to get the name of the person you are talking to or the person in charge of ‘Subject Access Requests’. It’s important to get a name. Then write your request stating that you want to see all your files and post it off the same office – or even better – hand deliver it and get a stamped receipt. HMRC’s direction about making up a Subject Access Request are on their website https://www.gov.uk/government/publications/data-protection-act-dpa-information-hm-revenue-and-customs-hold-about-you/data-protection-act-dpa-information-hm-revenue-and-customs-hold-about-you.
How transparent HMRC are about the case file is largely down to luck. They don’t have to release comprehensive information, but sometimes (if the file is big and they don’t have much time to edit it or the task has been given to somebody junior) you may just get a copy of the whole thing. Other times you may get a drastically cut back version, perhaps only a page! It is, frankly, a lottery.
You can make as many SARs as you like and it costs nothing, so it’s worth going for.
Try to get the name of the person who is in charge of Data Protection requests and talk with them directly. Get a direct telephone number and email address if you can. HMRC have 40 days to comply with the request, make a note in your diary and call if they fail to meet the deadline.
If you are ignored, and get nothing back, you can complain to the Information Commissioner. Call 0303 123 1113 or 01625 545 745. Alternatively email email@example.com