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? 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 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.’