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In recent years HMRC has been evaluating the way in which it conducts compliance checks. This has resulted in a far more aggressive approach to collecting revenue partly driven by a desire to raise cash for the budget deficit and partly by diverting more staff than ever before to the task.
This has resulted in an extra £9 billion being raised over the last three years. In 2012/13 the number of tax compliance checks being carried out increased from 119,000 to over 237,000 – in just one year.
Many businesses and individuals feel they have done nothing wrong and therefore will never be investigated. This is simply untrue. The vast majority of targets are not selected because HMRC thinks they are being fraudulent but because of perceived anomalies on their returns or accounts. Figures that vary widely from year to year for example. There are usually perfectly good reasons for this but it will not stop HMRC from investigating. Some enquiries are even selected completely at random!
It is a sad fact that in the majority of cases clients pay more in accountancy fees than HMRC collects in extra tax. This is one reason why we offer clients membership of our Tax Investigations Service. In the event of an enquiry clients will not have to worry about the fees.
However, you do need to play your part in reducing the risk of an enquiry.
HMRC has a computer system – CONNECT – which contains literally millions of pieces of information including details of interest being paid to taxpayers by banks/building societies. They hold info on all properties being night and sold, details from credit agencies about loans held, chargeable events from investment companies. It is therefore vitally important that clients do ensure they supply us with full details of their income. Even innocent errors and omissions can cause enquiries. They will still charge the tax and interest on top. They will also see if they can charge a penalty!
It is also important to avoid the necessity of having to amend a return if possible. If it is necessary to amend a return because previously submitted figures are incorrect the risk of an enquiry or the final figures were simply not ready at the filing deadline the risk of an enquiry is very substantially increased. We therefore always urge clients to let us have the information to complete their returns/accounts as soon as possible.
One general point we would say to clients is to ensure you always let us know when you have had any contact with HMRC. They continually embark on different types of approach and you cannot always rely on them telling us.
Nigel Holmes - Partner
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