Tax Evaders

The era of the self assessment tax return has changed the way HM Revenue & Customs (HMRC) views the returns it receives. When a tax return is submitted to HMRC it is simply processed and any tax due is collect from the taxpayer in January and July. However, this isn't the end of the story for the return. HMRC holds huge amounts of information and it can assess the return submitted against both the information it holds and the statistics it has on various business sectors.

HMRC has one year from the date of submission of the tax return to review it and open an enquiry into the taxpayer’s affairs. Furthermore, if the tax return is submitted late, the deadline for raising an enquiry is extended to the end of the calendar quarter following the anniversary of the actual filing date. An enquiry may also be opened into an amendment to a tax return, although the scope is restricted to those figures that were amended.

HMRC also opens a number of randomly selected enquiries and if you’re subject to an enquiry you won't be told the reason it was opened unless it is only into an aspect of your affairs.

However, opening enquiries is both time consuming and costly for HMRC so in more recent years they have allowed taxpayers to come forward and in exchange suffer a smaller penalty, often 10%. This strategy has had mixed success with many evaders ignoring the opportunity to come clean. A recent report from HMRC confirms that six plumbers are being prosecuted for not declaring their income and 600 are under civil investigation.

These cases are, of course, at the most serious end of the spectrum but they do go to confirm the quality of the information held by HMRC. The vast majority of taxpayers who receive the brown envelope containing the opening enquiry letter will have missed very simple and often very small amounts from their returns. However, it can still be a very stressful and costly experience. HMRC charges a minimum penalty of 15% of the tax due and this amount increases to 100% where fraud is involved. Furthermore they will seek interest on the late payment as commercial restitution.

This all means that the very best way to avoid the stress that an enquiry brings is to keep excellent records, especially of unusual transactions like disposals of assets and encashment of investment bonds. If you are in business then having good records to show what income and expenditure you have received/incurred is a requirement. The most common target for specific enquiries are self employed people who deal with cash as part of their trade such as publicans, market traders, taxi drivers. Over and above these, the typical things which we see HMRC opening an enquiry into include missing bank accounts and large fluctuations in investment income.

Investigations come in all shapes and sizes so having someone on your side who knows the system and can guide you through the pitfalls and the final negotiation is essential.

Graham Poles

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