Tax investigations – Frequently asked questions
You may have many questions and areas of uncertainty before, during and after a tax investigation. To help, we have produced a useful guide below to answer frequently asked tax investigations questions that you might have.
We offer a comprehensive range of tax investigations services for those facing a tax investigation to support them at every stage. If you have any questions or would benefit from impartial, confidential advice, please get in touch with our experienced tax investigation team today.
1. I have received a tax investigation letter from HMRC, what should I do first?
Read the letter carefully and seek professional advice if you are unsure or if it is a complicated request for information. Our tax team have significant experience supporting individuals and businesses at this stage, so at this point you may wish to contact us for a no obligation, confidential consultation to discuss your next actions.
2. Why am I under tax investigation? What triggers a tax investigation?
HMRC will not specifically say what triggers a tax investigation, however:
- Sometimes it is obvious, like an omission picked up by HMRC.
- Sometimes it is random.
- You may be in a HMRC target area – HMRC set up taskforces to target areas that are thought to be at high-risk of tax fraud. These maybe geographic and/or specific sectors, with property income being perhaps the most common.
- Have you done something to attract the attention of HMRC? This may be that your income is dramatically up and down or that returns are always late, or that you are claiming excessively high expenses in proportion with your income – all these things can make you high risk in the eyes of HMRC.
3. How long will a tax investigation take?
Some tax investigations finish with one letter, other investigations can go on for months with HMRC asking for more and more information.
4. Can I appeal against my tax investigation?
No, unfortunately you cannot appeal against an investigation being opened.
5. How far back an HMRC go?
Technically, HMRC can go back 20 years but it is more usual for them to go back 6 years.
6. Can I go to prison for tax offences?
They will prosecute in cases of deliberate fraud and particularly in cases where large amounts of PAYE and VAT are concerned. It is possible to go to prison for tax offences but HMRC will usually seek civil penalties.
7. What information will I need to provide during my tax investigation?
The information HMRC will ask you to provide will depend on what they are checking. You’ll normally receive a letter telling you exactly what’s needed. You should be prepared to provide the information that your tax return was based on quickly and easily.
8. What powers do HMRC have in a tax investigation?
HMRC have extensive powers to request and obtain information from the taxpayer and from third parties. They can issue determinations if there is no co-operation but this is always a last resort.
9. What is voluntary disclosure?
Voluntary disclosure takes place when a taxpayer discovers their own error or omission and reports it to HMRC.
10. What am I liable for in a tax investigation?
You are liable for any tax found to be due with related interest and penalties.
11. What penalties are involved in tax investigations?
The penalties levied by HMRC depend on:
- Whether the omission was reported voluntarily or not
- The circumstances of the omission
- The quantum of the omission
Penalties are now very much codified and difficult to avoid. The penalties are calculated on a published scale which takes into account the behaviour of the taxpayer. The penalty is therefore significantly higher if the failure to disclose is deliberate, and even higher if there is an attempt to conceal the lack of disclosure. Typically a penalty can add another 15%-100%. An inadvertent mistake is likely to suffer a lighter penalty.
12. Is it in my interests to prepare a disclosure report?
You need to make full disclosure of any known omissions to HMRC. A formal detailed report is usually only required when an enquiry is opened under Code of Practice 8 or 9.
13. How can an accountant help with my tax investigation?
Accountants are able to help as follows:
- Collating information and ensuring the correct information is provided to HMRC.
- Dealing with further requests for information.
- Ensuring that HMRC do not extend an enquiry unnecessarily.
- Helping to negotiate a final settlement including interest and penalties.
- Helping to negotiate time to pay.
15. Having been investigated will I be more likely to face a tax investigation in the future?
There is no evidence that one investigation leads to another. If however, you are found culpable in an investigation and are then found to continue to make the same errors, then HMRC would take a very dim view of it.
16. How can I protect myself from the cost of future tax investigations?
At Rouse Partners we offer a Tax Investigation Service to business clients and private clients where we file their tax returns. You can find out more about this service here.
If you have any questions regarding a tax enquiry please contact our experienced team of tax advisors for a no obligation, confidential initial consultation. We will discuss your areas of concern and advise how we can help.
This FAQ guide has been produced by Rouse Partners LLP for general interest. No responsibility for loss occasioned to any person acting or refraining from action as a result of this information is accepted by Rouse Partners LLP. In all cases appropriate advice should be sought from us before making a decision.