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FINANCE by Dominic Bourquin , Head of Tax Consultancy & Corporate Finance and Partner at Monahans
TAX INVESTIGATIONS : Why you need protection
Last year HMRC collected £ 34 billion from tax investigations and enquiries . Since then , there has been a surge in compliance cases opened as HMRC ramps up its tax investigation work . 316,000 checks had been opened in the year leading up to 31 June 2023 – up 30 % from the previous 12 months .
There are many reasons for this surge . Of course , a major motivator for the government is to service the ballooning deficit . Despite revealing that , in the 2022 year , HMRC brought in a record total of £ 788.8 billion in taxes , with an overall national debt of £ 2.537 trillion as of March 2023 , it ’ s hardly surprising to see efforts to claw money back intensify .
Its focus has also been influenced by the impact of COVID-19 . For example , HMRC estimate as many as 10 % of furlough claims were fraudulent and even more will contain errors . Although most of the furlough claimants will not have deliberately abused the scheme , it will not only be the fraudulent cases that are selected for review .
Another driver of investigations is that the reach of HMRC ’ s ‘ Connect ’ database is ever-growing – obtaining increasing sources of information and now containing over 55 billion data items . HMRC is investing £ 37 million in requiring Airbnb , eBay and Uber to provide information on taxpayers using those platforms , giving HMRC the intel it needs to carry out higher numbers of investigations – it ’ s a self-fulfilling process .
Why is it important to engage a professional ? There is a common misconception that only those who have done something wrong will experience an investigation , but this is not the case . Most tax enquiries are generated by computer ‘ risk profiling ’ which in many cases may sweep up innocent taxpayers , but HMRC ’ s questions still need to be answered whether the taxpayer is innocent or not .
There does not need to be a reason for HMRC to check a client ’ s tax affairs and any taxpayer who submits a tax return can be
“ There is a common misconception that only those who have done something wrong will experience and investigation , but this is not the case ”
picked for investigation any time . Many people find an HMRC enquiry disruptive , stressful and expensive . But it can also be complex and confusing , which is where support and reassurance from a professional becomes invaluable .
Without the guidance of a professional , business owners could find themselves in a position where they are supplying more information to HMRC than is necessary . Legally , HMRC can only ask for what is ‘ reasonably required ’ to check a tax return . Therefore , if it is checking a company ’ s corporation tax return for example , it cannot ask for the director ’ s personal bank statements .
In addition , there have been instances where HMRC has tried to increase the scope of an enquiry beyond its legal limits . Such as raising an inquiry for a particular period but asking for information related to another . It ’ s therefore crucial to seek the guidance of a professional who can ensure that HMRC is doing its job correctly .
To protect your business from the unexpected costs of an investigation , join our Tax Investigation Service today .
HMRC could target you at any time for a Tax Investigation
Monahans 2023 BTE Wilts Dec . indd 1 THE BUSINESS EXCHANGE 06 / 11 / 2023 2023 16:477