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Tax Investigations

HM Revenue & Customs regularly investigate the tax affairs of both businesses and individuals and their powers of enquiry have increased since 2009. Although some taxpayers are selected for investigation at random, usually an enquiry is triggered by an irregularity of some kind, such as missing items on your self-assessment return, a variance between your figures and those expected for a business of your type or third party information.

Usually an investigation will be what is known as an aspect enquiry, where the inspector asks questions about particular items on your tax return or in your accounts. For example, they may ask for an analysis of consultancy fees or Other Debtors in your accounts. These enquiries can usually be dealt with by correspondence and closed within a short time without any need for a meeting. On the other hand, it may be a full enquiry into your accounts or tax returns as a whole and these will usually last much longer and may involve a full-scale audit of your accounting records.

Unless there is evidence of underpaid tax, the Revenue will normally only be able to open an enquiry into your tax return for a certain period of time. This is known as the enquiry window. The time limit used to be 12 months from the deadline for submitting a tax return but has now been amended to 12 months from the date it is actually received by the Revenue, so there is no longer a deterrent to filing tax returns early. They can only open an enquiry after the deadline has passed if they make what is known as a discovery assessment. This means that, according to them, you have not reported the correct figures or disclosed the full facts in your accounts or tax return.

It is important to seek professional advice if you are faced with a tax investigation as you may be asked to provide more information than the Revenue has a right to see or be given an assessment based on figures derived by the Revenue from their own business models that are totally inappropriate in your case. An enquiry may also drag on for much longer than is really necessary to investigate the issues raised if it is not managed properly, and sometimes it may be necessary to argue technical points with the Revenue beyond the knowledge of most taxpayers.

Please give us a call if the Revenue have opened an enquiry into your tax affairs and you need any help or advice in dealing with them. The following Information Sheets and Tax Tips will tell you more but they should not be regarded as a substitute for professional advice as each situation is different and should be handled according to the particular circumstances of the case.

Tax Tips
Preparation
Discuss the enquiry and any potential problems with your advisor well in advance.
Requested documents
Critically examine the list of documents requested and ensure you can explain all sources of income.
Photocopies
Do not give the taxman free rein of your photocopier – take copies for him and make a note of all documents copied.
Answering questions
Give brief and pertinent answers to questions asked by the taxman and avoid giving more information than that requested.
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