Should I worry about a tax investigation? Reply

Tax Investigations can happen to anyone, around 7% are estimated to be random.

Even if your accounts and tax affairs are in totally up to date and correct investigations will take up your accountants time and incur fees.

What can you do to reduce your chances of being selected:

1. File your tax returns on time and pay what you owe – If you file late or at the last minute HMRC will think you are disorganised and as such there are more likely to be errors in the return

2. Declare all your income – HMRC get details of bank interest and other sources of income, sometimes they test them and match them to returns

3. Use an accountant – Unrepresented taxpayers are more likely to be looked at, mainly because many of them don’t know what they are doing

4. Trends – if your business doesn’t match the profile of similar business in the same sector or your results suddenly fluctuate it could raise concerns at HMRC, for example, if you suddenly request a VAT refund

According to the FSB

The average duration of a full investigation is circa 16 months whereas an aspect investigation can last between 3 – 6 months, but can take longer.

We are currently putting in place a solution for our clients with Taxwise  better to be safe than sorry, letters will be sent to our clients before Christmas

taxwise

steve@bicknells.net

HMRC continue to target small businesses – are you ready for a visit? 1

I want you

According to recent reports HMRC has increased the number of small business investigations and they continue to be seen as soft targets.

About 7% of tax inspections are random, the majority are triggered because HMRC believes that something is wrong.

What can you do to reduce your chances of being selected:

1. File your tax returns on time and pay what you owe – If you file late or at the last minute HMRC will think you are disorganised and as such there are more likely to be errors in the return

2. Declare all your income – HMRC get details of bank interest and other sources of income, sometimes they test them and match them to returns

3. Use an accountant – Unrepresented taxpayers are more likely to be looked at, mainly because many of them don’t know what they are doing

4. Trends – if your business doesn’t match the profile of similar business in the same sector or your results suddenly fluctuate it could raise concerns at HMRC, for example, if you suddenly request a VAT refund

You might also consider tax investigation insurance, FSB include tax investigation insurance as a member benefit, they also have some great advice if you do get selected

steve@bicknells.net

5 ways to reduce the risk of a tax investigation 1

UK tax return form

THE TAX YIELD derived from HM Revenue & Customs investigations into the affairs of small- and medium-sized companies rose by 31% over the last 12 months, according to UHY Hacker Young.

Compliance investigations into SMEs generated £565m for HMRC in 2012/13, up from £434m in 2011/12, with the year ending March 31. Accountancy Age

Some investigations are random and some as a result of HMRC task forces, but many are triggered by risk profiling.

What can you do to reduce your chances of being selected:

1. File your tax returns on time and pay what you owe – If you file late or at the last minute HMRC will think you are disorganised and as such there are more likely to be errors in the return

2. Declare all your income – HMRC get details of bank interest and other sources of income, sometimes they test them and match them to returns

3. Use an accountant – Unrepresented taxpayers are more likely to be looked at, mainly because many of them don’t know what they are doing

4. Trends – if your business doesn’t match the profile of similar business in the same sector or your results suddenly fluctuate it could raise concerns at HMRC, for example, if you suddenly request a VAT refund

5. Tax Avoidance Schemes – if you are using a tax avoidance scheme I am sure HMRC will be looking closely, if they can find a way to challenge the scheme then at some point they will

steve@bicknells.net

 

 

 

 

HMRC launched six new task forces in May – here are some tips on handling enquiries Reply

The taskforces will target traders who do not pay the right amount of tax in:

 

  • Indoor and outdoor markets in London
  • Taxi firms in Yorkshire and East Midlands
  • Property rentals in East Anglia, London, Yorkshire and the North East
  • Restaurants in the Midlands

 

Taskforces are specialist teams that undertake intensive bursts of activity in specific high risk trade sectors and locations in the UK. The teams will visit traders to examine their records and carry out other investigations.

http://hmrc.presscentre.com/Press-Releases/Six-taskforces-to-tackle-tax-dodgers-launched-67ac1.aspx

HMRC anticipate recovering more than £23m from these new task forces launched on 31st May 2012.

12 taskforces were launched in 2011/12 looking at restaurants (London, North West, Scotland) fast food outlets (London, Scotland), scrap metal dealers (Scotland), fraudulent repayments (London), landlords (North West, Scotland), construction (North West), property transactions (London) and overdue returns (South East).

Here are 10 top enquiry tips from PFP:

1. Establish Enquiry Type

It is important that the type of enquiry is established. If it is an Aspect Enquiry make sure it is fully dealt with. Remember HMRC needs a reason to extend an enquiry from aspect to full – challenge any extension where necessary.

2. Best Adviser

The best person to deal with an enquiry is not necessarily the most technically brilliant. Technical knowledge is vital, but equally important is knowledge of how the system works and the ability to negotiate effectively.

3. Taxpayers Rights

This is a fundamental point. Anyone dealing with the Revenue should be aware of the taxpayer’s rights, e.g. when personal bank statements need to be provided, if meetings are necessary etc.

The client should be informed of their rights and the way the enquiry can be expected to run so that they do not say or do anything rash or unhelpful.

4. Take Out Insurance

At a Chartered Institute of Taxation Conference a presenter said that he had found the Revenue were dealing more efficiently with cases where they knew the clients had cover. This insurance can save money and strengthen a client relationship.

5. Revenue Manuals

These manuals are a good source of information – particularly if the HMRC asks for something and you are wondering whether this should be allowed. We have seen the enquiry manual being quoted successfully to HMRC a number of times.

6. Prevention v Cure

We know that various events such as late returns or a poor compliance record can increase the likelihood of an investigation. A number of accountants are now informing their clients of this fact when chasing up tax return information.

Once the investigation has started the standard of record keeping becomes important. Many accountants are telling clients to improve record keeping where necessary, some are even asking clients to annotate personal bank statements to avoid difficulties with remembering what deposits relate to some 2-3 years later. One accountant said that he knew full well not all of his clients were doing this but as least they had been told.

7. Establish Facts

This is an obvious point. Many of our accountants at the outset of an enquiry will ask the client in a positive and polite way if he/she is aware of any areas with which HMRC may have a problem e.g. undeclared sales. This gives out a clear message – if you tell us now we will do our best to help you; if not then there may be little we can do.

8. Seek Advice

If you don’t know or are unsure, just ask! We can always be asked for a second opinion – sometimes accountants know the answer but telephone just to bounce ideas off of someone. We are here to help, so if you are in doubt, just ask!

9. Be Accurate

Or “tell the truth”. Be sensible in what the Inspector is told. Do not be tempted to say the first thing that comes to mind just to satisfy HMRC.

For example, on one occasion HMRC asked why the accountancy fees were so high compared to previous years. The answer came back “because the records are very complicated and extensive”. HMRC replied he had all the records and they fitted in a shoe-box! In the eyes of the Revenue, the accountant’s credibility had been undermined and as a result, written proof of everything was requested.

10. Negotiate

This speaks for itself and must be remembered at all times. Self Assessment enquiries feature necessary negotiation in many cases. With targets of over 83%, HMRC may not be particularly interested in assessing the right amount of tax – just more tax.

http://www.pfponline.com/top10taxtips/692

steve@bicknells.net

 

 

HMRC Tax Targets and Campaigns Reply

HM Revenue & Customs’ (HMRC’s) campaigns provide opportunities for people to voluntarily put their tax affairs in order. They do this by identifying a group to target and gathering information and intelligence that can be used to encourage and influence that group to come forward. Once a campaign closes, HMRC then uses that same information and intelligence to follow up with action that can include criminal investigations, aimed at those who choose not to pay what they owe.

http://www.hmrc.gov.uk/campaigns/news.htm

As a result of a recent campaign a Plumber in Ringwood, Hampshire was sentenced to 4 years in prison, follow this link to read the full story

http://www.accountingweb.co.uk/article/hmrc-secures-plumber-conviction/527556

Accountingweb have been tracking the campaigns, so far 77,616 checks have been carried out and £36.3m tax recovered

http://www.accountingweb.co.uk/article/hmrc-task-force-tracker/521073

So which campaigns are coming up in the next few months:

  1. Direct Selling – aimed at those selling products to customers away from retail premises, this includes selling door to door, at parties or to friends and relatives. Sellers are sometimes called ‘Agents’.
  2. Missing Tax Returns – aimed at Individuals who have been requested to provide or should be submitting Self Assessment Returns but haven’t http://www.hmrc.gov.uk/sa/need-tax-return.htm (Company Directors are required to submit returns)
  3. Trade Campaigns – aimed at those working in the Home Improvement, Maintenance and Repair sectors
  4. e Marketplaces – aimed at those who sell on line (such as online auctions) and don’t disclose their income http://www.hmrc.gov.uk/campaigns/emarket.htm

If you are in one of these target groups, now is time to makesure your tax affairs are in order.

steve@bicknells.net