HMRC Tax Investigations

HMRC Tax investigations can be intimidating. At best they are a nuisance for an accounting practice, and can undermine your reputation. At worst, they can be a threat to your liberty. The modern regime at HMRC can seem abrasive and hard to manage. Although serious cases are few and far between in practice, the incidence is increasing as HMRC quite rightly increase their focus on targeting and tackling tax evasion in all its forms (the yield from tax investigations is now well into the £billions and is increasing every year).

As well as fraud cases, HMRC has a particular interest in investigating suspected tax avoidance. Useful guidance on what constitutes “avoidance” can be found on HMRC’s own website under “Anti Avoidance Group (AAG)”. In practice, these investigations are carried out by Special Investigations (Fraud & Avoidance) teams, formerly known as Special Civil Investigations (“SCI”).

Nobody who is unprepared should deal with the SCI or the Revenue and Customs Prosecution Office without specialist help. If the worst happens, don’t panic. We have good relations with specialist law firms; we can help and you will know that there is someone discrete who can support for you, and /or your client.

We understand that HMRC tax investigations are stressful in all their forms. By working with HMRC, and understanding the reasons for their enquiries, it is possible to exercise a level of control and reduce both the timescale and, consequently, the level of anxiety (something we never underestimate). Whilst we only act on the basis that full and frank disclosure will be made, we will robustly defend our clients’ legitimate technical positions.

At the other end of the scale, there are times when District level enquiries cause particular problems, and we are certainly noticing a tendency for HMRC to take entrenched or unusual positions. We specialise in unblocking these situations – sometimes a fresh pair of eyes can see a way forward that is not obvious when you are closely involved. In between the Tax District and the RCPO and SCI are a host of other specialist departments that may raise investigative enquiries, including anti-avoidance units such as (in “old language”) s.703 or s.739 groups, FICO, and of course the Offshore Fraud Project Teams. That is not to mention the part of HMRC that used to be known as Customs, and their VAT enquiries.

DISPUTES

Since HMRC published their Litigation and Settlement strategy policy in June 2007, it is clear that many disputes may have to be settled on an “all or nothing” basis. In such cases, if a dispute with HMRC cannot be resolved by negotiation it may be necessary to prepare for litigation. The chances of successful resolution will be increased dramatically if advice is taken at an early stage, and here we can also assist. There is no advantage in spending sizeable sums in pursuit of litigation that does not have a realistic chance of success [that is equally true for HMRC]. If appropriate we can assist in taking the initiative for the closure of enquiries, via the Tax Tribunals.

POWERS AND PENALTIES

HMRC’s powers are increasing and some feel that this may already have gone too far. Protection of the Exchequer is one thing, but unwarranted invasions of privacy are quite another. The signs are that the trend will continue. Meanwhile a “new” Penalties Regime takes effect from April 2009. We broadly welcome this as it should certainly be fairer, but it does not ease the burden on the professional adviser. Many taxpayers will face tougher penalties for a careless error or understating income and it is clear that specialist advice early on will be the best way to minimise this exposure. We are ready to help as the new regime takes effect.