This article will cover some of the dos and don’ts when being subjected to an HMRC tax enquiry. If you have received an enquiry letter, do not panic. We have helped many people who have failed to disclose something and have received a letter from HMRC.
If you are reading this article as you are worried about something you have not declared to HMRC and they have not yet approached you, if you inform them you can reduce any penalty, so we would encourage you to disclose this before they come to you. There is a voluntary service that can be used and we have used it for multiple clients.
Why do HMRC enquire?
HMRC estimate the tax gap is around 5% or £32billion. It is their job to ensure the taxes due are collected to help pay for vital public services.
How do HMRC know?
Lots of people underestimate HMRC and their knowledge of you but they have a supercomputer called Connect, which BAE helped to design. It had a cost of £100m in 2010 and in the 10 years it has existed, it has already generated £3bn in tax! This supercomputer holds and obtains a vast amount of data both inside and outside of the UK.
Not only do HMRC use this software, they also receive thousands of anonymous tip-offs a month, often from people you know. Those tipping off can receive cash rewards.
One of the most common enquiries at the moment is regarding rental property enquiries. Many people wonder, how do HMRC know I have a rental property? Well, HMRC uses the supercomputer that can tie up land registry records, with council tax records, with electoral roll records etc. They also have your employment details and address and driving license address amongst other things. If these details are not matching up it may prompt HMRC to show interest.
What to do if you receive a letter from HMRC?
Often if you receive a letter from HMRC it is because HMRC’s supercomputer has identified something that does not look the norm.
The important thing is to not panic, but also do not bury your head in the sand. One of the best ways to reduce any penalties that may be applicable is to reply in a timely fashion.
We would recommend you seek professional advice at the earliest opportunity. Do not call up HMRC as you may say something that would cause you more problems.
After getting advice what is the first step?
The very first thing to check is if HMRC are within the time limits set by law. It they are not then HMRC can be told they are too late!
Time limits depend on the enquiry but one important thing to know is that it is not sufficient for HMRC to post an enquiry notice before the time limit – it must be received within the statutory deadline. This point is acknowledged in HMRC’s own guidance, which states (at EM1506): “Your notice must be received before the time limit. The Courts assume that second class post takes 4 working days to be delivered and first class post takes 2 working days. Working days do not include Saturdays, Sundays or Bank Holidays.”
How to reduce penalties?
As mentioned above, replying to an HMRC tax enquiry in a timely fashion is one way to reduce a penalty. The other ways are helping HMRC and giving any relevant and required documents.
How should you correspond with HMRC?
You may not be aware but you are HMRC’s customer and not taxpayer. The good news is as a customer you are due a level of Customer Service.
HMRC have a Charter. This sets out how HMRC should behave towards you and how you should behave towards them.
If HMRC are not abiding by their Charter it is important to remind them of this. However you should ensure you are also following the Charter when responding.
Should I give HMRC everything they are requesting?
Often the short answer is “not always”! Some HMRC advisers love to fish! We often see officers asking for information which is not relevant to the enquiry in question. This may be because they want more information than they are entitled to, which can then lead to further enquiries. This usually happens if they are struggling to find any errors in the original documents/information and are searching for another avenue. HMRC can be told this. You can also request that they justify why they believe it to be relevant to the enquiry.
You said by providing information I can reduce a penalty so why shouldn’t I give HMRC everything they ask for?
The simple answer is that just because HMRC ask for it doesn’t mean they need or are entitled to it. Providing information that is not needed can extend the time of an enquiry as HMRC may ask further questions which are not relevant. If you provide something that falls outside of the year of enquiry for example, HMRC may enquire into that tax year in addition.
What happens if I do not have time to reply by the deadline HMRC have imposed?
It is always important to communicate with HMRC and if you are going away on holiday, are struggling to get the information (like replacement bank account statements) or have personal circumstances, you should let them know and provide a realistic date you can supply them with the information in the shortest time possible.
Communication is therefore key.
I have actually done something wrong what will happen to me?
Firstly do not worry. The vast majority of people who have not declared something or have made an error have not purposely done this. The most likely action will be that you have to pay the tax you owe, a penalty and some interest.
If you have not declared something, it is best to come clean and provide detailed calculations in the first response. This shows the HMRC officer that you are trying to put things right which in turn will limit any penalty imposed.
I completed a tax return incorrectly and have a penalty, do I need to pay it?
The answer is potentially not! If you can be SMART about it you may be able to get the penalty suspended so that you never have to pay it.
HMRC won’t necessarily tell you this, it is up to you to request the suspension.
Why use us?
We are experienced in HMRC enquiries and those who we have helped have been happy with the service and assistance provided. Our team are here to ensure that you pay the right amount of tax and minimise the penalties HMRC may seek to impose.
We have no interest in helping anyone who will deliberately evade HMRC enquiries by providing false or misleading information. We have a reputation to uphold with HMRC and if you are not willing to share the information with us we cannot assist you, as it is not only a moral decision, we have to abide by professional bodies’ code of conduct Professional Conduct in Relation to Taxation (PCRT) | ACCA Global Professional conduct in relation to taxation (PCRT) | Tax | ICAEW
Contact us
If you have received or are worried about receiving an HMRC tax enquiry letter please contact us and a member of our team will be happy to give you tax advice.
