Receiving a tax investigation enquiry letter from HMRC can be an unnerving experience. Whilst many are still issued based on random allocation (much like an unpleasant version of the lottery!), being the recipient can still feel like you are being targeted in some way.
While no one enjoys being under scrutiny by HMRC, there are smart ways to handle an enquiry and ensure the process is as smooth as possible.
In this week’s Tax Tuesday, we provide some tips to help you navigate this situation.
1. Verify the validity of HMRC’s Letter
When the letter arrives, the first thing to check is whether the enquiry has been validly raised and falls within HMRC’s statutory time limits. HMRC has 12 months from the date you filed your tax return to open an enquiry. If HMRC misses these time limits, they typically cannot open an enquiry into your tax return.
2. Prevention is better than cure
The easiest way to manage an enquiry is to ensure your tax affairs are well-organised from the start. If you have been diligent with your tax filings, work with qualified accountants, and maintain honesty in your financial dealings, you will approach any enquiry with greater confidence. Always keep clear, detailed records to back up entries in your tax returns. Well-organised tax affairs often result in quicker, more efficient resolutions when HMRC does ask questions.
3. HMRC’s information sources are extensive
Don’t underestimate HMRC’s access to information. From online data to international tax agreements, HMRC has more resource at its disposal than ever. If you have undeclared assets or income, especially overseas, they may uncover discrepancies. Keeping your tax affairs transparent will reduce the risk of surprises during an enquiry.
4. Consider a meeting with HMRC
A lot of communication with HMRC will be via post, email and telephone, however, sometimes, a face-to-face meeting is the best way to resolve issues, especially if the enquiry is dragging on or there are multiple points to address. If you opt for this route, ensure you and your tax advisor or accountant prepare thoroughly. Stick to the agenda provided by HMRC and avoid unnecessary conversation that could expand the scope of the enquiry. Afterward, review the meeting notes carefully and address any discrepancies.
5. Maintain professionalism
It’s essential to stay courteous, polite, and professional when interacting with HMRC. While you don’t need to agree with everything they say, a respectful attitude can help build goodwill and make the process less contentious. HMRC inspectors are more likely to be reasonable if treated with respect.
6. Penalties and suspension options
If HMRC finds additional tax due, penalties may be applied. These are based on taxpayer behaviour, ranging from 0% to 100% of the unpaid tax. If the error was due to carelessness, penalties may be suspended, provided you meet compliance obligations over a set period. If so, the penalties could be waived entirely.
7. Know your rights: codes of conduct
Two key documents should be kept in mind during an enquiry:
- The HMRC Litigation and Settlement Strategy: This outlines HMRC’s approach to resolving disputes.
- The HMRC Charter: This details the standards taxpayers can expect from HMRC
If you feel the enquiry is not being handled according to these guidelines, don’t hesitate to refer to these documents.
How can we help?
While receiving an enquiry letter is never fun, being prepared and professional can significantly improve your experience. Make sure your tax affairs are in order, keep accurate records, and seek guidance from your accountant. As accountants, we have extensive experience of dealing with HMRC and can assist with keeping communication effective.
At Harold Sharp we also offer our clients tax investigation fee protection insurance to cover the cost of the fees associated with HMRC’s investigations. If you are a Harold Sharp client and have not yet taken out or renewed your fee protection cover, please speak to your relationship principal or email tax@haroldsharp.co.uk for more information.