Now is the best time to make sure you are covered by our Tax Enquiry Protection Insurance against an HMRC Investigation. We’ve heard Chancellor Rishi Sunak state in his 2020 Budget that “The government is investing in additional compliance officers and new technology… enabling HMRC to further reduce the tax gap.” Likely with an uptick in tax investigation.
Following the outbreak of COVID-19 in the UK in March 2020. Plus the subsequent postponement of Making Tax Digital Phase Two, HMRC will expect full compliance from businesses, to reaccrue tax revenue, which was decimated by activity concentrated in April 2020, at the height of lockdown, which also triggered the largest ever recession in the UK.
Usually an HMRC investigation or Tax Enquiry is triggered when figures submitted on a tax return appear to be wrong in some way. However you could just as likely find your business the subject of an HMRC Investigation purely at random. When HMRC simply picks a selection of businesses completely at random to perform a tax enquiry on. Here we look at some of the most common outcomes and solutions of an HMRC investigation and examples of what protections your business could receive with our Tax Enquiry Protection Insurance.
Who Needs Tax Enquiry Protection?
An HMRC investigation is a worst nightmare for any small business or sole trader. It will eat up your valuable time, cause enormous stress and at worst, it could land you with an unwanted tax bill. Whatever happens, an HMRC investigation could cost you money even if you’ve done nothing wrong and anyone can be selected: a business, a director or an individual taxpayer.
At Prestige Business Management we can provide you with our Tax Enquiry Protection Service to protect you from the costs that may arise as a result of a VAT or Tax Enquiry from HMRC.
Everyone hopes that they won’t be subject to an HMRC investigation and with everything running smoothly, that should be unlikely. However as we investigate here, it pays to be protected. So here’s what you need to know.
What Triggers an HMRC Investigation?
An HMRC investigation or Tax Enquiry is usually triggered when HMRC believe there is cause to question the figures submitted on a tax return. For example for an SME to suddenly make a large claim for VAT, or a business with a large turnover declares a very small amount of tax, this type of activity that will likely be flagged-up by HMRC.
However our experience shows us that there are some other things to look out for, that may also trigger a tax enquiry. These could be:
- HMRC receives a tip-off
- You work in a high-risk industry, for example one that routinely takes cash payments
- You have a large fall in income, increase in costs or there are inconsistencies between different returns
- You file your returns consistently late
- Your costs are above the industry norm
- Your tax returns are inconsistent with your standard of living
- You are in a sector that HMRC has decided to target.
- Although, it is important to mention that investigations can be completely random
Types of HMRC Investigation
There are three different levels of tax enquiry known as full, aspect and random.
A full tax enquiry occurs when HMRC believes there is a significant risk of error in the tax return. In this type of tax enquiry, a review of all records will be undertaken. This can include personal financial records of Directors / Business Owners as well as business records.
During an aspect tax enquiry, an HMRC investigation will be conducted into a particular area of your accounts and more detail will be requested. This type of tax enquiry is usually the result of genuine mistake or misunderstanding, rather than a deliberate attempt at tax evasion. However his type of tax enquiry should be taken just as seriously as a full HMRC investigation, as there may still be consequences.
Lastly but possibly most importantly, you could find your business the subject of an HMRC Investigation purely at random. When HMRC simply picks a selection of businesses, completely at random, to perform a tax enquiry on. We could well expect to see an increase in this level of HMRC investigation.
Any business that becomes the subject of a tax enquiry will be obligated to provide the information requested by the HMRC investigation. What happens next depends on what HMRC finds. Some of the most common outcomes and solutions include:
In this instance, the taxpayer will receive a tax rebate with interest.
This outcome will result in the taxpayer being formally required to pay any tax owed within 30 days, possibly with interest added.
If an HMRC investigation concludes deliberate wrongdoing on the part of the taxpayer, then HMRC may escalate the case to criminal status which could result in paying a penalty.
The end of an investigation is officially marked by a decision notice or agreeing a contract settlement. A contract settlement is a legally binding agreement between HMRC and the taxpayer, whereby the taxpayer agrees to pay the money and HMRC agrees not to use its powers to recover the money. Thankfully once a return has been investigated, it cannot be investigated again.
What Business Taxes are Subject to HMRC Investigation?
All different types of business taxes can be investigated, not limited to income tax. Prestige Business Managements Tax Enquiry Protection Service will guide you through what is relevant to your business, however examples of taxation that can be investigated are as follows:
- Insurance premium tax
- Landfill tax
- Capital gains tax
- Climate change levy
- Construction industry scheme
- Corporation tax
How Likely is an HMRC Investigation?
We know that the roll out of MTD Phase 2 was postponed until April 2021 to allow businesses the breathing space to concentrate their limited resources and cash flow on surviving the COVID-19 crisis. However HMRC will expect full compliance from businesses, to reaccrue tax revenue which was decimated during the pandemic.
We can expect HMRC to come down hard on those that don’t comply. To enforce this we expect to see random HMRC investigations taking place across the board and shouldn’t expect any leniency that businesses may have ‘enjoyed’ during the outbreak, to continue post Covid-19.
The Association of Taxation Technicians states that the first wave of compliance letters regarding the Coronavirus Job Retention Scheme (CJRS) were issued last week as HMRC moved into the post transaction review phase of the scheme. The first batch of letters started to land on doormats from Wednesday 18 August.
HMRC investigation teams will be asking questions where they have concerns over the validity of claims. This could be because claims have been miscalculated, or claims were made for ineligible employees.
HMRC have said that they will be concentrating their compliance activity on those who have been abusing the system. They will be focusing on fraudulent claims and not cases where the employer has made an innocent error. We understand that HMRC will be sharing more details of its compliance approach in the coming weeks. Provided corrections are made in time, penalties can be avoided. HMRC have also produced a factsheet setting out the penalties for over-claiming under the scheme.
Protect Your Business with Compliant Software
One way to begin building your own tax enquiry protection is to ensure that you maintain your accounting records on a suitable software that allows you to make live submissions with HMRC. “Bridging software” will likely no longer be accepted after the soft landing period elapses. Increased numbers of HMRC investigation is one more armament in how her majesty’s government will manage the £300bn deficit. To read more about that click here.
At Prestige Business Management we take partnering with the right software and services very seriously. So we can offer you a complete and fast paced package of technologies and accounting. Talk to us to get unique offers and savings that we can access for you as official partners with the best platforms available.
For example Quickbooks Online is a world-leading accountancy software package that genuinely ‘works for you’. This platform can help you better manage your company’s finances, whatever your experience of accountancy. A huge plus point is that QuickBooks can help self-employed and limited companies stay compliant in relation to the latest HMRC rules and guidelines. This software can monitor your finances and highlight compliance within the customised reports section. We have an expert knowledge of the most streamlined and up to date software packages that will help your business maintain compliance.
Furthermore, according to Accountancy Daily the government has announced £20m of funding to help smaller businesses to recover from the Covid-19 pandemic, including grants for accountancy advice.
Small and medium sized businesses will have access to grants of between £1,000 – £5,000 to help them access new technology and other equipment in order to continue to deliver business activity or diversify.
The grants can also be used to businesses access specialist professional advice such as HR, accountants, legal, financial, IT and digital expertise to help them get back on track. Activities supported through the £20m can include one-to-many events providing guidance to respond to coronavirus. The nature and value of grants awarded will be tailored to local circumstances, and will typically be up to £3,000. Under certain circumstances, and on a case-by-case basis, grants of up to £5,000 may be awarded. The funding is being provided to address immediate needs and all grants must be awarded by 28 February 2021 and all activity fully completed by 31 March 2021.
We expect to hear more about the road map of HMRC investigation in the Autumn, whereby the Chancellor has said there will be a “fiscal event”, responding to reports that the planned Budget will be abandoned in fear of a second wave of the pandemic triggering further economic uncertainty. He added that there would not be a return to austerity – but acknowledged that public spending had taken a huge hit and there would be difficult choices ahead.
Protect Yourself from the Cost of an HMRC Investigation
At Prestige Business Management we can provide you with a Tax Enquiry Protection Service to protect you from the costs that may arise as a result of a VAT or Tax Enquiry from HMRC.
The Tax Enquiry Protection we can provide is an all-embracing Policy that provides you with the ultimate protection.
The service covers up to the equivalent of £100,000 towards our professional fees resulting from an HMRC Enquiry.
Any compliance check started by HMRC regarding your compliance with:
- Income Tax and/or Corporation Tax Self-Assessment
- National Insurance
- Construction Industry
- National Minimum Wage or Gift Aid Legislation and Regulations and;
- Any consequent dispute with HMRC after the issue of an assessment, computation of liabilities, written decision, notice of VAT civil penalty or notice of underpayment of the National Minimum Wage.
- Inheritance Tax enquiries
- Child Tax Credit enquiries
- A compliance check carried out under HMRC Code of Practice 8 (provided fraud is disproved)
Peace of Mind
Included as part of our Tax Enquiry Protection Service is comprehensive access to the Employment Law, Health and Safety and HR expertise, all at no cost to you.
You’ll gain valuable access to highly experienced consultants who can provide you with their guidance and knowledge on a wide variety of subjects and issues.
Prestige Business Management is supported by Croner Taxwise Limited – the market leading Tax Investigation Insurance provider in the UK.
At Prestige Business Management we can help your Business
At Prestige Business Management we can help your business understand the best solutions for the long-term protection and success of your business.
To activate your Tax Enquiry Protection, call us today on 0203 773 2927.