Ten tips if under tax investigation

If you are under tax investigation by HMRC, consider these tips:

  1. Stay calm: most tax investigations can be carefully managed to resolution and very few result in criminal prosecution.

  2. Be discreet before and after:

    There may be many reasons to be discreet including:

    • Some tax investigations start from information passed by informers. The informers are often people that know about a person’s affairs.

    • We all know that there is a mate in the pub that knows lots about tax although they are not normally the most qualified to help.

    • If you resolve the issues successfully, it might be more prudent to keep it confidential.

  3. Collate information:

    • All the potential areas where you believe a tax irregularity may have arisen

    • Details of any tax scheme or planning implemented including copy documents and advice provided

    • Assets and liabilities

    • All UK and offshore bank account details

    • Details of any offshore companies or trusts you may have established either directly or indirectly

  4. Preserve information: don’t attempt to destroy or hide documents. Most transactions can be forensically pieced together by either HMRC or an experienced specialist. Not being able to provide information could indicate a lack of cooperation and result in higher penalties or a desire to proceed to criminal prosecution.

  5. Select a specialist tax investigations adviser: HMRC investigations often involve complicated areas of law and require an experienced adviser to successfully conclude. Your adviser should be competent in the areas of tax law required to defend you, for example the more specific areas include anti avoidance legislation, information powers, interest and penalties. Your adviser should also be aware of how HMRC undertake investigations as well as operate with disclosures. Maybe most importantly, you should be comfortable that you have faith in your adviser to present and defend your situation thoroughly.

  6. Prepare to make a full disclosure: you should tell your specialist tax investigations adviser the full facts. You will need to build a trusting relationship with your adviser although if they know the facts, they will be able to:

    • Represent you better

    • Prepare you better for meetings and the eventual outcome

    • Manage and present your disclosure to HMRC

  7. Prepare for meetings: it may be appropriate for you to meet with HMRC. It is often a daunting prospect although with the correct preparation, such meetings can assist to accelerating a resolution and mitigating penalties. Your specialist tax investigations adviser should be able to:

    • Hold mock meetings with you to help you prepare

    • Make you feel more at ease

    • Preempt questions

    • Prepare you for answering questions in a favourable manner

    • Manage any difficult or unexpected situations

  8. Treat HMRC with respect: The departments handling tax investigations have exceptionally good resources and skills to:

    • Identify tax irregularities

    • Obtain information from lots of sources

    • Forensically piece together transactions

    • Technically support their position or challenge yours. HMRC have vastly improved their technology systems allowing them to identify tax irregularities quicker, start tax investigations quicker and expand investigations to others undertaking similar transactions, planning or schemes.

  9. Make suitable payments on account: making suitable payments on account will show cooperation as well as reduce any interest that falls due. The difficulty will be determining the amount to pay, which will require the following considerations:

    • What amount of tax is or may be due?

    • Is some of the potential tax liability subject to technical arguments?

    • What is your or the businesses’ ability to pay?

    • How liquid are assets?

    • Would payments on account cause significant financial hardship or result in a business becoming insolvent?

  10. Keep a good future track record: during the period you are under tax investigation as well as after, you should take exceptional care not to undertake any aggressive tax planning (or any tax fraud). It would be prudent to question any ideas presented to you to save tax even if they appear legitimate. HMRC may consider reviewing your tax affairs again, especially if you are regarded as a serial offender. If HMRC were to identify you had “reoffended” they may be more harsh the second time around.

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