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Avoiding the spotlight

15th September 2011
Page 23
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Page 23, 15th September 2011 — Avoiding the spotlight
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Which of the following most accurately describes the problem?

As the taxman becomes more energetic in targeting offenders, operators should adopt strategies that allay suspicion

Words: Jason Piper Tax investigations are bad news and a proportion of all the enquiries opened each year are made at random. However, ‘targeted interventions’ involve HM Revenue and Customs working its way through high-risk sectors, sending out specially trained inspectors to look at businesses thought to be the most likely offenders. You can make sure you’ll only ever be in the ‘random’ section by following some commonsense guidelines.

File on time

Late returns might be a good indication that you’re too disorganised to have kept proper records. HMRC might have a better chance of finding something amiss in a late tax return than in one that was submitted on time.

File accurately and completely

Avoid estimates – you shouldn’t need to use them at all, but if you do, explain why. Make sure that what you put into the tax return agrees with all the supporting records. Ask for assistance from your accountant – tax returns are long, complicated and change every year, so don’t just copy details from last year.

Keep all your records

This will help you answer HMRC’s questions quickly. Don’t throw away fuel receipts before their time. If a tax inspector asks for details of them and you can’t hand them over, you will be assessed and taxed accordingly. Apart from anything else, there are legal requirements to retain the information, although photocopies and scans are acceptable.

Assume the inspector is ignorant

Remember that the inspector probably doesn’t know your business, or possibly even very much about the sector as a whole, so avoid or explain any specialist terms.

Explain any unusual items

If you’ve been left money by a distant relative and used it to buy a new vehicle, say so. If you had a flood and lost weeks of work, make sure that the costs and any insurance proceeds are clearly identified in the return. Any inspector worth their salt will ask you where monies have come from or why your turnover has suddenly dipped compared to your competitors.

Consider using an accountant

Tax is complicated: if your affairs are complex, using a specialist will reduce the risk of errors creeping in. Further, they are more likely to identify deductions that you should be claiming, such as enhanced capital allowances. You might even be able to rely on having appointed them as a ‘reasonable excuse’ for some failings.

Remember though that you must be honest with your accountant. There’s nothing they’ll be able to do if you’ve held things back and HMRC find out – and it will destroy their trust in you. Many accountants might refuse to help out any further, and any good accountant will ask for ‘handover’ details from their predecessor, so you won’t be able to walk away from it.

If you believe you are a high-risk business, consider fee protection insurance. This covers costs associated with an HMRC investigation, such as accountants’ fees. There are several reputable providers around or your accountant might be able to recommend a provider. But, as always, do your research thoroughly: there’s no point paying for cover you don’t need, or worse, not getting what you thought you’d paid for.

Don’t ignore HMRC if they write to you

There may be penalties for any mistakes in your return that they do find, but they’re reduced for co-operation. On the other hand, if you ignore the first letter, HMRC may have to resort to formal information notices to get what they want and these will be framed for the Revenue’s convenience, not yours. If you don’t reply to formal notices, there can be daily penalties for the failure.

Don’t try to be too helpful

If you are being investigated, don’t be afraid to ask HMRC to put their questions in writing, and then answer those questions only – clearly and completely, but without any extra information. Very few tax inspectors have any real world experience of running a small business, and they may quite innocently get the wrong end of the stick, and start asking you huge numbers of questions to try to settle an issue that isn’t really there. You don’t have to agree to a face to face meeting, but if you do, you should get an agenda, have an adviser present and review HMRC’s notes of the meeting afterwards. Those notes will be part of HMRC’s evidence, so challenge any inaccuracies in writing. n l Jason Piper is a technical officer at the Association of Chartered Certified Accountants.


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