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Keeping the taxman off your back
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Tax dodgers are being targeted as never before. What can you do to ensure you avoid the eagle eye of HM Revenue and Customs?
Words: Stephen Besford
Over the past few years, HM Revenue and Customs (HMRC) has made a determined effort to clamp down on tax avoidance.
Several sectors of the economy have been targeted for investigation; an evasion hotline has been set up: offshore disclosure programmes are ongoing; HMRC was given new powers; and its compliance and investigation teams have been strengthened.
However, HMRC carries out very few random investigations, so if you keep your tax affairs in order, it is unlikely you or your business will have to undergo a tax investigation — which can be both time-consuming and expensive.
Here are some key tips for staying out of the taxman's way. First, you need to maintain accounting and record-keeping systems that are adequate for the size and complexity of your business, and that will produce accurate figures for accounts and tax return purposes. Senior accounting officers of large firms are now responsible for making sure this is carried out.
Second, ensure that you never miss any tax return submission deadlines — this not only attracts attention and increases the risk of investigation, but also gives HMRC a longer period in which to launch an inquiry If you do need to disclose additional details of any transactions in a tax return, make sure the disclosure is extensive enough to prevent HMRC making a later 'discovery assessment: This will require professional advice.
Surviving an investigation
An investigation normally begins with the receipt of a letter from the HMRC, stating it intends to look into a recently submitted tax return. HMRC will probably enclose a 'Code of Practice' booklet.
If you think an investigation is heading your way, follow this step-by-step survival guide: • Keep calm and don't panic.
• Appoint a professional adviser to deal with all aspects of the investigation. If you have to pay — insurance is available — an adviser may initially appear expensive, but they may be able to reduce your tax bill, negotiate suspension of a penalty. or, in a worst-case scenario, keep you out of prison. They will know whether or not an excuse for non-payment of tax is reasonable.An adviser can also minimise your personal involvement in the procedural aspects of the investigation.
• Experienced advisers know how the HMRC operates. You should agree a strategy and decide what a reasonable settlement might be — this may change during the course of the investigation, but your adviser will know what is likely to be acceptable to the HMRC.
First off, an adviser can initially meet HMRC to assess the seriousness of a case, and ascertain what the HMRC has in mind. For example, a 'Code 9 investigation' means you are under investigation for fraud.
• Don't discuss your tax affairs with anyone but a tight circle of professional advisers. HMRC receives 'whistle
blowing' calls from a range of informants, including disgruntled family members, former spouses or friends, jealous neighbours, former employees and competitors.
• Don't lie to the HMRC. If it finds out that you have been untruthful, the consequences can and will he serious, and it can increase the likelihood of you receiving a prison sentence.
• Don't assume that the HMRC is ignorant. It receives information from a variety of sources, including other government agencies, surveillance operations and international exchanges of information.
In addition, HMRC has also recently gained access to the offshore accounts operated by most UK-based banks.
• Prepare well for any meetings. Get records of income and expenditure in order, with supporting evidence, Make sure your adviser
thoroughly briefs you on what to expect and how to respond. In addition, only answer the questions you are asked. If you don't know the answers to any questions, don't guess. Make relevant payments on account of any anticipated extra tax liability.
HMRC sees this as an important sign of a willingness to co-operate, which will help to mitigate any penalty that might be levied.
Don't try to destroy any documents or other evidence. This will attract the highest level of penalties for 'deliberate and concealed inaccuracies'.
• Don't be tempted to suffer from 'selective amnesia' when disclosing information in an investigation.
Some people think they can get away with disclosing only part of their undeclared income or gains, but HMRC has a duty to check everything anyway, and it is likely to look into the matters that you omit to tell it about.
• Once you have reached a settlement, don't offend again. In particular, if HMRC agrees to suspend a penalty, make sure you adhere to the conditions of the suspension. •