During the coronavirus crisis, HMRC paused tax investigations.

However, these investigations have been restarted, with special attention being directed towards the misuse of coronavirus support schemes.

You can read all about these change in our latest blog below.

Alternatively, you can download the full guide here.

On the 29 May, HMRC reported that 1,868 people had reported employers for fraudulently claiming money through the Coronavirus Job Retention Scheme.

An amendment to the 2020 Finance Bill will allow HMRC to recover money that had been incorrectly claimed.

Fraudulent claims will be identified when HMRC check whether staff appeared on real-time information reports before 19 March 2020.

Those that are self-employed and claimed support from the Government may be asked further questions surrounding their eligibility under the listed criteria.

If the claimant is found guilty, then they will suffer a 100% tax charge allowing HMRC to recover the amount claimed.

In cases where there have been deliberate false claims, those claimants will have 30 days to own up to it.

If you become a subject of an HMRC investigation, here’s what you need to know.

What triggers an investigation?

There are many reasons HMRC could launch an investigation into your operations.

For example, your business might be randomly selected, or you might operate in a sector that has come under scrutiny.

Most other reasons are due to a business’s accounting practices.

If you frequently file tax returns late, or there are major inconsistencies then HMRC are likely to investigate.

What will they investigate?

HMRC can and will look into any aspect of your tax affairs as they see fit.

This can include:

  • The tax you pay
  • Self-assessment tax return
  • Business accounts
  • Company tax return
  • PAYE records
  • VAT records

And, there are three main types of enquiry:

Random – carried out on any kind of business. Nothing to worry about, as long as you have been keeping the correct information.

Aspect – these are investigations where HMRC suspects an error. These are mostly straightforward mistakes, rather than someone deliberately trying to avoid tax.

Full – this occurs when HMRC suspect there is significant error. Here, they’ll take a really deep look into business and personal records.

What is the process of an investigation?

HMRC will contact you.

This will be either through the post or over the phone. They might even contact your accountant directly.

At this stage, it would be wise to admit to any wrongdoing that you might be aware of.

Those that cover up mistakes risk serious consequences, and HMRC appreciate honestly and might even be more lenient.

HMRC may ask to visit you, or you to visit them. It’s recommended that your accountant be present in either circumstance.

Investigations can take a long time if they are in-depth. However, minor issues are often resolved quickly.

To keep proceedings moving, you’ll get 30 days to reply to any notifications.

At the end, HMRC will explain what has gone wrong, and if you have underpaid will notify you of any payments.

How far back can an investigation go?

This depends on the type of tax that is being investigated, and how serious the error or wrongdoing is.

Where errors are seemingly innocently made, HRMC can go back four years.

However, if this is due to careless behaviour, most tax investigations can go back up to six years. VAT is capped at four years.

In instances of suspected deliberate tax evasion, HMRC can look at records that are 20 years old.

How are penalties calculated?

The level of penalty is based on what HMRC think has happened in terms of:

  • How deliberate the mistake is
  • Whether or not you notified HMRC
  • The length of time that has passed

If an error is made due to ‘lack of reasonable care’ then the penalty could be up to 30% of the extra tax due.

For deliberate errors, the penalty can be between 20% and 70% of the tax due.

If the error was both deliberate and concealed, meaning you have taken extra steps to hide it, then the penalty will be between 30% and 100% of the extra tax due.

How about deliberately underpaid tax/

If you are suspected of tax fraud, you’ll be offered the chance to own up to it through the contractual disclosure facility.

If you admit responsibility, this provides immunity from prosecution for tax offences – as long as you pay all of the outstanding tax bill. This is offered exclusively to individuals and not companies.

This will only apply if you’ve evaded tax through deliberate behaviour and not those who want to disclose accidental errors, so ensure that you fully understand what the contract entails before you use the service.

Alternatively, you can download the full guide here.

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Any questions?

If you’d like a meeting or a Skype call to discuss this, please get in touch with your favourite Liverpool accountant