What Sort Of UK Tax Investigations Are There?
From status enquiries to criminal prosecutions ...
POSTED BY JONATHAN VOWLES ON 15/12/2015 @ 8:00AM
I have been through a variety of UK tax investigations on behalf of our clients and tax investigations come in various flavours and severity. Some are long and drawn out and others are over quite quickly ...
UK Tax Investigations vary from simple status enquiries to full blown criminal prosecutions!
copyright : andriy popov / 123rf stock photo
But the thing to remember, is that the taxman can't be fooled for long. If they believe you're not being completely honest with them, then they'll start an investigation against you and that can result in fines, repossessions, bankruptcy and even prison terms for the worst offenders.
A tax return aspect enquiry
Generally these are simple, short and directed and are a result of missing something off of a tax return. For example, some bank interest or some rental income. However, I have also had several Capital Gains Tax aspect enquiries that were quite involved.
A VAT enquiry
There are two sorts of these. A routine "we are just checking because it's your turn". You can expect one every 10 years and they will check a sample of items across a span of the past 4 years. The other type of investigation is because something has triggered a risk profile indicator and they are looking for specific answers.
A PAYE or payroll enquiry
These are normally triggered by risk indicators, although some are routine audits on bigger businesses to check their systems and processes.
A full tax return enquiry
These are the averagely nasty ones! HMRC ask for nearly everything to be checked. Not only are these are the most common, but also they represent hassle, cost and grief for the client and accountant.
Generally, these are conducted by the HMRC regional office that you deal with, though some come from external information and most from risk triggers.
An investigation driven by the Specialist Investigation Department
As the name suggests the specialist investigation team are bad news - mainly because it means you are suspected of criminality and fraud and might receive rather more than just a bureaucratic rap on the knuckles. I do get involved in this sort of investigation but only on the fringes as I use a specialist to do the real work!
This type of investigation is routinely conducted under criminal evidence rules and can often lead to prosecution. There are fewer of this sort of investigation and they generally arise from external information provided to HMRC or from cross-referenced information from the HMRC connect database. Interestingly, in 2014 alone, 716 people were tried and convicted of tax fraud.
Enquiries concerning IR35 are a good example of a status enquiry. The core issue is whether an individual is employed or self-employed and I anticipate that this will be a growth area for 2016 and beyond!
An intriguing point to be aware of is that the taxman's Connect database system is apparently so huge that - to borrow a simile - it can be seen from space! Well, not really but it is a very important tax investigation tool for HMRC.
It makes links between individuals, businesses, bank accounts, purchases and, of course, their tax returns. This all means it can flag up when somebody who is apparently poor spends a lot of money and thus sparks a tax investigation.
Until next time ...
More about Jonathan Vowles ...
I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.
My eclectic interests in growing and developing business span a number of areas, which can be summarised as strategic business advice and tax saving advice.
I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.
I relax by reading fiction and by getting away from the office in a campervan.