HMRC conducted 337,000 tax enquiries last year*, showing just how many UK taxpayers it suspects of underpaying tax, state PfP, tax investigation insurance experts
Although HMRC temporarily paused launching any new investigations following the coronavirus outbreak, it did not stop all its investigatory work.
Tax enquiries can involve HMRC demanding data, visiting business premises and even interviewing company directors. A failure to comply with tax enquiries, for example by choosing to ignore data requests, can result in a fine. There may be several stages involved in these enquires which can last for several years.
PfP says an enquiry can be prompted by something as simple as a mistake being made on a tax return. If HMRC finds any evidence of tax evasion during its enquiry then it will likely launch a full-blown investigation which will look into a taxpayer’s affairs more broadly, such as tax returns from previous years.
PfP adds, prior to an enquiry, HMRC will likely have already collected some information on a taxpayer. HMRC often uses ‘open source’ material available on the internet such as social media platforms (where privacy settings have not been turned on), blogs, websites and Companies House records.
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If HMRC finds a taxpayer has underpaid when conducting an enquiry, then it may take the view that this could have happened in previous tax years and open investigation into those prior years. In cases where fraudulent activity is suspected to have taken place, HMRC can review a taxpayer’s affairs from up to 20 years ago.
Following an enquiry into a taxpayer, a final notice is issued. This notice will set out any extra tax that is owed, impose a penalty or outline HMRC’s next action, such as a full investigation.
Payment of additional tax owed must typically be paid within 30 days, along with any interest from the date the tax was originally due. Penalties can also be issued on top of this and can be up to 100% of the amount of tax owed.
Kevin Igoe, Managing Director at PfP, says: “With so many tax enquiries being completed, we can assume HMRC has plenty that it will turn into full blown investigations now that lockdown is ending.”
“The highest number of enquiries completed in the last year took place between January and the end of March (105,000 tax enquiries Q1 2020), as the coronavirus crisis started to take hold. However, HMRC has since reallocated a large amount of its compliance resources to focus on administering Covid-19 schemes, such as the furlough scheme. This means taxpayers now have some breathing space to review their affairs and correct any mistakes.”
“These enquires may seem fairly innocuous in some cases – starting with a data request or a phone call. However, taxpayers need to know that if HMRC is conducting a check then it already has them on a list of targets and is looking for evidence to confirm its suspicions.”