The tax man cometh

We have had some recent successes with dealing with HMRC enquiries on behalf of our clients. These have included enquiries relating to tax returns, an IR35 review, a special relief claim and others. Although we have achieved good outcomes, the enquiries have been stressful for our clients and the Revenue have taken quite a tough line in some instances.

So it is good to be prepared if HMRC knocks on your door (metaphorically speaking, normally they would send a letter) to limit the risk of any nasty surprises.

The first and most obvious thing you can do to reduce the risk of an enquiry (or HMRC finding something wrong in an enquiry) is keep good records and take care to work within HMRC guidelines. Another sensible precaution is to take out tax investigation insurance. This will cover the professional costs associated with dealing with an enquiry. Enquiries can often be protracted and knowing that most of your accountancy fees are covered can at least reduce some of the stress and worry. Most accountants offer this insurance as part of their service and for a few pounds a week I think it is a sensible thing to have.

If you are unlucky enough to be singled out for an enquiry, in most cases it would be advisable to work with your accountant to respond to HMRC and follow the enquiry through to a conclusion. Our approach as a practice is to be transparent and open and deal promptly with any requests for information from HMRC. Of course, if we disagree with decisions made by HMRC we will challenge these and follow the appeals process until the best outcome is achieved.

A recent report in the Daily Telegraph disclosed that thousands of people successfully fought the tax office last year after beings chased for money. The disputes were settled by the Tax Adjuducator, a little-known body that arbitrates between HMRC and individuals. In a staggering 9 out of 10 cases, the adjudicator found in favour of the individuals.

Most of the cases related to surprise tax bills, often due to incorrect PAYE codes. In these circumstances the Revenue needs to act fairly and is permitted to write off the debts under 'extra statutory concessions' if 3 conditions are met:

- Did HMRC make 'proper and timely' use of information provided to it?

- Could the taxpayer 'reasonably have believed their affairs were in order'?

- Was notification sent with 12 months of the end of the tax year in question?

So the first step if you believe you are being asked to pay unexpected arrears of tax unfairly maybe to ask your local tax office to apply the Extra Statutory Concession (ESC A19). If it refuses you can then file a complaint and ultimately after exhausting all other avenues, the next step would be to refer the case to the adjudicator.

If the tax man selects you for enquiry it is undoubtedly a cause of anxiety and stress. With help from your accountant and a dogged approach you can come out the other side with a good result. Remember to reduce your risks in the first place with accurate and timely record keeping and taking out insurance to cover your professional fees.

www.base52.co.uk