What exactly is the purpose of an HMRC investigation?
This may seem like a very straight forward question to answer. After all we should all have a basic understanding of the words tax and investigation.
In fact, there is no standard definition. Investigative contact made by HMRC comes in many forms; some are wholly more serious than others.
Here we will attempt to cut through the technical jargon and give you the no nonsense, practical tax investigation advice that you need.
Our stab at a definition
A tax investigation is an enquiry launched by HMRC into the affairs of a UK individual, business or other entity.
It can cover the range of taxes which come under HMRC jurisdiction – for example income tax, corporation tax, capital gains tax, tax credits and VAT.
HMRC investigation proceedings generally commence when the Inspector has concerns regarding information that has been supplied to them – information that leads to a potential tax loss.
An HMRC investigation can also begin the department identify a UK resident who is operating in the hidden economy. In other words, an individual or business that is not in the tax system.
Less than 10% of investigations begin randomly. So if you receive a tax investigation letter from HMRC you can be reasonably sure that they feel you have underpaid tax.
UK tax investigations come in many forms:
Code of Practice 9 – A procedure that HMRC use to investigate cases of suspected serious tax fraud.
HMRC Special Investigations – A serious fraud investigation conducted under Code of Practice 9 where the perceived tax at risk is at least £500,000.
Civil Investigation of Fraud (C.I.F) – A serious fraud investigation conducted under Code of Practice 9 where the perceived tax at risk is at least £75,000.
Check of Self Assessment Tax Return – An HMRC compliance check focusing on one or more elements of your self assessment return.
VAT Investigation – A tax investigation focusing on indirect taxes or Value Added Tax.
Tax Credit Investigations – An investigation focusing on your tax credits award.
There are many avenues available to you prior to an HMRC intervention. For example if you have concerns regarding unpaid taxes you should consider making a voluntary disclosure. Adopting this path will see you receive favourable settlement terms from HMRC.
The department now also publicise industry specific, targeted amnesties. These are otherwise known as HMRC campaigns. Again this presents those with worries regarding their UK tax affairs the opportunity to come forward of their own volition in return for very generous settlement terms.