If you have received a tax investigation letter from the HMRC don’t panic. Read the letter carefully and seek professional help in areas where you are unsure.
What triggers a tax investigation from the HMRC?
The HMRC do not disclose what has triggered a tax investigation. However, sometime the cause is obvious like an omission picked up by the HMRC. The HMRC also can conduct investigations at random or target a specific industry or location that is identified as high-risk for tax fraud. Another investigation trigger for the HMRC can be drastic fluctuations in your income, or continuous late-filing of your tax returns.
How long does a HMRC tax investigation take?
There is not set time period for a tax investigation. A tax investigation can range from a couple of days to an indefinite amount of months. It is not possible to appeal against an investigation once it has been opened.
During a tax investigation will you may have to provide a range of information to the HMRC, depending on what they are investigating. Generally, you are sent a letter that will list all the information they require- you should be prepared to supply the information that was used towards forming your tax return quickly and easily.
The HMRC are also able to obtain information from third parties and can issue determinations if there is no co-operation.
If you discover you have made an error or omission you can report it to the HMRC as a voluntary disclosure. As long as it is not purposeful the HMRC are likely to accept the mistake.
There are a number of penalties that can be levied by the HMRC, depending on whether the omission was reported voluntarily or not, the circumstances of the omission and the quantum of the omission.
Penalties are calculated according to a published scale, which considers the behaviour of the taxpayer. The penalty is therefore much higher if the failure to disclose is deliberate.