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Facing An HMRC Investigation

14th April 2017 Karl Pocock, Birketts

HMRC have, over the past six years, significantly increased their scrutiny of the tax affairs of both individuals and businesses.  Here are a number of points to keep in mind...

Check the date of HMRC's enquiry letter

  • HMRC is normally only permitted to enquire into a tax return within 12 months from its filing date. 
  • If the letter falls outside this 12 month period the enquiry may not be valid and professional advice should be sought.
  • If the enquiry letter is within the time limit, you should then focus on what information is requested. 
  • If HMRC’s request for information is unclear, you are permitted to ask for clarification.

What information can HMRC request?

  • HMRC’s letter must be specific about the information it is requesting and usually outlines the focus of the enquiry. 
  • HMRC cannot engage in a “fishing expedition” and you do not have to provide information that you do not possess. 
  • It is possible to challenge a demand for information if it includes information, which is either outside the scope of the enquiry or otherwise unreasonable or disproportionate. 

How can I appeal against a demand for information?

  • HMRC’s enquiry will often begin with an “informal” request for information. However, if the information has not been fully provided, HMRC will usually issue a formal statutory notice demanding that the “missing” information is provided by a certain date. 
  • If you disagree with the terms of the statutory notice, you must appeal to HMRC, within 30 days of its date of issue, to avoid HMRC charging you penalties for failing to provide the requested information. 
  • An initial appeal must be in writing, providing detailed grounds or reasons for your appeal, to the HMRC officer who initiated the enquiry and the statutory notice. You would, usually, ask that an independent HMRC officer considers your appeal and reviews the original HMRC officer’s decision. 
  • If the reviewing officer agrees with you, the statutory notice is cancelled and you will not have to provide the information demanded in the notice. 
  • However, the enquiry can continue and further information can be requested provided that the HMRC officer believes that it is relevant to the enquiry and was not covered by the specific demands for information in the statutory notice.
  • If the reviewing officer agrees with the original decision, you will have to provide the information requested in the statutory notice unless you decide to “notify" your appeal against the notice to the (independent) First–tier Tax Tribunal. The Tribunal would then, following a full hearing, decide whether or not HMRC was justified in issuing its statutory notice for information.

What if HMRC’s enquiry drags on?

  • It is possible to challenge HMRC’s decision to (unreasonably) prolong an enquiry, by making an application to the Tax Tribunal for a direction ordering the closure of HMRC’s enquiry within a specified period. 
  • While this may not appear to be a particularly complex procedure, a taxpayer is recommended to seek professional advice from a specialist tax practitioner (with experience of tax litigation against HMRC at the Tax Tribunal) before embarking on this route. 

About the Author - Birketts’ Tax Team has a wealth of experience in successfully dealing with HMRC disputes whether this involves negotiating with HMRC or appealing an HMRC decision.  The content of this article is for general information only.  For further information contact Karl Pocock, Senior Associate and Head of Corporate Tax either by email on karl-pocock@birketts.co.uk or by phone on 01603 756544.

 

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