Nearly 50% of all HMRC Investigations dropped…

Recent research has shown that 47% of HMRC investigations into individuals and small businesses in the last year yielded no return. There was no extra tax paid, and no evidence of any underpayments. In the year before this figure was 31%. In 2019/20 two thirds of investigations generated additional tax.

Given the stress and worry that investigations can cause, there surely should be a higher return?

HMRC’s Connect system was introduced to make HMRC’s task of collecting unpaid tax easier. The system functionality includes risk profiling individual taxpayers and businesses, but the low success rate suggests this simply isn’t working.

A Partner at the firm that announced the findings said ‘HMRC has a strong track record in collecting money from additional compliance checks, raising £13.6bn last year. But as it aims to close the tax gap, too many people are getting caught in its net. Taxpayers need reassurance that there is a valid reason for an investigation to be opened into their affairs and that time and stress isn’t wasted on cases that will yield no results.’

We wholeheartedly agree!

Over many years we’ve seen business owners spend too much time and become so worn down by HMRC that they considered settling an investigation to make it go away, when they knew they’d done nothing wrong. It’s the reason we include our Fee Protection scheme as part of our standard fees.

HMRC have always carried out a number of random investigations to supplement the Connect recommendations, but 47% is a far higher number than these should be generating.

HMRC may be struggling to find the cases that will generate additional tax, but has a good success rate if it goes to court over tax matters. Their success rate for tax disputes in courts and tribunals was 86% in the past year, 82% the previous year and 75% in the year before that.

Many of these investigations can start with seemingly innocent questions from HMRC, which can come in a variety of formats. Our advice would always be to check with us before making any reply. Be particularly careful if HMRC wish to visit your premises to look at one particular area of the business, such as VAT. Many of their agents are cross-trained now, so may well ask questions on a separate area.

It’s very easy to be prepared about VAT, and be flummoxed by a question around Corporation Tax! Should such a question arise, we’d recommend your stance to be that you’ll find out and respond after the event. Give yourself time to think, and the time to call your accountant to check where the question may be heading!

We’re happy to handle any communications with HMRC on your behalf, if we’re able to do so. We’ve often found that our involvement leads to a swift conclusion. You’d much prefer to be in the 47% of cases that are closed without any further action, and we may be able to help you get that result sooner!

As ever, if you have any concerns about any contact from HMRC, or about your tax liability, please get in touch.