Facing A Tax Enquiry?
If you have to complete a self-assessment tax return then HMRC may open an investigation into the entries on your return
. Not everyone is investigated and you may in fact never be chosen. But some are picked more than once and we have known clients who have had an enquiry into their tax return five times in twelve years. Why should that be?For the client mentioned above it was because their affairs were dealt with by a team dedicated to higher earning taxpayers. The nature of their income meant that HMRC are always more likely to review their tax return. But this applies only to a small minority of taxpayers, who are more likely than normal to be professionally represented.
Others are the subject of an enquiry purely as the result of random selection. A certain number of tax returns are chosen for investigation in this way each year. So, don't panic if the buff envelope drops through your door this year. You may not have done anything wrong at all. If you answer carefully and truthfully the questions you are asked, then all should be well.
We do, however, see many cases where the enquiry is because of an obvious mistake or incompleteness on the return. For example, you may have entered your employment income and tax paid as recorded on your P60 but omitted to include the information on your P11D Statement of Benefits. It doesn't help that you often receive the latter a month after the former so it's easy to complete the tax return with incomplete information without realizing that you have done so.
Another common reason for an enquiry is from entering self-employed income in a way that, though it may show a correct profit figure, simply looks odd. So, a profit of 30,000 from a turnover of 70,000 with 25,000 of expenses put in the 'Other' box begs the question of what these expenses relate to. A little further consideration could have avoided this by breaking down the relevant expenses into more suitable categories.
Whatever the reason there might be for an enquiry, there are a number of key things you must always do. Firstly, stay calm. Don't assume you have made a grave error as there may be nothing wrong at all. Second, read the letter carefully to see what the issue is. It may be simply a request for a simple piece of documentation such as a pension certificate which you can copy and send off. If it is a more complex request then make sure you understand the key points and respond to them one by one.
You clearly need to use your common sense and, possibly, the services of a professional tax advisor. You would expect me to say that, but it is true that the best way to ensure the minimum of difficulties with HMRC is to use a professional. A professional tax advisor will provide you with three things. Firstly, they bring the technical expertise to deal with the issue in contention. Secondly, they are experienced in dealing with HMRC every day. Finally, they will deal with the inspector in a professional way, acting in your best interests but without the emotion that clouds us when dealing with our own financial affairs.
But whether you do it yourself or use a professional you need to remember to read the letter carefully, reply promptly (even if you can only supply part of the information requested at that point), and try to be measured in your approach rather than emotional. These days HMRC can levy a fine according to the level of your cooperation with them in addition to whether you have been negligent, so do your best to remain polite and helpful throughout, even when you disagree strongly!
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