The Tax Investigation Process

When a tax investigation begins the questions on many lips are broadly the same in our experience.

The most popular questions that we are asked during an opening consultation are as follows:

1) How serious is my tax investigation?
2) Will I go to prison for tax offences?
3) How will HMRC deal with me during the tax investigation process?
4) How long will my tax investigation take to finalise?

In this article we try and clear up some common misconceptions and cut through some of the technical jargon HMRC use during the tax investigation process.

1) How serious is my tax investigation?

Firstly you need to read the opening notice very carefully. This will detail the investigative procedure that HMRC propose to utilise during their enquiries into your affairs. This is often referred to as a Code of Practice.

The opening HMRC letter will always include the relevant Code of Practice leaflet, which will give you detailed guidance on your rights and obligations.

The Code’s of Practice used by HMRC are:

Code of Practice 8 – Used in cases of suspected tax avoidance.

Code of Practice 9 – Used in cases of suspected serious tax fraud.

Code of Practice 11 – Used during local compliance checks of self assessment tax returns.

Code of Practice 26 – Used to investigate cases of overpaid tax credits

2) Will I go to prison for tax offences?

Criminal prosecutions are extremely rare and always reserved for the most serious cases of tax fraud. HMRC prosecute approximately 1000 taxpayers each year, which puts matters into some perspective. That said you should always cooperate fully during a civil investigation to prevent unnecessary escalation.

3) How will HMRC deal with me during the tax investigation process?

You should read the relevant Code of Practice and accompanying notes regarding your human rights very carefully. This will give you detailed information on your rights and obligations. However, there will always be additional factors to consider such as the personality of the investigator conducting case.

4) How long will my tax investigation take to finalise?

This is probably the biggest and most important question of all. Regrettably there is no defined term. The duration of your investigation will largely be determined by the level of complexity and naturally the extent of HMRC’s concerns. A straight forward compliance check focusing on one element of tax return can be settled within as little as 30 days. Full blown HMRC investigations or those cases involving suspected serious fraud are rarely settled quickly. In such circumstances you should expect your case to run for at least 6 months.

Making Certain to Survive a Tax Investigation

If you find yourself in a situation of being investigated by the HMRC for issues relating to a tax return you will likely find this to be difficult and stressful. But rather than panicking you should careful consider the action that can be taken to help with resolving the issues as soon as possible. Here are several steps that can be taken to help with surviving a tax investigation:

Try to stay calm and don’t panic

In the situation of receiving a letter from the HMRC tax investigation department you don’t want to do anything rash or panic. Avoid making any knee jerk reactions and attempt to carefully plan and contemplate the next steps. A carefully thought out plan is certain to be more effective than rushing in with denials or having heated chats with the inspectors.

Take advantage of professional guidance

If you are seeking guidance when it comes to a tax investigation it will certainly benefit if you are able to rely on the services of the specialist in the industry. You might consider talking to your accountant, but it most cases it will be more beneficial to get advice from those that are able to specialise in this particular matter. A highly experience professional is certain to make the entire process go as smooth as possible, which should mean any issues are resolved in the quickest time possible. Many of the tax investigation cases can drag on for 12 to 18 months, so it will certainly help to have someone who you are able to discuss the situation with. An expert is fully mindful of the entire process of the investigation and the legal framework that needs to be followed.

Be fully prepared for meetings

If you have been asked to attend a meeting with an investigator you really want to make certain that you are fully prepared. Consider any questions that might be asked and try to plan the answers that might be given to the potential questions. It is likely to benefit if you are able to attend a meeting with an advisor to help with responding to any questions asked. Also, you might want to consider making notes throughout the meeting to make sure you have a full record of what has taken place. This might be necessary for future reference. A meeting isn’t just arranged for asking questions related to the business activities, but also to ask question that might have the potential to catch you out.