7bn Reasons to Get it Right

The risk of an investigation has been significantly elevated, so advises contractor accountant Carpenter Box, because HMRC has been ordered to reduce the tax gap from £40bn to £33bn over the next four years.

Fresh initiatives against tax avoidance & harsher penalties against those breaking the rules are on the way. Improved systems capitalise more effectively on the vast amounts of information it holds.

They are able to compare results of individual companies with competitors, or with historical trends, to identify anomalies.

‘Breaking the records'

HMRC uses the expression 'breaking the records'. This means that once an inspector has shown weaknesses in any area of a company's records, the credibility of the records as a whole can be undermined.

Worse still, HMRC will argue it has justification for extending its investigation into the private affairs of the owner.

Carpenter Box expects HMRC to target businesses perceived as high risk. Companies that persistently file late returns, or pay tax late without contacting HMRC to explain why.

Take Tax Compliance Seriously

A business that submits returns late does not take tax compliance seriously, and represents ‘easy prey'. HMRC will also look at the sector in which the business operates, and from time to time, will target particular areas.

If you know something is wrong, don't try to hide it. An early, voluntary disclosure will reduce any final settlement with HMRC. Keep in mind that at the end of an investigation, a certificate of full disclosure must be signed.

HMRC Enquiry

Virtually all investigations are started because HMRC inspectors think there is tax at risk. The key is to identify the concerns and deal with them. That way, the case can be closed at the earliest possible opportunity.