What is HMRC’s role?
HMRC has a duty to ensure that all tax owed by UK taxpayers is paid to the Crown. They will undertake both civil and criminal investigations if they suspect you have underpaid tax or under-reported your income in relation to Income Tax, Self-Assessments, VAT returns, PAYE and Corporation Tax. They attempt to establish whether the correct amount of tax has been paid by each individual and company, as well as to identify any intentional tax avoidance.
If serious misconduct and dishonesty is discovered from undertaking their investigation, HMRC will usually commence criminal prosecution. This will especially be the case if you fail to comply with their investigation or they find evidence of a criminal tax offence.
What types of tax investigations can be undertaken?
There are three different types of investigations that HMRC can carry out:
1. Full enquiry
A full enquiry will consist of HMRC reviewing all business records and accounts. If a limited company is investigated, the tax affairs of company directors and owners of the business may also be reviewed. A full enquiry will be conducted if there is a significant risk that there is an error in the amount of tax you have paid.
2. Aspect enquiry
This will involve HMRC making enquiries in relating to particular aspects of your accounts. This type of enquiry should not be taken lightly simply because it is a smaller investigation, and should be treated just as seriously as a full investigation.
3. Random check
HMRC can conduct an investigation at any time; there is no need for them to receive an alert in relation to your accounts. They may have no reason for concern, but they will conduct random checks to ensure there are no tax related issues which have gone unmissed.
What does a tax investigation procedure involve?
HMRC will audit your accounts and will usually ask probing questions in order to get a clear picture of yours or your business’ financial history and position. Should a tax investigation be conducted, you will be obliged to provide HMRC with the information they require.
Depending on HMRC’s level of suspicion, the amount of years of accounts they can review as part of their investigation will vary. For context, if HMRC undertake a random check of your accounts and they have no particular suspicions, they can look at accounts up to four years ago. If deliberate behaviour, such as tax fraud, is suspected, HMRC are able to look at accounts up to 20 years prior.
Routinely, HMRC will obtain warrants and court orders to require banks, advisers and even accountants to provide records and financial information about a taxpayer. HMRC also has the power to apply without notice for a restraint order under the Proceeds of Crime Act (POCA) to freeze all the assets of the person being investigated until the outcome of the investigation and any subsequent court proceedings.
Why might your accounts be investigated by HMRC?
Sophisticated data tools are used by HMRC’s central risk team in order to spot unusual activity within accounts or identify trends within certain industries. For example, if a business with a large turnover declares only a very small of tax, this will be flagged-up by HMRC.
The biggest trigger for an investigation to be commenced is by submitting blatantly incorrect figures on a tax return. Other triggers can include:
- You work in a high-risk (e.g. where “cash in hand” transactions are common)
- HMRC receives a tip-off
- There are noticeable inconsistencies between tax returns (e.g. a big fall in income from one year to the next)
- You frequently file your tax returns late
- Your costs are above the industry norms
- You have offshore bank accounts
- You are in a sector that HMRC has decided to target
Even if there has been no suspicion raised in relation to your accounts, HMRC can randomly decide that your accounts need to be inspected.
What are the possible outcomes of a tax investigation?
Depending on what the HMRC discover during their investigation, common outcomes include:
- You have overpaid tax, and therefore you will receive a tax rebate with interest
- You have underpaid tax. You will be formally required to pay any tax owed within 30 days.
- There has been deliberate wrongdoing, which gives HMRC the option to start criminal proceedings.
What criminal offences can HMRC tax investigations bring?
HMRC deal with tax avoidance of all sizes and seriousness on the spectrum. Minor avoidances will usually be dealt with by civil litigation means, however serious offences are at a large risk of being dealt with through criminal proceedings. Therefore you may have to go to court to face criminal prosecution. Examples of criminal tax offences you could be at risk of prosecution for include:
- Income tax evasion
- VAT evasion
- Money laundering
- Cheating the public revenue
- Providing false documents or information to HMRC
- Smuggling or fraudulent evasion of duty on imported goods e.g. alcohol or cigarettes
What are the potential consequences of HMRC tax investigations?
Tax evasion is not something that is treated lightly by HMRC or the courts. Tax offences have severe punishments attached to them in order to send a deterrent message to wider society and to heavily punish offenders for their serious misconduct. Should the HMRC investigation lead to criminal prosecution, it can result in a fine, imprisonment or both. You will still be required to back the tax owed plus interest. If you fail to successfully defend your case, you can expect severe penalties to be issues.
How can the criminal tax lawyers at Stephensons help me?
In appropriate cases:
- We can advise and defend all forms of HMRC investigations and criminal tax offences, including dealing with HMRC correspondence and advising how to respond to their enquiries.
- We can represent you in meetings and in court
- We can provide immediate advice and representation in relation to searches, arrests and interviews under caution
- We can negotiate any penalties that could be issued
- We can help avoid an HMRC criminal investigation if one has not already started, by carefully managed and appropriate disclosure to HMRC where suitable
What should I do if I’m being investigated by HMRC or have been accused of a criminal tax offence?
Being faced with an investigation by HMRC or being accused of a criminal tax offence can be very daunting and distressing due to the potential consequences the investigation and offences can bring, as well as the damage it can cause to yours or your business' reputation.
If you’re being investigated by HMRC it is vital you seek specialist advice as there may be a real possibility that criminal proceedings will follow and your best interests need to be protected.
Here at Stephensons, we understand how crucial it is to guide you through any investigative process you may be facing, and provide specialist representation in order to defend your case in the best possible way to minimise any repercussions, especially if you are at risk of prosecution.
If you do require our assistance please do not hesitate to contact us on 0161 696 6188 or complete an enquiry form.