HMRC Tax Investigations officials are entitled to investigate a tax return after the usual one-year limit has passed if their discovery assessment letter meets one of two tests, according to a recent Court of Appeal ruling that reaffirms a long-established power for the taxman.

Derek Hankinson v HM Revenue & Customs focused on whether HMRC used a section section 29 of the Taxes Management Act 1970 correctly when it investigated the taxpayer’s Self Assessment return for the 1998-99 tax year – six years after it was filed.

In 2005 HMRC assessed Hankinson’s tax return for 1998-99 and concluded he owed £30m in income tax and capital gains tax for the year because he was still a resident in the UK for tax purposes, despite having moved to the Netherlands.

Hankinson lost appeals against HMRC’s assessment of his tax liabilities in the first-tier and upper-tier tribunals.

In the Court of Appeal Hankinson challenged HMRC’s use of section 29 that was used to investigate his tax return for 1998-99.

HMRC usually has one year after a Self Assessment tax return is delivered to challenge and investigate it.

Under section 29 of the Taxes Management Act 1970 (at the time of the case), however, HMRC can investigate tax returns after the one-year window by sending a discovery assessment letter if one of two conditions apply. Firstly, the full and accurate facts were not available to HMRC officers due to incomplete disclosure, negligence or fraudulent behaviour by the taxpayer or agents; secondly the HMRC officer completing an enquiry could not have reasonably been expected to have been aware of the loss of tax.

In a judgment published in December last year Lord Justice Lewison concluded that HMRC’s use of section 29 was valid.

A new HMRC unit, the Offshore Co-ordination Unit (OCU), based in Birmingham, has written to tax advisers as part of its ongoing attack on offshore tax evasion. The unit recently sent out letters where HMRC believes that a tax adviser has clients who have, or have had, offshore bank accounts or investments. This is believed to be part of HMRC’s ongoing project into account-holders with HSBC in Geneva, following the receipt of stolen data containing details of UK taxpayers with accounts there. Further letters will be sent out in the coming weeks and months, as HMRC work their way through the information held.

The strongly-worded letters give tax advisers advance warning that HMRC will be contacting their clients (within a short time period). The letters indicate that the client will be given an opportunity to make a full disclosure in advance of HMRC starting an investigation into their tax affairs.

Advisers should treat any such letter seriously, and immediately contact their client. Those who have undisclosed liabilities need to act quickly, to prevent an intrusive HMRC investigation, or, potentially, criminal proceedings. Caution should be observed where the client claims to be compliant in relation to the offshore account to ensure that there are not any undeclared liabilities.

In December 2009,  HM Revenue & Customs (HMRC) stated that they had identified 800 Hospital Consultants it wished to launch a tax investigation into  and of its intention to initiate an amnesty. The Tax Health Plan (THP) was subsequently launched.

The THP raised over £10 million through over 1500 disclosures, with an individual payment of over £1 million by a doctor and over £300,000 by a dentist.

HMRC has now announced that it has begun 500 enquiries and 6 criminal investigations since the THP closed.

The dispute between HMRC and Hospital Consultants concerning what constitutes their business base for mileage purposes continues to run. A Tribunal case is due to be heard this summer, although it is understood that it involves a geriatrician, rather than the more representative Hospital Consultant undertaking a combination of NHS and private practice work at regular locations. So watch this space because it isn’t only these high profile cases that employers need to be aware of there is also the real danger that employees and Directors are claiming travel & subsistence costs incorrectly as they have not identified a persons permanent/temporary workplace. We are here to help you with this exercise so call us today on 0800 9179176 begin_of_the_skype_highlighting 0800 9179176 end_of_the_skype_highlighting

The letter will explain that, once the opportunity expires, the tax authorities will begin a clampdown on those working in the sector who have failed to declare earnings and pay the tax they owe.

Under the tax plan, plumbers, gas fitters, heating engineers and members of associated trades who owe tax which they have not yet declared can come forward anytime up to 31 May to tell HMRC they want to take part. If they make a full disclosure, most face a low penalty rate of 10 per cent, with a maximum of 20 per cent. Once they come forward, they have until 31 August to make their disclosure and arrange for payment.

After that date, using information pulled together from different sources, HMRC will investigate those who have failed to come forward. Substantial penalties or even criminal prosecution could follow.

The Plumbers’ Tax Safe Plan (PTSP) is the first initiative in a campaign focused on tradespeople. It is designed to make it easy for those in the plumbing industry to put their tax affairs in order.

Mike Wells, HMRC’s Director of Risk and Intelligence, said:

“Our aim is to make it easy for plumbers to contact us, make a full disclosure of income and face a reduced penalty.

“We are using a variety of intelligence sources to target plumbers who have not declared their full income and I urge tradespeople in this group who think they owe tax on their income to get in touch with HMRC and get their tax affairs in order simply and on the best available terms.

“The first step for those wishing to avoid a full tax investigation with much higher penalties is to notify us.

“We do not think everyone who receives a letter owes us tax. However, if you owe tax and don’t get a letter, do not assume that HMRC will not catch up with you.”

To join the tax plan people in the plumbing industry must:

* Register with HMRC to “notify” that they plan to make a voluntary tax disclosure by 31 May
* They then have until the 31 August to tell HMRC about tax due and make arrangements to pay any tax interest and penalties due. This is called “making a disclosure”.

Please be aware that before you launch forth with this “offer” from HMRC you should consult a specialist telephone 0800917 9176 begin_of_the_skype_highlighting 0800917 9176 end_of_the_skype_highlighting

A £158BN hole in the public finances means that HMRC are being used to try and raise extra cash for the Treasury, as quickly as possible and that will mean easy targets, so small and medium size firms, anyone in the construction industry are in the direct firing line for:

employer compliance reviews

PAYE/NIC investigations

Employment status reviews

tax investigations

you name it and they are heading your way and don’t think it won’t happen to you – it will, so why not take advantage of the special deal that EICG is running this month on PAYE/NIC healthchecks and Construction Industry reviews, call us today on 0800 917 9176 to see how we can help you avoid being a victim