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.

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 current delays within HMRC are getting ridiculous and it’s not just the taxpayers that are having problems, even professional tax advisers are having problems.

Sue Moore, associate director for BTT and A, has been struggling to get hold of anyone at HMRC.

“We’re having difficulties when dealing with the HMRC. It would seem that most offices are eight weeks behind dealing with post. When you telephone it is just the call centre and if you want to speak to somebody actually dealing with the case, that is almost impossible. All this was before the cuts in the department spending.

Everybody is affected by the delay. Issues take longer to resolve and cost the clients more in professional fees as we have to keep chasing HMRC. Working on a case is very inefficient as we have to pick up the threads of the case after several months’ delay.”

Now we are finding that we are having to escalate matters in order to get a response to correspondence which is no good for anyone

Now we’ve all heard of how much money HMRC needs/should bring in with tax investigations, employment status reviews, PAYE investigations etc and as soon as possible you would think. Well, this morning was a relevation, in an attempt to speed up an enquiry I had agreed with the investigating officer that it would be a good idea to have a meeting, at our offices to go through the information they required, no problem until this morning. The very apologetic investigating officer explained that they had been told that due to all the cutbacks they were unable to travel for a meeting and would have to deal with the enquiry via correspondence and telephone. After checking it wasn’t 1st of April I said that this made no sense as this would prolong the enquiry because of HMRC backlogs etc to which to be fair the officer completely agreed, so what is going on – is this just a daft local decision or something more widespread?

HMRC you need to wake up and use some common sense – meetings can speed up the whole process – you are investigating someone or some entity, so they shouldn’t have to pick up the cost – you should be prepared to travel and guess what if there is a settlement to be made the money will be in the coffers quicker and the officers involved will be free to move onto another case – simples!

HMRC are planning a massive increase in the take from: tax investigations, employer compliance review, tax enquiries, employment status reviews and CIS reviews, so you have been warned

HMRC plans to seize an extra £4bn in 2010/11 through more aggressive tax investigation work and tougher powers. To achieve such a high yield, HMRC will need to widen the scope of its enquiry work to include marginal cases. This increases the risk innocent businesses are caught up in a massive fishing exercise

Tax investigations can be hugely costly to taxpayers in respect of management time, stress and advisory fees, while much of the tax HMRC claws in through investigations is not tax that has been deliberately evaded, in many cases it is the result of HMRC reinterpreting tax law and this brings in the well known scenario of my pockets are deeper than yours – otherwise known as if an individual or business can’t afford to challenge HMRC’s decision through the tribunals and court system, then HMRC wins.

So you have been warned, take specialist advice before it happens to you

HMRC have recently published details of their internal review of tax enquiries, employer compliance reviews, tax investigations etc in relation to cases that have occurred since 1 April 2009 which does make for interesting reading:

“Outcomes excluding penalty cases 3,443 cases out of 18,526

Upheld: review complete – 2,603 (76 per cent)
Deemed Upheld: time limit expired – 20 (1 per cent)
Varied – 349 (10 per cent)
HMRC decision cancelled – 471 (14 per cent)

Outcomes penalty cases 15,083 cases out of 18,526

Upheld: review complete – 6,281 (42 per cent)
Deemed upheld: time limit expired – 48 (0 per cent)
Varied – 793 (5 per cent)
HMRC notice cancelled – 7,961 (53 per cent)”

In basic english this means that 24% of non penalty cases were varied or cancelled and a staggering 58% of penalty cases were varied or cancelled

The results clearly show that it is in your interest whether you are an individual or a company (where there is reason to doubt HMRC’s assessment) to complain. We would also add that it is advisable to obtain specialist help when HMRC comes a calling, it’s not a time to dabble so give us a call on 0800 917 9176

There are still a number of individuals and companies out there that think the Inland Revenue won’t pursue them to the ends of the earth regarding tax debts – you need to wake up, seriously!

HMRC compliance visits and tax investigations take on real significance when you focus on HMRC’s mission to maximise tax take, as such its stated litigation settlement strategy (LSS) aims to push for a full settlement or court action if it believes it has a better than 50/50 chance of winning.

Now the issue is always the fact that HMRC have deep pockets when it comes to arguements, you only have to look at some of the employment status cases that have taken 3/5 years to conclude but the cost in terms of money, time and effort expended by HMRC (and delayed cash flow for the government’s coffers – this is most likely the issue) in pursuing these disputes is mounting.

Therefore some in HMRC are considering using a more “common sense” approach – can it be possible?

A new unit would split the dispute resolution unit from the anti avoidance division. The mission of the new unit would be to resolve the disputes more quickly; thus improving cash flow, even if the speedier resolution means a lower tax bill – I can’t see that being popular within HMRC, can you? So stick with the principle of getting things as correct as possible in the first place and if you’re not sure give us a call on 0800 917 9176 as a PAYE/NIC healthcheck could save your company, in more ways than one!

HMRC almost on a daily basis have had to issue notes on their Tax Health Plan (strange term for what is a tax investigation programme into the medical profession, let’s have a spade is a spade). The latest is that dentists are to be included and they have been generous enough to say that other such professionals can come forward too – but not with the same protection regarding penalties etc – do they think people are stupid!

If you do have a problem then you need to take sound professional advice before you embark on a disclosure – you wouldn’t operate on a patient if you didn’t have the necessary training, so don’t dabble with this

One major concern that is shining through on this disclosure opportunity and the “incentives” being offered is why is it being restricted to the medical profession? You may think that this is HMRC’s project of choice at the moment so they are focusing on this – not so, fish and chip shops are right in the firing line but guess what no disclosure benefits for these people – something doesn’t quite sit comfortably with this – are we making moral judgements about who is honest and who isn’t by the profession they have chosen?

HMRC have made cutbacks and are still doing so, they have removed the personal contact with local offices to develop call centres (don’t we just love those, press 1 for yes – oh no it’s spreading) but HMRC have excelled themselves when it comes to the task of answering the phones.

Most companies have a policy of answering the phone within a certain amount of rings, not HMRC if latest stats are anything to go by – only 43% of calls were answered and if that wasn’t bad enough, in the child tax credit renewal period only a third of calls were answered. Now it’s easy to blame the staff but don’t – there aren’t enough of them, they are under pressure to limit call times (to the extent that they have been known to hang up if the call is “taking” too long – but think where that pressure is coming from), they are not trained well enough – client rings up on three separate occasions and get’s three different answers – you can’t rely on the advice from HMRC staff but perish the thought that you do and get it wrong. Tax enquiry, employer compliance review, tax investigation – you name it and it can and will happen