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

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

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

HMRC are now out and about big style as they have told their Inspectors to bring in as much money as possible, as quickly as possible, which is not really surprising given the current economic environment.  There will be pressure to settle long running full enquiry cases and Inspectors will be encouraged to take up aspect cases (these are as they sound, looking at a particular aspect of a business, eg employment status, entertaining expenditure etc ) which are likely to be settled more quickly to optimise the tax yield in the current fiscal year.

Interestingly, it would appear that the new “Cross Tax” enquiry framework, involving PAYE/NIC, Corporation Tax, VAT etc is being shelved as it is slowing up the enquiry process so Inspectors will be reverting to just working their particular area

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

It has now been a year since HMRC introduced the internal review system which was intended to be a bridge between the case worker and the First Tier Tribunal in cases such as tax investigations, employment status cases and HMRC penalties to name but a few areas. Initially viewed with suspicion, and still to a certain extent, HMRC have published figures on the process to date.

Unrepresented tax payers have been relatively enthusiastic to use the system, probably on the basis of what have they got to lose – this made up 81% of those using the system. There are however strong distinctions to be drawn between automatic penalty cases where approximately half were cancelled compared with those that are far more substantiative. Even the latter category showed that about 25% were either cancelled or varied – so there is a definite moral here – don’t reject the internal review system out of hand it can be a useful process if dealt with correctly you just need to make sure the person dealing with your case understands the process. So, if you need advice call us today on 0800 917 9176

Well we have a date for the emergency Budget and that is 22 June 2010, but what can we expect:

• Increases in employees national insurance contributions, but not employers NIC
• Increase in the rate of Capital Gains Tax to probably 40%
• VAT rate to increase from 17.5% to 20%
• Increase in the level of PAYE/NIC compliance checks
• Increase in the personal allowance level to nearer the £10,000 mark
• A crack down on tax evasion, albeit HMRC cannot seemingly tell the difference between this and tax avoidance – the latter being perfectly legal

The Government has indicated that most of the initial debt reduction will come from spending cuts rather than tax rises but we would recommend that you review all your employer compliance procedures with the help of an employment tax expert as they will be seeking extra revenue from basically whereever it can get it from – so call us today on 0800 917 9176 and see how we can save you money