HMRC are now focusing on particular “high risk” industries and are focusing resources on ensuring groups within these industries are reporting the correct amount of tax. HMRC have recently focused on such diverse groups as restaurants, plumbers and doctors.
HMRC teams generally have a very good understanding of these industries and have also identified where they believe tax is commonly lost. They will focus on these areas and will test items such as income and expenses against comparative models which they have designed.
The nature of such investigations (rather than enquiries) can be intimidating as HMRC are specifically looking to prove there has been an under disclosure of tax.
In many instances where variances arise between your figures and those of HMRC’s models there is a reasonable explanation due to your personal circumstances. In such circumstances it is important to ensure that the areas of HMRC’s concern are identified and that these are addressed quickly and efficiently. Often HMRC will assert that your figures are not correct because they do not fit their model and such assertions where the figures are correct should be politely but firmly rejected.
HMRC also now have wide powers to obtain information from third parties such as banks and also to require you to provide information. However a delicate balance is needed between helping with the investigation (which can impact on penalties) and ensuring that HMRC do not overstep their information powers.
As with enquiries where there has been non-disclosure or incomplete disclosure it is important that these are quickly identified and put right. In these circumstances it is far better from a strategic point of view if you make disclosure to HMRC and again this will ensure that the enquiry is dealt with quickly and efficiently. In determining penalties HMRC will look at how you co-operated during the enquiry.
