Tax investigations update

Investec - Article 1
Guy Smith, Tax Investigations Manager at Abbey Tax By Guy Smith, Tax Investigations Manager at Abbey Tax

17 October 2016

Guy Smith, Tax Investigations Manager at Abbey Tax, provides an overview of the latest tax news and how HMRC’s plans may impact on general practitioners and their clients.

HMRC has published its Annual Report and Accounts for 2015/16 and outlined some of its plans for 2016/17 and later years.

Some of the headlines from last year included:

  • £26.6bn delivered from all compliance related activity, including tax investigations and money generated from pursuing tax avoiders of which -
    • £7.3bn was from the UK’s largest 2,100 businesses, and
    • £415m from the UK’s wealthiest 6,000 individuals.

HMRC’s workforce actually increased during the period by over 2,000 to just shy of 60,000, with nearly 27,000 of those tax officers employed within the Enforcement and Compliance directorate.

This gives an indication as to what is coming down the line.

At the start of this tax year HMRC, with the Treasury’s agreement, revised the key objectives it is setting out to achieve. Top of the list of the three objectives now reads: ‘to maximise revenues due and bear down on tax avoidance and evasion’.

How does HMRC intend to do this?

Information gathering has become a huge part of what HMRC now does. It has a Risk and Intelligence team which gathers data centrally from a wide variety of sources, such as the Land Registry, Letting Agents, Banks and Building Societies, as well as merchant companies who process credit and debit card transactions.

HMRC has built an Enterprise Data Hub to handle, process and analyse all this information, to help identify individuals and businesses to investigate. In the past HMRC used to receive all this data in paper format and it took forever to match all of the information up. Now it runs a much slicker operation and has merged the eleven separate data warehouses it used to have into the single Hub.

Sales of £400bn a year are processed through card transactions and HMRC is keen to interrogate this data further. For example, if a business takes £65,000 a year in card payments, which matches the data HMRC has received, HMRC will then look at the actual turnover declared. If the gross amount is £75,000 HMRC will consider, or ‘risk assess’ in technical terms, if it is realistic that less than £1,000 a month has been received by the business in cash and cheques. Furthermore, HMRC usually pays close attention to businesses that consistently trade just under the VAT threshold limit.

As HMRC draws up plans to roll out digital services, under the Making Tax Digital project, it intends to gather data from an even greater range of sources so that it can start to pre-populate personal tax accounts. Businesses are going to be required to keep records digitally and to submit quarterly accounts summaries to HMRC. This will potentially lead to more regular contact and increased checking from HMRC, as it pursues its primary goal to generate more revenue.

Alternative Dispute Resolution (ADR)

Abbey Tax recently met with HMRC’s ADR Assistant Director, Bryan Mason, to find out a little more about the ADR process and how it can be utilised during disputes. ADR is an informal process whereby a facilitator is appointed to mediate between HMRC and the accountant and taxpayer who have reached an impasse over a tax issue.

HMRC currently has 25 trained and accredited facilitators drawn from various tax grades. The facilitators are chosen primarily for their analytical and negotiating skills and are independent in the ADR process. It is not unusual for the facilitator to encounter stiff resistance and hostility from their HMRC colleagues, rather than the accountant and taxpayer.

The facilitators are not targeted by HMRC to generate a tax yield from any disputes and are not under pressure to settle in favour of one side or the other.

The team is expanding and seeking to recruit another five facilitators before the end of this year.

Bryan also expressed an increased willingness to get involved with what many practitioners would consider to be ‘black or white’ technical issues, where a yes or no outcome has traditionally been the answer.

Want to know more?

Protecting your clients (and your firm) from the expensive cost of a tax investigation is more crucial than ever. Contact Abbey Tax today to find out more about our extensive cover options, online claims portal and innovative marketing support.

About the author

Guy Smith manages a team of 6 Senior Tax Consultants who, like himself, are all former HMRC Tax Inspectors. His team represent clients who are under tax enquiry, have a status dispute, a fraud investigation or who need to make a disclosure of undeclared income.

In addition to his role at Abbey Tax, Guy is also a Consultant Editor and Author for Tolley Guidance and sits on the ICAS Technical Bulletin Editorial Board. A frequent writer for the Abbey Tax Blog, Guy’s articles have also been published in Taxation magazine and other in house corporate magazines.

About the company

Abbey Tax is the UK's leading provider of Fee Protection and tax and funding consultancy services to accountancy firms. The business trades under two brands: Abbey Tax Insurance Services and Abbey+. Collectively the two brands work with over 2,000 accountancy practices throughout the UK.

This blog is one of a series of articles from our commercial partners.
The views expressed are those of the author and not necessarily those of ICAS.


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