I’ve received a letter from the tax man – help!

I’ve received a letter from the tax man – help!

The first time you know that HM Revenue & Customs (HMRC) is looking into your tax affairs is when you receive an enquiry letter. Your accountant should receive a copy of the letter direct from HMRC.

Why you, and what next?

HM Revenue & Customs (HMRC) does not explain why a return has been selected for enquiry; indeed some are selected at random. Most enquiries, however, start after HMRC has checked your tax return and compared it with other sources. If HMRC considers your tax return may be incorrect, or something requires fuller explanation, it will open an enquiry. You can reduce your chance for selection by ensuring that your tax return is properly completed and includes any information needed to allay any potential concerns.

HMRC may limit an enquiry to one or more specific aspects of the tax return, e.g. requests for clarification of particular entries or detailed consideration of whether those entries have been treated correctly for tax. Alternatively there may be an extensive full examination, considering all aspects of your affairs, typically involving an in depth review of the records on which the tax return was based. Sometimes ‘full’ enquiries begin as ‘aspect’ enquiries.

What happens in an enquiry?

Once HMRC tells you an enquiry is being opened you need to decide whether to ask a professional adviser to assist you.

The initial reply is particularly important since this can set the tone of the whole investigation and help you to take the initiative. It is also important to understand any hidden agenda behind apparently innocuous questions raised, and to appreciate the full implications of any response. A particular set of facts can have several interpretations, and non-tax matters (such as motive) may be significant. As you will know, even the interpretation of the law is not always black and white!

It may be possible to conduct an enquiry solely by correspondence, or HMRC may ask for a face to face meeting with you (and/or your adviser). Such a meeting may not be in your best interests, or it may be necessary in order to reach a settlement. It is essential to be fully prepared. At the end of the enquiry HMRC will tell you its conclusions and the amendments it is proposing. If you disagree, you can appeal.

What happens when the enquiry is over?

If an amount of unpaid tax is identified during the enquiry, you may well be charged interest and penalties. The level of the penalty depends on whether the inaccuracy arose as a result of careless or deliberate action and whether arrangements were made to conceal it.  But the penalty can be reduced depending on the timing, nature and extent of your disclosure. Competent handling of an enquiry and attention to detail can therefore help reduce the level of any penalties.

A tax enquiry can be uncomfortable. At Cassons we can guide you through the process. We will keep you informed of progress, whilst resolving as many issues as possible before you need to get involved. We will help you to put your case in the best possible light if there are any grey areas, and use our negotiation skills and experience to help reduce the size of any final tax settlement.

Sometimes, despite your best endeavours a tax enquiry proves unavoidable. As a client of Cassons Bar Department, your membership of the Cassons Tax Investigation Service is included in your fee.  For full details, please click here.

This answer was last checked May 2017. This answer is for general guidance only. It provides an outline, and may not include points which are important in your case. You should not rely on this answer without taking individual advice based on the full facts of your case. The information given was correct at the time of release.