Investigations the self-assessment way
When self-assessment was introduced in 1996 HMRC set out its new approach to checking tax returns. The idea was that if it wanted to query an entry on a tax return it would start a formal investigation (enquiry), essentially a formal set procedure. An enquiry might consist of one simple question and on receiving a satisfactory answer the tax inspector would issue a closure notice. But times have changed.
Back to the (good) bad old days
It soon became clear that the formal approach to enquiries was too inconvenient and inspectors drifted back to the old ways of asking questions before starting an enquiry. While answering the occasional question could help prevent a full scale enquiry, it might work the other way.
A quick question or two
You should always be polite but play careful if you receive a phone enquiry from HMRC for anything other than basic information such as confirmation of an address. Don’t let your guard down just because it’s Friday afternoon and you’re winding down for the weekend. As a rule, it’s better not to respond to ad hoc questions about figures in your accounts as your response, taken out of context, might raise more questions.
Dos and don’ts
- If an inspector asks about cash payments, you can guarantee they suspect that you’re not declaring some of it in your accounts.
- Seemingly innocent questions often are anything but. It’s easy to say something during a phone call which can be misinterpreted and it’s an inspector’s job to be suspicious.
- It’s fine to take the call to see what HMRC wants. If it’s just to check the spelling of your name or your company’s address etc. that’s OK, but otherwise you should respond differently.
Tip 1: Always ask the inspector to put questions in writing if they involve accounts figures. Be polite about it, being abrupt won’t help. Remember, there is no obligation to provide information immediately. With time to write a considered answer you’ll avoid inadvertently saying something that could be misinterpreted.
Tip 2: If you have an accountant tell the inspector to send questions to them. If not and you don’t have the expertise to answer the inspector’s questions or suspect that they may be angling to open an enquiry, e.g. by asking about cash payments, consult an accountant rather than try to answer the question. Statistics consistently show that investigations are resolved sooner and with a better outcome when an accountant is involved.
For more information, we provide a Business Consultation to ensure our clients benefits from tax planning and accounting matters.
Companies999 are Chartered Certified Accountants and Birmingham’s Best Company Formation Agent.