The prospect of an investigation into your personal and/or business tax affairs by HMRC can be harrowing, not to mention the additional time and cost involved. We have considerable experience of helping all types of clients through the minefield of a tax investigation. Seeking the right advice at the earliest opportunity really is paramount to achieving the best possible outcome.
HW Fisher’s Tax Resolution team will be at your side and work on your behalf to reassuringly guide you through this process whether you are being investigated by HMRC or have a voluntary disclosure to make.
Instead of carrying out a criminal investigation with a view to prosecution, HMRC can issue COP 9 in cases where they suspect tax fraud (or deliberate behaviour). Under COP 9, you are given an opportunity to make a full and complete disclosure of all your deliberate (and non-deliberate) tax irregularities using the Contractual Disclosure Facility (CDF).
IF HMRC are satisfied that a full and complete disclosure has been made, a civil contract settlement is entered into with a guarantee against prosecution. Settling in this way, will often lead to lower penalties and can avoid other sanctions such as being ‘named and shamed’.
Under the CDF, there is fairly tight 60 day time limit not only to agree to the facility’s terms but also to provide an ‘outline disclosure’. It is essential therefore at this early stage, to get to grips with the issues and to decide whether or not to accept the CDF invitation.
If you genuinely do not believe that tax fraud has been committed then the invitation to participate in the CDF should be declined. The CDF process is only to be used where tax fraud or deliberate behaviour has arisen. Where a denial is confirmed, HMRC may either agree to continue working the investigation under the civil process (but without the prosecution immunity given by the CDF) or it may simply proceed with its own criminal investigation.
The CDF is a contractual process. For the taxpayer and in exchange for admitting tax fraud, your part is to accept and co-operate with the CDF process and provide not only an initial outline of the disclosure but a more detailed disclosure usually in the form of a report which is then used to agree a contractual settlement with HMRC including the tax, interest and penalties. On HMRC’s part and in exchange for a full and complete disclosure under the CDF, HMRC will not undertake a criminal investigation into the irregularities disclosed.
The CDF or COP 9 process is an extremely serious matter and investigations are carried out by experienced and specially trained Inspectors.
We can help you understand what you need to do if you receive a CDF (COP 9) letter from HMRC.
If you are faced with having to make a disclosure to HMRC and the tax irregularities concerned could be construed as ‘deliberate’ or fraudulent by HMRC, it may be best to request to enter the CDF process on a voluntary basis.
Not only will this provide immunity against prosecution, the eventual settlement reached with HMRC will include lower penalties because of the approach to HMRC on a voluntary, un-prompted basis.
This is not something to be entered into lightly and therefore specialist advice is essential. We can help you decide whether a voluntary CDF is appropriate and manage the disclosure process from its commencement to resolution.
It important to seek professional advice in ‘COP 8’ enquiries and especially before speaking to HMRC as they can vary significantly in their scope of areas covered and how far back HMRC can go.
With a COP8 enquiry, there is no HMRC suspicion of fraud at the outset and they are by definition more technically based e.g. this could involve tax planning you have implemented. The investigation should still be treated seriously and handled carefully as HMRC normally consider a large amount of tax is at stake. If HMRC suspect or find evidence of fraud during a COP8 investigation, they could move this to a more serious COP9 investigation or even a criminal prosecution.
COP8 investigations due to their scope, usually involve a large amount of data gathering and analysis which can be fairly complex and time consuming.
We can help you understand the scope of a COP8 investigation and HMRC’s information powers and how to successfully manage the investigation process from its commencement to resolution.
Mistakes sometimes happen, right? You may have made a mistake in your tax return or forgotten to tell HMRC about some income or gains.
Making a voluntary disclosure to HMRC will usually mean the situation is resolved on a more amicable basis and with lower penalties and with less cost to you.
Most voluntary disclosures can be handled using HMRC’s online disclosure service. If you have a disclosure to make that is in relation to previously undeclared offshore income and/or gains, then the Worldwide Disclosure Facility (WDF) is available. Care should be taken when using the WDF or any other investigation or enquiry that involves undeclared offshore income and/or gains as increased penalties, in the absence of a ‘reasonable excuse’ of up to 300% can apply as a result of HMRC’s ‘Requirement to Correct’.
Where you are faced with having to make a disclosure to HMRC and the tax irregularities concerned could be construed as ‘deliberate’ or fraudulent by HMRC, it may be best to request to enter the CDF process on a voluntary basis.
Not only will this provide immunity against prosecution, the eventual settlement reached with HMRC will include lower penalties because of the approach to HMRC on a voluntary, un-prompted basis.
This is not something to be entered into lightly and therefore specialist advice is essential. We can help you decide whether a voluntary CDF is appropriate and manage the disclosure process from its commencement to resolution.
Self-assessment enquiries come in many different forms. An aspect enquiry will involve one or more areas of a self-assessment return that HMRC want to look into. A full enquiry will involve HMRC checking the self-assessment return in its entirety. There is usually a perceived tax risk which precedes either an aspect or full enquiry and thus understanding what HMRC consider is the main risk area is the key to dealing with self-assessment enquiries.
HMRC does not have an automatic entitlement to see anything and everything and there are safeguards within the tax legislation for the taxpayer in terms of what HMRC can ask to check and when.
If you believe that an enquiry may be invalid, or that HMRC may be requesting information, either informally or formally using their statutory information powers, that it may not be entitled to then we can help you establish and confirm the position.
Long running enquiries with no immediate prospect of settlement can be frustrating, not to mention time consuming and costly. Sometimes a ‘second pair of eyes’ can be beneficial to unlocking a dispute or long-running enquiry.
If a settlement is required following a self-assessment enquiry, HMRC might likely raise an assessment or assessments for the year or years under enquiry but may also raise assessments for other years to collect tax due in years not previously under enquiry.
We can help you with any self-assessment enquiry and in the complex area involving assessment time limits and information powers, we can help you to understand what HMRC are legally entitled to do and what you can do if HMRC are possibly acting outside of their powers.
The general rule is that HMRC has to issue or ‘make’ an assessment no later than four years following the end of the tax year to which it relates. After the four-year period has passed the only way for HMRC to make a valid ‘discovery’ assessment is if the loss of tax was brought about ‘carelessly’ or ‘deliberately’ in which case the assessment time limits extend to no later than six and twenty years respectively.
For ‘offshore matters’ HMRC has extended the current four and six year assessment time limits to 12 years for income tax, CGT and IHT. By way of example, for the 2017/18 tax year the current deadline by which HMRC has to raise a valid assessment is 5/4/22 for reasonable care/excuse (four years) and by 5/4/24 for careless (six years). Under the extended deadlines relating to offshore matters, the time limits are 5/4/30 for both reasonable care/excuse and careless (twelve years).
For appeals, you must normally make an appeal within 30 days of HMRC’s notice of their decision and most HMRC ‘decisions’ including penalties, are capable of appeal. HMRC can accept a late appeal if there is a reasonable excuse.
We can help you if you are unsure whether or not HMRC have validly issued an assessment or if you require assistance with an appeal.
Penalties can be charged by HMRC if there are errors on returns or other documents which understate the tax and/or misrepresent the tax liability, or if returns are filed late.
HMRC can charge a penalty if the error is:
• because of a lack of ‘reasonable care’
• deliberate – such as intentionally sending incorrect information
• deliberate and concealed – for example, intentionally sending incorrect information and taking steps to hide the error
The level of the penalty is linked to the reason why the error occurred. The more serious the reason, the higher the maximum penalty can be. HMRC can reduce the penalty if you or your client help them to put things right, such as by making a voluntary disclosure.
Enhanced penalties also apply in cases of ‘failure to notify’ and where tax irregularities involve ‘offshore matters’.
In certain cases, HMRC is able to “name and shame” taxpayers on their website if they are subject to a ‘deliberate’ penalty.
In a case where the taxpayer has acted ‘deliberately’, the underpaid tax is over £25,000, and HMRC consider there has not been full co-operation with the enquiry, HMRC could publicise the taxpayer’s details such as their name, address, trade/profession, the amounts of tax evaded, interest & penalties charged and the years involved.
We can help you if you have received a penalty notice or determination that you do not agree with, or during the course of an enquiry HMRC has alerted you to the possibility that deliberate penalties may be charged and you are concerned about being ‘named and shamed’.
HMRC does not have an automatic entitlement to see anything and everything and there are safeguards within the tax legislation for the taxpayer in terms of what HMRC can ask to check and when.
What if you receive an enquiry notice from HMRC checking a particular years’ self-assessment return and the information checklist attached to the letter contains a significant number of questions?
What if the questions relating to a specific return under enquiry start to include periods outside of the year under enquiry?
HMRC haven’t issued a formal enquiry but they are asking questions. Surely HMRC are just on a ‘fishing’ exercise here to ascertain information without a specific purpose?
HMRC can use their formal information powers but generally speaking, it is better to deal with matters before it reaches this stage.
We can help you if you are unsure about HMRC’s information powers either as part of an enquiry or independent of one.
A time to pay arrangement can be discussed and agreed with HMRC if at any time, you cannot afford to settle your tax debts.
HMRC will negotiate a time to pay arrangement based on your ability to pay and your income and expenditure.
Because time to pay arrangements are based on specific and individual financial circumstances, there is no ‘standard’ time to pay arrangement. HMRC will consider what you can afford to pay and then use that to work out how much time you need to pay.
Typically, an ‘income and expenditure’ assessment will be carried out which looks at your income, disposable assets and expenditure to calculate your disposable income.
We can help you if you need to negotiate a time to pay arrangement with HMRC to settle your existing or upcoming tax debts.
In respect of the deceased’s lifetime tax affairs, HMRC have four years from the year of death to raise an assessment going back to a maximum of six years pre-death. These time limits apply irrespective of the ‘behaviour’ of the deceased (unless agreed assessments or determinations existed pre-death). HMRC cannot charge a penalty against an offence of the deceased person.
When administering the affairs of the deceased, information can come to light which may need to be regularised and disclosed to HMRC alongside, or in some cases in advance of, submission of the Estate Tax Return.
We can help you to ensure that the tax affairs of the Estate are resolved with HMRC to ensure the granting of Probate is not unnecessarily delayed, the administration can be completed in an efficient manner and compliant distributions to the Estate beneficiaries are made.
Long running enquiries with no immediate prospect of settlement can be extremely frustrating not to mention time consuming and costly. Sometimes a ‘second pair of eyes’ can be beneficial to unlocking a dispute or long-running enquiry.
Is it appropriate to consider requesting a closure notice from HMRC? If the subject matter is relevant, could HMRC’s Alternative Dispute Resolution (mediation) be appropriate? Ultimately the First Tier Tax Tribunal is available to hear and determine appeals against HMRC decisions but it may be worth considering some alternative solutions as the Tribunal route can be quite lengthy (to get a date for your hearing) and costly.
We can help you with a review of a long running enquiry and discuss with you some appropriate solutions to help brings matters to a satisfactory resolution.
Challenging what it perceives to be ‘aggressive’ tax avoidance schemes is something that HMRC has allocated significant resource to and this is unlikely to change for the foreseeable future. HMRC claims to have won the vast majority of the cases that have been brought before the Courts that involve aggressive tax avoidance schemes.
Anyone involved in a tax avoidance scheme may well receive a Follower Notice (FN), and/or an Accelerated Payment Notice (APN) or Partner Payment Notice (PPN). These are all part of HMRC’s newly expanded powers designed to combat historic tax avoidance schemes.
Follower Notice (FN) – FN’s require the self-assessment return originally filed with the tax avoidance claim to be amended and can be issued when HMRC has successfully challenged a tax scheme in court. If you fail to settle your tax affairs after receiving a FN this can lead to penalties of up to 50% of the tax outstanding.
Accelerated Payment Notice (APN) – APN’s are a payment on account in respect of the tax due from the disputed tax avoidance arrangements and the tax due is held by HMRC until the enquiry or appeal is settled. These can be issued to individuals or companies in advance of the scheme itself being tested either at the tribunal or in court. Payment of the amount shown on the APN is due within 90 days unless representations are made to HMRC. Delaying payment can lead to an automatic late payment penalty or surcharge.
Partner Payment Notice (PPN) – PPN’s generally work in the same way as an APN, but these are issued to you if you are or were, a member of a partnership
Disguised Remuneration Loan Charge (Loan charge) – The loan charge was, and still is, considered controversial due to its ‘retroactive’ nature. The loan charge is HMRC’s way to further challenge the use of ‘disguised remuneration’ arrangements and was introduced in 2016 principally to shut down the abusive nature of certain loan schemes.
Significant amendment to the proposed loan charge was introduced in 2020 following an independent review. Most notably this included the removing of some taxpayers entirely from the scope of the loan charge by only making the loan charge applicable to outstanding loans made on, or after, 9 December 2010.
We can help you by reviewing tax avoidance enquiries and settlement options including penalties, if you have received either an APN or FN, or if you need to arrange a payment plan with HMRC.
The HMRC Statutory Residence Test (SRT) was introduced in 2013 and provided more certainty in relation to establishing UK residence and non-UK residence in any tax year. The SRT allows you to work out your residence status for a tax year and as each tax year is looked at separately, you can be UK resident in one year and not another. Under the SRT, the amount of time spent in the UK is considered as well as the number of ‘connections’ that you have with the UK.
If you are resident in the UK but are ‘non-UK domiciled’ there are special rules which may apply to your foreign income and gains. If these apply to you, either the arising basis of taxation or the remittance basis of taxation will be available to you.
Needless to say, HMRC do take a close look at residence cases, in particular claims for periods of non-UK residence and also at UK resident ‘non-doms’ to ensure the quite complex set of rules applying to non-doms are being followed correctly. In some cases, HMRC challenge domicile status itself and even though the position concerning long term resident non-doms was to a certain extent addressed by the introduction of the ‘deemed domicile’ rules in 2017, HMRC do still challenge individual domicile positions.
We have particular experience of helping clients with residence and/or domicile enquiries and as this area is notoriously complex, we can help you to understand the issues involved and to resolve the enquiries.
Errors in furlough claims can arise for any number of reasons from mistakes made in the (very complex) calculations to not putting the right paperwork in place through to claiming furlough despite knowingly keeping staff working.
Furlough monies claimed in error can either be repaid to HMRC within a statutory notification period or disclosed to HMRC and then payable via a 100% income tax charge in the claimants’ self-assessment return, or by assessment if earlier.
HMRC are sending ‘nudge’ letters to employers requesting checks are made to ensure that the right amounts of furlough monies have been calculated and claimed correctly. In addition to this, HMRC is now investigating some furlough claims made by employers and seeking to charge penalties in certain cases.
HMRC will also be able to check any furlough claims by checking claimants’ tax returns using its usual statutory powers and will impose penalties using its existing rules for incorrect returns, where appropriate, should any extra tax be uncovered.
We can help you with any furlough claim enquiries, if you are being investigated by HMRC for alleged furlough fraud, if you believe your furlough claims may contain errors and need to make a repayment to HMRC or if you are have received a ‘nudge’ letter from HMRC.
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