HMRC tax credit compliance checks ensures you are paying the right amount of tax at the right time.

Finding yourself the subject of a HMRC tax investigation can, initially, be daunting.

However, it is the case that on many occasions the reason for an investigation or a compliance check is no more than a routine process with little to worry about.

Whenever HMRC decides to initiate an investigation such a step may reflect a serious matter for which you should make sure you have the assistance of an experienced and competent tax advisor to assimilate and present all of your evidence to HMRC. 

In this article Hamraj Kang of Kangs Solicitors explains the nature of a Tax Compliance Check and addresses some of the issues experienced by the tax advisory team at Kangs Solicitors, members of which are available to speak to you, at a moment’s notice, at any of the following offices:

The Nature of Tax Credit Compliance Checks

HMRC carries out tax credit compliance checks, inter alia, to ensure that that the correct amount of tax is being paid at the proper time, tax evasion is discouraged and that all the tax processes are operating fairly. 

HMRC may well conduct a tax investigation where: 

  • it is believed a business or an individual has underpaid a tax,
  • there are some apparent anomalies requiring clarification, such as incorrect figures having been entered into tax returns,
  • errors discovered in the accounting figures are compounded to the following year,   
  • a small enquiry has not provided responses satisfactory to HMRC or it is believed that such responses require further checks,
  • issues concerning PAYE (Pay As You Earn), Corporation Tax or VAT arise,   
  • HMRC suspects that an individual or business may be endeavouring to evade payment of tax by way of fraudulent evasion activity such as where a large repayment claim has been submitted where trading turnover is low or a small payment has been declared where turnover is high.

HMRC Tax Compliance Check Process 

HMRC has the right to conduct any form of tax credit compliance checks to ensure that tax returns are accurate.        

HMRC tax compliance check process usually includes the following stages:

  • HMRC will call or write to you and your tax agent, where there is one, informing of the matters to be checked, the reasons for so doing and the documents to be produced.
  • Arrangements will be proposed for the mode and venue for a meeting. In some cases, HMRC may visit business premises or a home in order to inspect the premises and records.
  • Whilst routine investigations and queries on tax compliance can be finalised relatively quickly when all the information required is provided promptly, complex issues requiring a detailed and thorough investigation may last for much longer.
  • Given that HMRC is obligated to conduct regular compliance checks on a proportion of tax returns to check for their accuracy and whilst most are done randomly, some are targeted at businesses operating in sectors where fraudulent evasion is more widely detected.
  • HMRC has the right to use legal powers to force production of useful documents and information.

Penalties For Default

Once the tax compliance check is complete, Notice will be given of any outstanding tax found due for payment.

Where it considers appropriate, HMRC may impose a penalty which will vary according to the seriousness of the breach.

Inaccuracy penalty 

HMRC requires all individuals and companies to provide accurate information when filing their taxes and failure to do so may incur a penalty e.g. filing a tax return that contains a basic error or inaccurate information which results in tax being over-claimed, underpaid, or understated. 

Unprompted Disclosure 

An Unprompted Disclosure is one made when the person making it has no reason to believe that HMRC has discovered the inaccuracy, under-assessment, failure to notify, deliberate withholding of information or wrongdoing, or is about to make such discovery.

Disclosures made during a compliance check will usually, but not always, be prompted by HMRC enquiry and the inaccuracy is then accounted for. This situation is known as a prompted disclosure.

The penalty for unprompted disclosure is, generally, lower than for a prompted one. HMRC may not impose a penalty if it believes that the error or omission was not made deliberately.

Quality of disclosure 

The amount of penalty raised by HMRC may be mitigated by co-operation during the course of an investigation by, for example, declaring the operation of a Tax Avoidance Scheme or assisting HMRC with whatever issue has arisen.

The mitigation available for this ‘quality of disclosure’ is to encourage taxpayers to ‘come clean’ and assist issues being resolved openly and promptly.

How Can We Assist?

If you are the subject of a tax compliance check, or any other Revenue Investigation of any nature or anticipate becoming one, the team at Kangs Solicitors provides expert help and advice.

Please do not hesitate to contact our team through any of the following:

Hamraj Kang
hkang@kangssolicitors.co.uk
07976 258171 | 020 7936 6396 | 0121 449 9888

Tim Thompson
tthompson@kangssolicitors.co.uk
020 7936 6396 0121 449 9888

John Veale
jveale@kangssolicitors.co.uk
0161 817 5020  | 020 7936 6396 07989 521 210