Categorized | matt's blog

Rules of Engagement. The don’ts and don’ts of tax investigations

Not many people receive a letter from HMRC, investigating either themselves or their business for a mixture of self-assessment/PAYE/VAT/Corporation Tax. They are thankfully quite rare and the vast majority are merely a checking of the figures, just to make sure you have declared all of your income and only claimed allowable expenses.

These days, the letters are as polite as possible, even to the point of sounding apologetic. A great change from the early nineties, but more on that another time. Rather than go into specific examples of what happens, I will furnish you with a few things you should absolutely not do. They might seem obvious to some, but to others – this might just save your life.

  1. Don’t call the number on the front of the letter and start calling the Inspector “mate”. He/She isn’t your friend and no matter how much laughing and smiling you do, they still want to know why you think paying a salary to your cat is necessary.
  2. Do answer the letter on time. They are not going to just forget about you and shrug if you don’t answer. Most likely it will end up with an actual visit to your address and a very annoyed tax inspector. And this leads me on to …
  3. Don’t send the letter back as “not known at this address”. You would be amazed at how many times people try this one on. I have spoken to Inspectors that have recalled about 10% of the letters they send out are mysteriously to people that moved out the week before. If you are lying, the penalties will be a whole lot higher and it can end up in a criminal prosecution.
  4. Do not prevaricate about what they are asking for. If the Inspector asks for a copy of the invoice you claimed as an expense, let them have it. Yes, it may be they will not allow your weekend trip to Devon as a business expense, but they are not going to forget they asked you for the invoice either.
  5. Do not write them a letter explaining that you are too busy to deal with their enquiry and can they get back to you next year. You can promise that your return is really 100% correct and they are wasting their time, but they are still going to check it anyway.
  6. This last one is very important and I have spoken to an Inspector in Nottingham that actually had this happen to them. Do not ring them up and try to cut a side-deal by letting them have the names of five other people you know of that are definitely dodgy. The person who has written to you cannot close your file and enter on the system, “I took them off the list as we will get more from these others”. That would be called corruption and the Inspector could end up with criminal charges. The tax system isn’t by negotiation I’m afraid.

Best advice, relax. The system is purely a matter of mathematics and personality doesn’t come into it. On the HMRC system, you are a name and some details to check; the HMRC Inspector isn’t looking through your sock draw and rubbing their hands together.

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