The Government has made it clear that it will be looking to increase tax revenues, with a distinct focus on tax compliance, and so businesses and individuals will need to be extra vigilant in how they manage their tax affairs in anticipation of wider scrutiny by HMRC going forward.
Increased resources
In the Autumn Budget, the Chancellor announced “the most ambitious ever package to close the tax gap”. This included a £1.4bn investment to recruit and train 5,000 compliance staff and the appointment of a Covid Corruption Commissioner to recover funds from those who wrongly claimed government support during the Covid-19 pandemic.
In the Spring Statement, Rachel Reeves announced further measures to close the £44bn tax gap, including the recruitment of 500 more compliance staff.
The Government projects its investment in tax compliance and debt collection since October will bring in more than £7.5bn additional tax revenue by 2029-2030.
With such a deficit and greater resources, it comes as no surprise that HMRC is opening more tax investigations.
What will this mean for businesses and individuals?
With greater resources, we expect HMRC activity to significantly increase in the next year in the guise of more formal enquiries or audits on businesses and individual taxpayers, and we are already starting to see a more visible HMRC on the ground both locally and nationally through targeted and geographical campaigns and more online presence and publications.
What can make you a target for an HMRC investigation?
There are several reasons why you may be more likely to trigger attention from HMRC.
Changes in your financial reporting
R&D tax relief claims
High-net worth
Capital Gains Tax enquiries
Sale of a business
Incorrect information held by HMRC
Malicious tip-offs
The important thing to remember is no one is immune to a tax investigation – even companies and individuals confident of their compliance – and it is a process that can be intrusive, obstructive and very costly.
What can businesses do to prepare in the increasing likelihood of tax investigation?
Ensure you identify any compliance gaps in your business or personal tax affairs before HMRC opens an enquiry. This includes keeping full and robust records of all your financial transactions that impact your tax position and ensuring that all taxable income has been correctly reported to HMRC where required to do so. HMRC is increasingly able to source financial information from banks and other institutions, and so it is important that tax returns match up with information already held by HMRC to avoid additional liabilities and penalties.
If HMRC launches an investigation into you or your business, the range of records and documents the inspector might check is vast. They’ll contact you or your accountant in advance to set out the evidence they want to see or information they are wanting to collect. This will likely include your annual HMRC tax returns, any PAYE records, tax you have paid, self-assessment returns, full company records or tax calculation evidence.
If you have any concerns regarding the compliance of your business it is best to seek guidance and advice before HMRC gets in touch. At Armstrong Watson our team of tax experts are here to support you with a review to ensure you meet the regulatory requirements. For those who have already been contacted by HMRC regarding an investigation, our tax compliance team are here to support you throughout the process and hopefully help you achieve a better outcome for you and your business.
If you would like tax advice and support for you and/or your business call 0808 144 5575 or email help@armstrongwatson.co.uk.
