Tax Investigation Insurance
Top 10 Tax Enquiry Tips

Sometimes hard work and diligence is not enough to avoid a tax enquiry. In the event of an investigation, certain key principles can ensure a swift and beneficial result - here our Claims Manager Kevin Igoe analyses the top ten ways to ensure a smooth process.

1. Establish Enquiry Type

It is important that the type of enquiry is established. If it is an Aspect Enquiry make sure it is fully dealt with. Remember HMRC needs a reason to extend an enquiry from aspect to full - challenge any extension where necessary.

2.Best Adviser

The best person to deal with an enquiry is not necessarily the most technically brilliant. Technical knowledge is vital, but equally important is knowledge of how the system works and the ability to negotiate effectively.

3.Taxpayers Rights

This is a fundamental point. Anyone dealing with the Revenue should be aware of the taxpayer's rights, e.g. when personal bank statements need to be provided, if meetings are necessary etc.

The client should be informed of their rights and the way the enquiry can be expected to run so that they do not say or do anything rash or unhelpful.

4.Take Out Insurance

At a Chartered Institute of Taxation Conference a presenter said that he had found the Revenue were dealing more efficiently with cases where they knew the clients had cover. This insurance can save money and strengthen a client relationship.

5. Revenue Manuals

These manuals are a good source of information - particularly if the HMRC asks for something and you are wondering whether this should be allowed. We have seen the enquiry manual being quoted successfully to HMRC a number of times.

6.Prevention v Cure

We know that various events such as late returns or a poor compliance record can increase the likelihood of an investigation. A number of accountants are now informing their clients of this fact when chasing up tax return information.

Once the investigation has started the standard of record keeping becomes important. Many accountants are telling clients to improve record keeping where necessary, some are even asking clients to annotate personal bank statements to avoid difficulties with remembering what deposits relate to some 2-3 years later. One accountant said that he knew full well not all of his clients were doing this but as least they had been told.

7. Establish Facts

This is an obvious point. Many of our accountants at the outset of an enquiry will ask the client in a positive and polite way if he/she is aware of any areas with which HMRC may have a problem e.g. undeclared sales. This gives out a clear message - if you tell us now we will do our best to help you; if not then there may be little we can do.

8. Seek Advice

If you don't know or are unsure, just ask! We can always be asked for a second opinion - sometimes accountants know the answer but telephone just to bounce ideas off of someone. We are here to help, so if you are in doubt, just ask!

9. Be Accurate

Or "tell the truth". Be sensible in what the Inspector is told. Do not be tempted to say the first thing that comes to mind just to satisfy HMRC.

For example, on one occasion HMRC asked why the accountancy fees were so high compared to previous years. The answer came back "because the records are very complicated and extensive". HMRC replied he had all the records and they fitted in a shoe-box! In the eyes of the Revenue, the accountant's credibility had been undermined and as a result, written proof of everything was requested.

10. Negotiate

This speaks for itself and must be remembered at all times. Self Assessment enquiries feature necessary negotiation in many cases. With targets of over 83%, HMRC may not be particularly interested in assessing the right amount of tax - just more tax.