By Sue Holmes - Tax Investigations Director at Smith & Williamson
Good record keeping and investigations insurance help to guard against threat of non-compliance.
Despite not being immune from government spending cuts, HMRC is being allocated £900m to tackle tax avoidance and evasion and bring in additional tax revenues of around £7bn per annum. These additional taxes are to be gathered by reducing the estimated £42bn ‘tax gap’, the difference between tax collected and, theoretically, what should be collected.
It is therefore likely that HMRC’s compliance monitoring activity will have higher priority. Over recent years the array of powers and penalties available to HMRC has increased substantially. For example, inspectors can now visit a taxpayer’s business premises to inspect records in-year, rather than wait until a tax return is submitted. HMRC can now publish the names and details of taxpayers who are penalised for deliberate defaults leading to a loss of tax of more than £25,000 (so-called naming and shaming).
So tax compliance is an increasingly serious matter. The consequences of getting it wrong can result in huge stress and aggravation for all concerned, which leads to the question of how taxpayers can protect themselves?
It is more important than ever to make sure record-keeping and filing are up to scratch — and then to hold on to those records. The self-employed and recently formed businesses are likely to come under closer scrutiny from HMRC as they have traditionally been seen as at greatest risk of making mistakes.
In general terms, the self-employed must keep a record of all sales and takings, purchases and expenses. Any purchases or sales of assets should be recorded separately from day-to-day purchases. Further records will be required, depending on the business, for example, petty cash expenses, invoices and receipts, till rolls, hire purchase arrangements and bank statements.
HMRC is continually seeking to attack self-employed records and the quality of those records is therefore all-important. In a recent case heard by the Tax Tribunal, a taxi driver won his case against HMRC, largely due to the fact that he kept contemporaneous, although rudimentary, notes regarding his petrol expenses and trips he had made to and from specific destinations. The Tax Tribunal found in his favour, but without the necessary paperwork, he would almost certainly have lost his case.
The point about keeping and maintaining sufficient records applies equally to those in other groups HMRC sees as ‘high risk’, such as high net worth individuals and non-UK domiciliaries.
Fee protection insurance
Any tax investigation, ‘aspect enquiry’ or dispute is not only likely to be intrusive and disruptive, but it can also be very expensive to deal with. One of the ways of protecting against some of the impact is tax investigations insurance. This provides cover against professional costs in protecting the insured’s interests, ensuring the right level of representation and, hopefully, the best result for them. There are a number of companies who provide such cover on an individual or group basis. We have reviewed the market and have negotiated with Abbey Tax Protection, a tailored group policy, to meet the requirements of our clients for whom we are engaged to complete tax returns.
If you are the subject of a tax investigation or require further information on fee protection insurance, including details of the costs, please speak to your usual Smith & Williamson contact, or to Sue Holmes on 020 7131 8167 or email firstname.lastname@example.org
Watch a video of Guy Rigby, Head of Entrepreneurs at Smith & Williamson, talking about critical success factors.