HMRC Increases Investigations to Close the Tax Gap
Long before the election, the now Labour Government set out, in a document entitled ‘Labour’s Plan to Close the Tax Gap’ its intent to recover payment of more tax revenues from those trying to avoid payment.
Chancellor Rachel Reeves has confirmed plans to reduce the current ‘Tax Gap,’ said to be in the region of £40 billion, which represents the amount of money owed and the amount actually collected by recruiting five thousand more tax officials over the next five years.
Two hundred new Compliance Officers were due to have commenced work in November 2024 and whose role is ‘to ensure that individuals and businesses are paying the correct amount of tax at the right time, receiving the appropriate allowances and tax reliefs, and to discourage tax evasion.’
Additionally, the Government anticipates there will be legislative and regulatory changes to tackle non-compliance including the requirement to report a wider range of tax avoidance schemes and to strengthen powers to enforce payment of tax.
All of the Government’s stated intentions will clearly increase the number of civil and criminal investigations which will be conducted by HMRC.
In view of the apparent intensity of the Government’s campaign Hamraj Kang of KANGS provides an update on the nature of the investigations conducted by HMRC.
Civil Investigations | HMRC Compliance Checks
An HMRC Compliance Check is an investigation which may cover various taxes including income tax, corporation tax, VAT and National Insurance intended to ensure that individuals or businesses are paying the correct amount of tax.
An investigation may arise as the result of inconsistencies in tax returns, significant shifts in income or expenses or third-party information.
HMRC may investigate:
- the level of tax paid by the taxpayer,
- accounts and calculations.
- self-assessment tax returns,
- a company’s tax returns
- all PAYE documents relating to employees.
When HMRC commences a Compliance Check it will usually notify the taxpayer and send an Information Notice detailing the information and documentation required. If considered necessary, HMRC may attend the taxpayer’s premises, usually on Notice, although it may make an unannounced visit at which time it must produce a Notice explaining the basis for such visit.
Following an inspection, HMRC will notify the taxpayer of the results which may involve:
- a repayment, if too much tax has been paid, possibly with interest on that amount,
- a request for payment of any tax found to be due within thirty days, probably with interest from the date the tax accrued.
HMRC may impose a penalty, the amount of which may depend upon:
- the reasons for any underpayment or incorrect claim for repayment,
- any admission of error to HMRC within an acceptable period,
- the extent of co-operation during the check
Sanctions for Non-Compliance
Not Complying with Information Notice
If the Taxpayer does not comply with HMRC’s Information Notice, it may levy a fine against the taxpayer and impose a daily fine until such time as the information is provided.
Refusing Entry
If the Taxpayer refuses entry to the premises without reasonable excuse, HMRC may levy a fine against the taxpayer and impose a daily fine until such time as entry is granted.
Criminal Investigations | Prosecutions
Recent data indicates that the number of potential criminal cases being investigated by HMRC has increased by 49% between 2021/22 and 2022/23.
HMRC does not decide whether a case will be criminally prosecuted. This decision is the responsibility of the Crown Prosecution Service. Whilst it is the policy of HMRC to deal with fraud by using the civil fraud investigation procedures, where it needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate, it will conduct a criminal investigation.
HMRC exercises complete discretion whether or not to conduct a criminal investigation across a range of offences, and it will generally consider starting a criminal, rather than civil investigation, where, for example:
- an individual holds a position of trust or responsibility,
- an organised criminal gang is attacking the tax system or systematic frauds involve a serious revenue threat,
- materially false statements are made or materially false documents are provided in the course of a civil investigation,
- there is a link to suspected wider criminality, whether domestic or international, involving offences not under the administration of HMRC,
- the perpetrator has committed previous offences or there is a repeated course of unlawful conduct or previous civil action,
- the case involves theft, or the misuse or unlawful destruction of HMRC documents.
How Can We Help?
Amongst other proposals announced by the Government include ‘ring-fencing’ a portion of its ‘blockbuster’ funding targeted towards strategically important criminal cases to ensure a strong deterrent against tax evasion.
With such a determined approach to tackling both tax avoidance and tax evasion, it seems inevitable that many more individuals and businesses will be receiving Information Notices and visits from HMRC.
In the event of either situation, if you are facing a HMRC compliance check, it is essential that experienced legal advice is obtained immediately and before engaging in any form of discussion or interview with HMRC officers.
KANGS has been advising and guiding clients involved in disputes with HMRC for many years and enjoys an enviable national reputation for the high quality of service provided to its clients.
Should you become subject to a HMRC investigation of any nature, do not hesitate to get in touch using the contacting details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
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