Income Tax Investigation

What is an Income Tax Investigation?
For the person being investigated under equity, tax investigations—whether they
be HMRC compliance checks, income tax inquiries, or something else entirely—
are exceedingly stressful and challenging.

HMRC typically uses a Section 9a enquiry, also known as an income tax
investigation, to determine whether someone's tax affairs are in order.
Section 9a inquiries aren't typically carried out at random; instead, HMRC usually
opens an income tax investigation when it suspects that there may have been a
tax underpayment.

HMRC tax compliance inquiries can come from a variety of different offices and
under a variety of different guises, but they will typically explain that they are
looking into your records in some way, whether you are an individual, business,
or trust.

What happens in a HMRC Compliance Check?
When someone receives a compliance letter from HMRC, it indicates HMRC
are conducting a compliance check with a schedule of information that
they believe they need to test the tax affairs, that is when they will first
become aware of the income tax inquiry.

With the tax enquiry letter, HMRC frequently requests a substantial amount of
data. Due care must be given to this as it frequently requests goods that HMRC
are not legally entitled to. It should be reasonable required for HMRC to test the
tax status they are allowed to check in order for them to be entitled to
information. The first mistake is typically asking for information from a different
year than the one they are checking.

What if the client knows he has tax irregularities?
If HMRC is looking into your finances and you are aware that your taxes are
irregular, you should seek professional assistance.

Investigations involving multiple tax years and different forms of taxes can
quickly develop from simple inquiries about income taxes. In certain situations,
HMRC has the authority to investigate tax issues going back up to 20 years.
Cheylesmore Chartered Accountants will be able to control the situation and
advise on the best course of action.

Sending information to HMRC

First off, simply because HMRC requests information does not obligate you to
provide it. Information and documents generally fall into two categories:
statutory and non-statutory. Statutory information is that which HMRC may
legitimately request from you and which you are required by law to disclose.

Non-statutory information is that which would only be of interest to HMRC but
which you are not obligated by law to supply.

However, you'll need as much material on hand as you can to support your
claims. This frequently includes information about revenue and expenses, such
as bank account statements and invoices for purchases and sales. It goes
without saying that your viewpoint will be stronger the more knowledge you
have. You or your advisor will be immensely helped in successfully defending
against an investigation if you have access to comprehensive and reliable
information.

Frequently, individuals and accountants compile the requested information and
post it to HMRC. It is crucial to review the information before sending it, and it
can be useful to include schedules outlining how the information relates to the
numbers in the tax returns and accounts.

PENALTIES
In terms of how far back HMRC can dig, it all relies on the behaviour of the
individual. From the conclusion of the assessment year in which the agreement
is reached, four years pass if they used reasonable care, six years if they were
careless, and twenty years if they acted intentionally. Of course, HMRC's
perception of what constitutes purposeful behaviour differs greatly from what the
law actually states, and they frequently forget that they must demonstrate that
the person knew the tax return was inaccurate when they signed it.
The severity of the fines is also influenced by how individuals behave and if they
have cooperated with HMRC by reporting any irregularities. Cooperating with
HMRC differs significantly from doing exactly what they request, and this is
another instance in which the way a tax investigation is handled can have a