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Advice on dealing with your worst nightmare - a tax enquiry!

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Thursday September 2, 2010 at 3:41pm

It’s an unfortunately fact of life but you or your business could face a tax enquiry at any point, often through no fault of you or your accountant.

HM Revenue and Customs (HMRC) have the power to start an enquiry at any time, and they don’t have to give any specific reason for doing so!

For the tax payer or business owner there’s worry and confusion. “What’s the tax man looking for?” “What have I done wrong?” “What will they find and will I be facing a massive tax bill at the end of it?”

Tax investigations arise for a variety of reasons, the most basic being that the tax inspector spotted something unusual in your accounts or feels they are not seeing a full picture.

For any business a tax investigation can be a disruptive, time consuming and stressful experience but take a deep breath and try and take control back.

Our team of accountants suggest to anyone facing a tax inspection that they follow these critical steps:

  1. Respond quickly – don’t sit on a request for information or ignore correspondence in the hope it will all go away. Respond straight- away, putting the ball back in the court of the inspector. This can often work to your advantage, as HMRC are traditionally slow to respond, giving you time to prepare any information and take advice. 
  2. Second-guess the tax man – try to pre-empt the next question they will ask and prepare for all possible scenarios. 
  3. Be honest – but don’t say too much. Only answer the questions you are asked. 
  4. Check your rights – is the tax man entitled to ask the question or request the information they have? You may not have to supply all they ask or answer every question posed. 
  5. Get specialist advice – the tax man will rely on the Inland Revenue rules – you may have tax law on your side, do make sure you get the best possible advice to make a defence if needed. It’s worth realising that not every accountant will have dealt with tricky HMRC enquiries – make sure yours has.

With an estimated £3 billion per year lost through tax evasion, and HMRC inspectors using anti terrorism measures to crack down on the real criminals, unfortunately some innocent business owners seem to get caught in the crossfire. I genuinely hope you’re not one of them.

Andy Parker
Chartered Accountant

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Parker Chartered Accountants and Financial Advisors is the trading name for Parker Business Development Ltd (Registered No. 4116664), Parker Tax and Trust Ltd (Registered No. 06950353) and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here