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Why your business is at risk of being investigated by HMRC

By Dominic Bourquin, Corporate Tax and Finance partner for MHA Monahans

As the UK (and the rest of the world) grappled with the fallout of the coronavirus pandemic, usual key priorities were shifted down the list of importance, making way for new, emergency tasks. 

One example would be HMRC’s hiatus on tax investigations. This move freed up its teams to focus on the crucial delivery of millions of pounds to businesses who found themselves on the brink of collapse. Subsequently, the past 18 months has seen HMRC take its foot off the pedal when it comes to investigating tax avoidance and fraudulent claims. 

But now, as the light at the end of the coronavirus tunnel becomes a little brighter, HMRC are back and working at full throttle. Now, those businesses who rightly took advantage of Government support schemes can consider themselves key targets.

The department is aware that financial support, such as the Coronavirus Job Retention Scheme (CJRS or furlough) and the Coronavirus Business Interruption Loans (CBILs), were targeted by unscrupulous business owners making fraudulent claims, and it is going to attempt to catch as many fraudsters as possible. Along the way, it may even try its luck with those companies who were well within their rights to claim support. 

There is no room for complacency when it comes to a HMRC tax investigation. If a letter lands on your doorstep, it’s crucial you seek out professional guidance to consider your options, as fighting a HMRC investigation, regardless of guilt, could set you back thousands of hard-earned pounds. 

Indeed, only last year a client of ours was approached by HMRC, demanding the payment of an additional £600,000 in VAT. After getting over the initial shock, they were prepared to pay the bill. Thankfully, a little niggle inside them meant they came to us for advice first. 

It’s a good job they did, because they were in fact not liable to make these payments at all. After the process of challenging this claim, with a tribunal date set, HMRC withdrew the case. However, what should have been a huge sigh of relief was tainted by the £50,000 bill that occurred in the process of preparing to take HMRC on. Luckily, our client had chosen to take out our Tax Investigation service and didn’t have to pay a penny.

Even though most investigations will be based on very little initial evidence, it can’t be ignored that some businesses may have made mistakes during the claims process for government support schemes. The applications were not straightforward and for many employers, this was the first time they ever had to undertake something of this scale. 

If HMRC have uncovered a genuine mistake, it’s important you’re honest. If you refuse to engage with them or bury your head in the sand, this will make the situation a lot worse. By tackling the problem head on, you’re likely to get to the root of the issue much faster, receive a smaller penalty and bring a quick end to the inquiry. 

But, as with anything with HMRC, approach conversations with caution and have the support of a professional behind you. The scope of any HMRC investigation must follow legal boundaries, time restrictions as well as the information the department is allowed to request.

The moral of the story? It’s three-fold. 

  1. Tax Investigations are incredibly expensive – even when you’re innocent.
  2. HMRC is going to try its luck because the pressure on the department to recoup funds to help pay off the staggering amount of coronavirus-related debt is huge.
  3. Talk to a professional if you are approached. Don’t try and go it alone.

By Dominic Bourquin, Corporate Tax and Finance partner for MHA Monahans

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