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Making it through a tax investigation – a guide

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If you receive an intimidatingly severe-looking buff letter, with ‘HMRC’ emblazoned in imposing block capitals on the envelope, it could be a notification that you are to be investigated by the UK tax authority.

It’s easy to feel frightened, or even indignant, at the suggestion there’s something improper about your tax affairs. Tax investigations can be selected randomly, or there may be a specific cause for concern. Either way, this Your Money guide will help you survive a tax inspection.

Keep calm, and carry on

If you’re notified that you’ll be subject to a tax investigation, don’t worry – one in 540 people in the UK are subject to such an examination annually. Don’t assume that it’s because HMRC has found something dodgy. Try to remain calm, and consult an experienced adviser. Tax can be complex, and it pays to seek professional guidance and support from someone who knows both the law.

Never assume

Even if you feel you’ve done nothing wrong, don’t assume that you’re being investigated speciously; HMRC has limited resources, and prides itself on scrupulous (and extensive) data analysis, there will be a reason for the inquiry.

Don’t shred!

On no account should you get rid of any documentation. Even if the material isn’t incriminating, or you feel it isn’t relevant, missing records of any kind can suggest to HMRC that you’re trying to hide something. In fact, if and when you’re informed of an investigation, check your own records for gaps – if you spot any, seek replacements for the absent records.

If there are still gaps in the documentation trail, consult your accountant (or adviser) and calculate reasonable estimates for the shortfalls in information.

Get proactive

It could help to ask HMRC why they’re investigating you, and what they’re looking for in particular. This will help you identify the documents you need to keep within reach – and the documents you might need to replace.

Furthermore, when you’re writing your responses to HMRC letters, think about what they might ask you about next. Don’t be coy either – if you feel there’s information they’ll ask for further down the line, provide them with it pre-emptively. Acting cooperatively can help reduce any penalty you face at a later date.

Honesty is the best policy

If you submitted a tax return that contained incorrect or incomplete information knowingly, you should be sincere, and inform HMRC as soon as possible. Again, full and frank disclosure, which details the errors – and offers an explanation for them – could mean you receive a smaller penalty.

Deadlines & dialogue

You should enter into – and maintain – an ongoing dialogue with the authorities. If you need to pay extra tax, or a penalty fee, try to agree a fair payment plan – be realistic about how long it’ll take you to pay, and by how much each time. If you’re going to miss a pre-agreed payment date, let HMRC know as soon as you possibly can, and propose an alternative payment date (and/or plan).

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