HM Revenue & Customs (HMRC) have many opportunities to look into your tax returns, both for your business and personal tax affairs. Sometimes their enquiry is prompted by information they’ve received – for example from an ex-partner, a disgruntled employee or competitor.
But HMRC don’t necessarily need a reason to look into your tax returns – their computer might just select you for a random check.
In any event, you will need to involve your accountant, and the costs to you will vary depending on the nature of your enquiry.
You might feel that you’re being unfairly selected or victimised, but that’s unlikely to stop the enquiry.
There is only one potential situation where you can recover costs from HMRC, and that’s if they find nothing wrong. In our experience they always manage to find something wrong, so we wouldn’t suggest you rely on recovering your costs as a strategy!
It’s impossible to tell how much an investigation will cost at the start, because it very often expands, and will likely involve the senior staff or principles of the accountancy practice.
The worst case we experienced involved a VAT issue. We are unable to give details due to client confidentiality, but HMRC wanted in excess of £800,000 in additional tax. As a result it took years to deal with, and the final fee was in excess of £20,000.
That was an exceptional case, but in the initial stages no-one could have predicted such a costly outcome.
For many clients, the costs of an investigation are unplanned, and they struggle to find the extra fees required. This puts us in the difficult position of deciding whether we should continue to incur costs with no prospect of payment. If the end result is an unforeseen tax bill we are even less likely to be paid, and we may have to stop working on your case. That would leave you exposed, and HMRC might win their case by default.
For a small annual cost, the tax investigation service covers all of our fees in the event that HMRC decide to look into your tax affairs. It does not cover any subsequent additional tax liability, interest and penalties, but it does mean that we can provide you with support without you having to worry about how to pay us.
For clients using our new transparent pricing module (see separate Focus sheet: Transparent Pricing), we automatically include the tax investigation service in our quote.
For clients using the traditional method of billing, we offer it as a standalone service.
There are obviously exceptions: the tax investigation service doesn’t cover you if you’ve been dishonest, if your return was late or if there was a major omission from your return that you should have been aware of.
The benefits to you:
i. Most enquiries happen at a time when they’re least affordable. The tax investigation service enables us to continue assisting you at the time when you’re least able to pay for our services.
ii. For a small annual fee, our fees are covered no matter how large the costs.