UK Tax investigations and Enquiries

Being investigated by the Inland Revenue is extremely serious.  A major enquiry can seriously disrupt your business whilst a self assessment personal tax investigation can be prolonged, detailed and intrusive.

If you have deliberately tried to conceal information and are found out you could be fined or even sent to prison.

Most tax investigations begin because the Revenue has reason to believe that some aspect of your tax return or business accounts is wrong.  They may have received a tip off, some figures in the tax return may not tally with other information they have or the return may have been sent in late.

The Revenue also randomly selects a proportion of tax returns every year.  In the first two years of self assessment some 15,000 returns were investigated.  The Revenue will write to you to let you know that your affairs are being investigated although it will not normally give the reason behind its decision to launch an enquiry.

Under the self assessment regime the Revenue must start any enquiry within 12 months of the last filing date of 31 January but there is no requirement for an investigation to conclude with a fixed period of time.  Some enquiries can last more than two years.

Most enquiries are handled by local tax inspectors with specialist training and experience.  They know what to look for and are well versed in the excuses trotted out by wayward taxpayers who have underpaid their tax.

Whatever happens, taxpayers’ affairs will be dealt with confidentially and information will only be disclosed to people that the individual agrees it may be given to such as a tax accountant or other adviser.

If the problem appears to be a simple one of omission, the Revenue can ask taxpayers to answer specific questions or provide documents that might answer the question.  If it is discovered that tax has been underpaid the taxpayer will have to pay what is due plus any penalty or interest accrued.

In serious cases of fraud, the Special Compliance Office can be involved.  This is the Revenue’s elite unit responsible for the most high profile investigations.

In cases where minor amounts of income have been undeclared or where small mistakes have been made on the return, normally the matter can be cleared up with a few phone calls and submission of relevant paper work.

But where serious fraud (more than £50,000) is concerned, the Revenue can start to request information from banks, accountants and other parties if it is the tax inspector’s ‘reasonable opinion’ that this will help the investigation.

Individuals with complex tax affairs with a business to run may well find it easier to hire a specialist tax adviser or accountant to guide them through the process and minimise the disruption to their activities.

Prosecutions and penalties can be severe including jail sentences and stiff fines designed to recoup the unpaid tax and penalties.