HMRC investigations
Make sure your taxes are dotted and t’s crossed, as HMRC investigations are increasing.
Over the past year, HMRC has significantly increased its tax investigations, opening around 250,000 new investigations. Many of these requests have targeted high net worth individuals (“HNWIs”) and small businesses.
Using cutting-edge technology and artificial intelligence, HMRC can now identify potential under-reported taxes by cross-referencing data from a variety of sources, including banks, estate agents and social media. Similar powers are also used for offshore matters.
Will this be a success for Labour?
According to the most recent polls, it appears Labor is heading for success in the general election, and they have said that if successful they plan to raise up to an extra £5 billion in taxes a year by the end of the next legislature. . So how are they going to do this?
Labor plans to support this with an annual investment of £555m in additional resources from HMRC, focusing, unsurprisingly, on high net worth individuals (HNWIs) and large businesses. Labor also intends to strengthen HMRC’s authority when enforcing tax payments during ongoing investigations.
In 2022/23, HMRC recovered £39 billion from HNWIs, with even greater sums from larger businesses, thanks to increased investment in people and technology. These amounts are expected to increase further with the proposed changes.
Although the focus should be on large businesses, it should be noted that small businesses account for the majority of tax evasion cases and additional resources are likely to be allocated to address the recent decline in revenues from this sector .
Why is this important?
These developments highlight the importance of taxpayers remaining vigilant about their tax obligations, as further scrutiny from HMRC is expected.
The increase in the number of investigations requires taxpayers to ensure accurate reporting of all their income and gains. Complex tax matters can increase the risk of errors, which can have significant financial consequences.
Submitting an incorrect tax return can result in significant penalties, calculated as a percentage of the additional tax owed. Penalties range up to 30% for non-deliberate errors, 100% for deliberate errors and up to 200% for deliberate offshore matters.
In addition, late payment interest, currently 7.75%, can be extremely costly if deadlines are missed.
Powers of HMRC
HMRC’s investigations can be incredibly complex, with most of its investigative and assessment powers being scheme specific and spread across various pieces of legislation.
This fragmented system adds complexity to the investigation process, creates uncertainty and can undermine taxpayers’ willingness to comply, potentially leading to unfair results.
HMRC is currently reviewing these powers to address these high levels of complexity.
Seek professional advice
The success of current investigative activities is expected to lead to more targeted campaigns, with high net worth individuals likely to be the focus of HMRC’s attention.
HMRC will continue to widen the scope of tax penalties, potentially affecting people who were not previously caught.
If your tax affairs are complex, seeking advice from a qualified tax professional is the safest option to ensure there are no easily avoidable errors.
Likewise, any business or individual with unpaid taxes should be aware that their chances of getting out are lower than ever.
Next steps
As tax investigations increase, it is important to get the right advice.
ETC Tax is here to help, so don’t hesitate to contact us today.
