Can anyone say what the cost of an HMRC investigation into an individual’s tax affairs that they know of has been, apart from any fines?
I received details of a “Tax Investigation Service” from my accountants, giving details of an insurance scheme to cover representation and expenses up to £100,000. (It covers more for businesses but individuals pay the same annual fee of £60.)
The scheme is run in partnership with Croner Taxwise. The accompanying letter says “When you are chosen for investigation”… [“when”? Do they know something I don’t? Surely “if” covers the point] “… we will assist you every step of the way…”
It points out that individuals and SMEs account for over half of the £33bn tax gap and that HMRC is actively encouraging people to snitch on suspected offenders, while it continues with investigations that are purely random. Outrageously, victims have bear the cost, guilty or not.
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How complex are your tax affairs and how confident are you that they're in order.
If the provider of this service think they can make a profit based on a premium of £60 that probably says a lot about probability and likely cost.
I've been on PAYE all my life and with just salary, or latterly pension and salary, HMRC never featured on my radar. Having inherited some unit trusts and small portfolio of shares in FTSE100 companies I really ought to do a bit of checking.
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I would say my tax affairs are relatively simple and I assumed the information was sent to all clients of the accountants, regardless, but I will check. I declare any share income that might be subject to tax. The accountants' assessments of tax due have always been accepted by HMRC and I have always paid up within days of receiving a demand.
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They are trying to get you to part with money for a service you don't need.
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From what I know about the insurance if there has been any failure to declare part of your income it does not cover you.
Last edited by: Robin O'Reliant on Sun 4 Oct 20 at 15:49
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>> They are trying to get you to part with money for a service you don't
>> need.
>>
....much like HMRC, then. ;-)
Last edited by: tyrednemotional on Sun 4 Oct 20 at 17:04
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>>while it continues with investigations that are purely random.
I'm sure that there is some sampling, but by far and away the largest proportion are triggered for one reason or another.
>>Outrageously, victims have bear the cost, guilty or not.
Victims? And what cost?
>>I received details of a "Tax Investigation Service" from my accountants, giving details of an insurance scheme to cover representation and expenses up to £100,000.
So fundamentally your accountants are saying that you should not trust the quality of their work and should take out insurance in case they've screwed up so that the cost of them putting it right is paid?
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I thought the therapy had worked - had some trouble with them 10 years ago or so...
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Ah yes, I know just what you mean.
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>> I thought the therapy had worked - had some trouble with them 10 years ago
>> or so...
Make that 40 years ago and I also had trouble with them. Was it called a "Declaration of Financial assets", or something like that? I had to count all of my monies, including cash on or about my person.
I reckon someone made a malicious report - completely unfounded, obviously.
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>>Victims? And what cost?
Those investigated. The cost of any professional fees involved in defending an action.
Returning to my original post, there seems to be no readily available information on the amount of fines or other penalties in such cases.
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>> Returning to my original post, there seems to be no readily available information on the
>> amount of fines or other penalties in such cases.
I wonder whether there is anything published by the Tax Chamber of either the First-tier or Upper Tribunal that might illuminate? Alternatively any thing said by the Adjudicator's Office:
www.gov.uk/government/organisations/the-adjudicator-s-office
My own view is that even a random check on somebody with nothing more than salary/pension and savings in ordinary banks and/or Unit Trusts or Ordinary Shares, Gilts etc would have little to fear and would incur little in any expense in dealing with issues raised. If there have been mistakes or oversights then if you've done tax 'DIY' then arrears an penalties might hurt. OTOH if they're the mistakes of a professional then his Indemnity Insurance may be called on.
OTOH if one has majored on tax avoidance, particularly the stuff that could be perceived as close to the dividing line with evasion, then one might get clobbered.
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It is very easy to trigger a tax investigation without doing anything wrong and your accountant doing everything right.
HMRC have various triggers related to legitimate tax avoidance schemes. Things like the level of discount to face value permitted for the transfer of minority interests in assets; setting up trusts, disposing of assets to avoid IHT. Even if everything is correct HMRC can still decide to have a closer look and that will involve your accountant and possibly lawyers in providing a great deal of information and proof that what they advised you was correct.
Even if HMRC go away, the costs of your advisors has to be met by you. Hence the insurance policy. Very cheap at £60 if your advisor charges £200 + per hour and requires ten hours work.
My family's tax affairs are relatively complex due to there being family company, a now deceased overseas parent, director and shareholder and grandchildren benefitting from trusts. Everything we do is triple checked by the accountant with his specialist advisors and we always take the advice that says ".... you can do X, but don't go beyond say 65% as anything more will trigger HMRC having closer look and the tax saving is not worth the cost of the investigation...".
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If you engage in tax avoidance now, you have to tell them. This is of course a trick question. Is an ISA tax avoidance? Obviously not (I asked them). What they mean is a scheme or strategy devised with the aim of avoiding tax, but how does that differ from from simple tax planning such as crystallising capital gains only within your allowance?
It gives them a way to torment almost anybody without the simplest tax affairs if they really want to. Fortunately (or not) I don't think they have the resources
I suspect the most likely vulnerability for relatively ordinary folk who aren't actually fiddling is IR35 for those who work as contractors. I used to pay for cover in case of disputes specifically over that. According to a friend of mine who is a medical writer employed on contracts this is now getting very tricky.
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>> If you engage in tax avoidance now, you have to tell them.
>>
Oh dear, I know so many people who do.
I only earn £500 interest on my savings. Miss Z earns the rest because she’s a lower rate take payer and I transfer my money to her to allow this. That’s legal avoidance.
We split share ownership the same way so we both get a slice of the annual allowance for dividends and capital gains tax.
It’s almost giving them an excuse to audit you.
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Mrs Z not Miss Z - now the tax man will be after me! :-)
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An Inspector May Call - Bromptonaut
