For most business owners, the thought of a tax investigation by HMRC is a daunting one – and rightly so.
It’s a common misconception that these inquiries only affect those who have something to hide. In reality, a tax investigation can be triggered for a wide range of reasons, including random selection, and can happen to anyone – from a sole trader to a large corporation.
The process can be time-consuming, stressful, and, most importantly, financially burdensome, as the professional fees for an accountant or tax specialist to handle the case can quickly escalate.
This is where tax investigation insurance, or fee protection insurance, becomes a crucial part of your financial planning. It’s designed to provide peace of mind and financial security, ensuring you have expert representation to deal with HMRC without worrying about the mounting costs.
So just what form can an HMRC tax investigation take, and what areas can you protect with insurance cover? Here is some guidance:
Full and Aspect Enquiries
A Full Enquiry is a comprehensive examination by HMRC that looks into all aspects of a self-assessment tax return. This involves a thorough review of all business books and records related to the return’s entries. These enquiries will feature the issue of a notice under S9A/S12AC TMA 1970 or paragraph 24(1) Schedule 18 FA 1998.
In contrast, an Aspect Enquiry focuses on one or more specific parts of the tax return. HMRC may seek clarification on particular entries or a detailed review to ensure they were treated correctly for tax purposes. This may also involve a check of the records the entries were based on, and is initiated with the same type of notice as a full enquiry.
Business and Compliance Inspections
A Business Inspection Notice gives HMRC the authority to enter a business’s premises to inspect the location, assets, goods, and documents. This type of inspection requires approval from an “Authorised Officer” of Revenue & Customs and is issued under Schedule 36 paragraph 12(2) FA 2008. These can be short-notice or unannounced visits, or they may be approved by the First-tier Tribunal.
A VAT/PAYE/CIS/CJRS/NMW Compliance Visit is a routine check by HMRC for compliance with regulations related to VAT, PAYE, CIS, CJRS, or National Minimum Wage. Professional representation is often considered necessary for these visits when the client cannot handle the matter alone.
Tax Disputes and Investigations
VAT Disputes occur when HMRC challenges the accuracy or completeness of VAT returns. This can be a disagreement about how VAT was operated or the total amount due. Similarly, PAYE/NIC/CIS Disputes arise when HMRC questions the accuracy of returns submitted under Pay As You Earn or CIS regulations, leading to a disagreement over how these were operated and the amount of PAYE/NIC due.
Employment Status Dispute
An Employment Status Dispute happens when HMRC argues that an individual previously classified as self-employed should have been treated as an employee subject to PAYE.
IHT Cover
IHT Cover is relevant to estates or trusts where a tax professional’s involvement is needed after an Inheritance Tax (IHT) return, prepared by the professional, has been submitted.
Gift Aid Inspections
This occurs if a registered charity that operates a Gift Aid Scheme with HMRC is being reviewed.
Partners and Directors Cover
If you are a partner or a limited company, HMRC may make a partial or full inquiry into the personal tax returns of your partners, directors, spouses, and company secretaries.
Judicial Reviews
During a valid claim under the policy, this allows for an application to the Administrative Court to challenge an official’s decision when there is no other legal recourse available.
Application for a Judicial Review
This is an application (during the course of a valid claim under the Policy) to the Administrative Court to challenge a decision of an official where no other legal recourse is available to the applicant.
Code of Practice 8 Investigations
This is where HMRC Specialist Investigations conduct an investigation in accordance with Code of Practice 8.
IR35 Status Check
This is where HMRC write asking if it has been considered whether the client falls within the scope of IR35.
IR35 Disputes
This is where HMRC states a client should be subject to the IR35 legislation following a PAYE Compliance Visit or the issue of a notice under paragraph 24(1) Schedule 18 FA 1998. It will feature a disagreement over whether this legislation applies.
Interventions Cover (Informal Enquiries)
This is where HMRC issues a routine letter or telephone call with a view to obtaining clarification on particular points on a self-assessment tax return without the issue of a statutory notice, and not dealt with or excluded under any other section of this policy.
At Optimum, we offer a Tax Investigation Service for our clients. When you subscribe to our service, we are able to make a claim against our insurance policy (subject to acceptance by the underwriter), with Professional Fee Protection in respect of our fees. You will also benefit from access to a free client legal helpline available 24/7, 365 days a year.
If you are interested in finding out more, please get in touch.
