When the brown envelope with the Tax Enquiry Notice first hits the doormat many owner managed businesses want to know if the tax enquiry is “random” and if they can expect fair treatment from the Taxman.
The first question is easy to answer. Only about 3% of all tax enquiries are randomly generated. If your self-employed small business has been sent a Tax Enquiry Notice or Compliance Check Notice from HMRC Local Compliance then it almost certainly is not random. They have risk-assessed you and your business and selected you for an in-depth investigation because they believe you have under-stated your profits and think they can get more tax, interest and penalties from you. If you receive a Code of Practice 9 from either CIF (Civil Investigation of Fraud) or SI (Specialist Investigations) then this is definitely not random. In that case HMRC suspect serious fraud and you need immediate specialist help.
But can you expect a fair, open-minded approach from the investigator (aka tax inspector or tax officer) when he examines your affairs? HMRC recently published its views on how it grades taxpayers’ honesty. After getting past the jargon (e.g. ‘compliance spectrum mapping’) HMRC go on to classify individuals by the taxman’s opinion of people’s attitudes to getting their tax right. The taxman thinks 4% of you are “Dodgers” who “won’t” ever act honestly. They say 12% of us are “Chancers” ,who only comply under pressure. 26% of us, in their view, don’t take enough care (through attitude or ignorance!). In their view nearly half all UK taxpayers do not successfully try to get their affairs in order. As people running their own businesses have more tax complexities and red tape to deal with than PAYE taxpayers it is likely HMRC feel business people are more likely to be in the dark side than on the side of the angels.
So will the tax inspector deal with your tax enquiry in a fair and open minded way? The odds don’t look good! If you are subject to a tax enquiry, tax investigation or compliance check and inspection, or if you want to make a tax disclosure, Lynam Tax Enquiry Experts can help.
For a free, confidential, no obligation discussion call Paul Lynam now on 0845 643 9997