Personal tax investigations

If a tax investigation is opened into a taxpayer’s personal tax return, he or she will receive a letter, typically from HMRC’s local compliance offices. It may be that HMRC wish to investigate specific points of their personal tax return (an ‘aspect enquiry’), or will investigate the tax return as a whole (a ‘full enquiry’). A full tax investigation into a tax return will normally include an examination of all business records and HMRC may request a meeting with the taxpayer under investigation.

It sometimes happens that, during the course of their enquiries, HMRC discover further issues and decide to open a more serious type of tax investigation. For instance, HMRC may find evidence or suspect that tax fraud has taken place and so may open a Code of Practice 9 tax investigation or find evidence that suggests tax avoidance and therefore open a Code of Practice 8 tax investigation.

Personal tax investigations can be particularly stressful for the individual concerned and it is important that HMRC are dealt with proactively and effectively. For example, Officers of HMRC routinely ask for documents to which they are not necessarily entitled to see and, although taxpayers are not obliged to attend any meetings with HMRC, pressure is often put on them by HMRC to attend one.

An important safeguard for a taxpayer faced with a long running HMRC investigation is that, where he or she thinks that there are no reasonable grounds for an enquiry continuing, the taxpayer can apply to the First-tier Tax Tribunal to consider whether the enquiry should be closed.

HMRC will conclude their investigation with a ‘closure notice’ which will inform the taxpayer that they have completed their enquiries and state their conclusions. There is a right of appeal to the First-tier Tax Tribunal against any such closure notice. It is important to remember that if HMRC find errors in a taxpayer’s personal return they may, as part of the conclusion of the enquiry, issue him or her with a penalty notice. A penalty notice may, for example, be issued where HMRC discover errors in the return due to a mistake being made,  even if the mistake was due to carelessness rather than any deliberate behaviour on the part of the taxpayer. Such penalties can be for substantial amounts.

In dealing with HMRC there is no substitute for experience. Levy & Levy have immense experience of HMRC investigations and can guide and protect our clients throughout the whole process towards a successful resolution. Protecting the taxpayer’s interests in this situation involves mitigating penalties and raising any legitimate tax technical and factual arguments to reduce the tax payable following any closure notice. In appropriate cases, the taxpayer may be best served by making an appeal to the independent First-tier Tax Tribunal.