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Lee Bradley, Director at Bevan Buckland LLP

Lee Bradley, Tax Director at Bevan Buckland LLP

Businesses in Wales are being warned that they face an increasing likelihood of tax investigations from HMRC in 2021, according to Wales-based accountancy and financial planning specialists, Bevan Buckland LLP.

The firm is warning that after a temporary pause in April to free up resources for the coronavirus business response, HMRC has been getting its tax investigations up and running again with the number of tax investigations likely to soar in 2021, as the Government tries to balance its books post-Covid.

That might not come as good news to CEOs who are in the midst of adapting their business to the gradually-easing lockdown rules or preparing their company for the economic instability ahead.

Lee Bradley, Tax Director at Bevan Buckland LLP, says: “The Revenue has started to direct its attention towards the misuse of coronavirus support schemes, such as the furlough and the self-employed income support schemes. So, more businesses and individuals are likely to be investigated by HMRC. HMRC does not need a reason to investigate – it can do this at random. The Government has spent in excess of £300 billion tackling the crisis and this will likely be clawed back in either tax rises or spending cuts. However, in the short term, we expect both options to be unpalatable and so we expect a sharp rise in tax investigations to start to repair the country’s finances.

“Understandably, business owners worry about the additional pressure that comes with a tax investigation, especially when they’re already busy dealing with other aspects of their business. But the more you know about the process, the easier it will be to deal with. In most cases, being prepared and having the right information to hand will help to resolve the investigation as quickly and smoothly as possible.”

If your tax affairs come under HMRC’s scrutiny, here’s what you need to know:

  • Before the investigation begins, HMRC will contact you by post or phone, or they’ll get in touch with your accountant.
  • They will explain what they want to look into and may request that you provide records for them. At this stage, it is very important that you contact your accountant and they can explain what you need to do and answer any questions.

There are two main types of tax investigation – aspect and full:

  • Aspect enquiries, meanwhile, are launched to look at a particular part of your accounts where HMRC suspects an error.
  • Full enquiries take a broader look at your accounts, usually because there’s evidence of the significant error.

While the investigation takes place, HMRC may ask to conduct a meeting in person. It is sensible to have an accountant present at this meeting. Depending on the type of tax being investigated, and whether or not HMRC believes the error to be deliberate, there are different limits on how far back into your records an enquiry can go. For innocent errors, it might look at records covering the past four years. If HMRC believes you have deliberately evaded tax, the investigation can go up to 20 years back.

Lee Bradley added: “Tax investigations can be stressful, but the best thing you can do is to cooperate with HMRC and provide any information they’re looking for as promptly as possible. This will keep the investigation moving along as swiftly as possible, as well as reducing the risk that you’ll be charged large penalties. HMRC’s penalty system takes taxpayer behaviour into account, including whether or not an error was deliberate, whether or not you notify them that you’ve made an error, and how long it took you to do so.

“So, it is best to let HMRC know right away if you realise you’ve made a mistake, to avoid expensive fines or prosecution. If you have deliberately committed tax fraud, you may be offered an opportunity to admit to it through the contractual disclosure facility, which offers immunity from legal proceedings in exchange for full disclosure. Whatever your situation, an accountant can advise you throughout the investigation, and communicate with HMRC on your behalf.”

Bevan Buckland LLP is the largest independent accountancy firm in Wales providing practical support and strategic accounting, tax and financial planning advice for small to medium-sized businesses. Headquartered in Swansea, the firm has offices in Carmarthen, Pembroke Dock, Haverfordwest and St David’s.