HMRC has always been quick to call into question company tax returns it believes are either mistakenly or intentionally inaccurate, but it seems HMRC’s Tax Investigation Team is not quite so prompt when it comes to resolving these cases.
Recent research from law firm RPC has found that more than a quarter of all tax investigations remain unresolved more than a year after being launched. And worse still, more than 3,800 local compliance cases are still incomplete more than three years after they began.
A substantial burden on businesses
The research shows that as of 2nd March this year, the HMRC Local Compliance Team had more than 115,000 investigations open against businesses and private individuals. HMRC does not give businesses or individuals any idea of how long the investigation is likely to take, or whether more tax will be due.
This puts businesses under a considerable amount of financial and emotional pressure. Regardless of the outcome of the investigation, company directors will not only have to deal with the stress of the ongoing investigation, but they will also have to bear the burden of costs relating to the ongoing case. For some businesses, the professional fees can be substantial.
Prolonged investigations also place demands on the time of company owners and directors, with senior managers often tied up with matters raised by the investigation team. This can have a considerable impact on the day-to-day operations of small businesses. Some businesses will simply give up and close or are forced to liquidate, or enter administration, or a company voluntary arrangement.
What are local compliance investigations?
There are thee different types of commonly conducted HMRC tax investigations. These are:
- HMRC Specialist Investigations
- HMRC Local Compliance Fraud
- HMRC Local Compliance
The type of investigation you are subject to gives you some idea of the severity of the matter. Local Compliance Investigations are the least serious of the three. While Specialist Investigations deal with matters of serious tax evasion, the HMRC Local Compliance team mainly deal with routine investigations that include:
- Income tax investigations
- Corporation tax investigations
- PAYE investigations
- VAT investigations
- Hidden Economy Tax investigations
So, if you receive a letter from HMRC’s Local Compliance team, you can be sure they have a suspicion all is not right with one of these returns or claims. Here’s more information about what you can expect from the government’s official website.
Calls for investigation time limitations
In the Summer Budget it was announced that HMRC will receive an additional £750million from the Treasury to help it step up its tax collection capacity and maximise its revenue. Given HMRC’s growing reliance on its Connect database, which can be inaccurate when determining which businesses and individuals to target for further investigation, it’s unlikely the burden on small business will lessen any time soon.
The fact that a small business can have the burden of an unresolved tax investigation looming over it for several years has brought calls for a time limit to be introduced. A cut-off point for an enquiry to be concluded would help to speed up investigations and reduce the disruption and cost to the business in question.
Previously HMRC had to close an investigation to make a demand for tax, which acted as an incentive to speed up investigations. However, the introduction of Accelerated Payment Notices means that once HMRC are in receipt of the disputed tax, there is little incentive for them to conclude the investigation.
How can we help?
At CompanyDebt.com, we are specialists in setting up Time to Pay arrangements and negotiating tax arrears with HMRC. If you have an ongoing dispute with HMRC over a tax liability, please get in touch with our experienced team for the professional assistance you need.