20 February 2017
Following a recent surge of submissions of personal and partnership tax returns in January, we thought it would be good to let you know of our tax investigation insurance.
HMRC have the power to open an enquiry into different taxes in order to reduce the ‘tax-gap’ in the UK, ie. the difference between the amount of tax that should, in theory, be collected by HMRC, against what is actually collected.
Enquiries can either be on a specific return, area of tax or a general check of the business records. The time limits for opening enquiries, also known as the enquiry window, depend on the type of tax being enquired into. The good news is that HMRC enquiries do not always result in additional tax due. However, they will incur additional accountancy fees in responding to any queries raised.
The facts!
Tax returns (Self Assessment and Corporation Tax)
An enquiry can be opened within 12 months of the return being filed with HMRC, provided the return was filed:
- by 31 January following the end of the tax year for Self Assessment; and
- within 12 months of accounting period end for Corporation Tax.
For example for the period 2015/16, a return that was filed on 6 January 2017 means that an enquiry notice can be received at any time up until 5 January 2018.
An enquiry into a partnership return will automatically mean that enquiries are opened on each individual partner although insuring the partnership will also usually cover the individuals.
Other taxes
Normally an enquiry into the VAT records of a business will look at the last 12 months of records, however some enquiries can look at up to four years’ worth of returns. This can be extended as follows if any inaccuracies are found:
- six years where the tax loss arises from careless behaviour, or
- 20 years if the behaviour is deliberate, or there is a failure to notify chargeability or a notifiable tax avoidance scheme.
The PAYE time limits follow the rules for VAT, as above.
So, is it worth it?
Most of the time there is no specific reason for enquiries being opened, it’s merely down to being randomly selected.
One of our clients, a farming business, recently received a letter for a VAT compliance review. Following the review, HMRC argued that some of the expenses claimed were not incurred for the benefit of the farming business and as such looked to reclaim a proportion of the input VAT. We were able to dispute these claims, avoiding a potential VAT liability that could have been costly to our client. Accountancy fees of £5,250 were incurred and, as fee protection cover was taken out, these were paid in full by the insurer, minimising the worry for the farmer.
We offer a tax investigation service that covers the professional costs incurred in responding to HMRC, which, as you can see, can be very significant. For just a small annual fee you can ensure our support during an investigation at no extra cost. If you are interested in finding out more, please contact me your usual UHY adviser. Alternatively, to read more on our services to the rural sector please click here, or to read more rural blog posts please click here.
