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Cross Border Tax Enquiries

Since HMRC came into being, with the merger of Inland Revenue and Her Majesty’s Customs and Excise in 2005, there has been a greater desire for the departments to work more closely. What began with small joint-working teams dealing with ghosts and moonlighters has now moved into the main-stream, resulting in the working of cross-tax enquiries by the Wealthy and Mid-Sized Business Compliance Directorate (WMSBC).

Although the perception may be that cross tax enquiries are generally undertaken into larger companies, the WMSBC are responsible for around 100,000 businesses with a turnover between £10m and £200m, so mid-sized businesses are exposed too. HMRC takes into consideration a number of factors including, the rate of growth of a business, its past compliance, sector and ownership, to name but a few.

Typically, HMRC will present a team which includes specialists in Corporate Tax, VAT and PAYE together with Data Handlers but may call on other specialists as and when required. It is not unusual for HMRC to enquire into the directors’ personal tax affairs as well, either at the start or during the enquiry, using the statutory powers available.

When HMRC carry out a cross-tax enquiry they will typically wish to review the following: Corporate Taxes, the accounting period under enquiry; VAT, the VAT quarters in the last 12 months which may be extended to four years if appropriate and PAYE, a 12 to 24 month period, which can be extended if appropriate.

In the first four months of 2018, our teams have seen a 40% increase in the number of claims relating to Corporation Tax full enquiries compared to 2017. Anecdotally it appears that the number of cross tax enquiries conducted by HMRC increased last year and this is likely to continue in 2018 and beyond.

For businesses who receive a cross-tax enquiry, they are not only faced with the financial and time costs of dealing with HMRC but also the distraction from running their day-to-day operations.

Upon receipt of the opening letter, it is advisable for your tax advisor to speak to the lead officer to discuss the perceived risk areas and to agree the best way forward and how to progress the enquiry in a swift and efficient manner.

HMRC generally seek an early meeting with the directors to discuss the business activity, their role and the record-keeping systems in place. Whilst HMRC cannot insist the directors attend, we would advise and consider whether attendance at this meeting would benefit our client or HMRC.

The directors, more often than not, have the best understanding of the business, its systems and processes and are best placed to explain them. The meeting is an opportunity for the directors and their advisers to propose the best approach to deal with HMRC’s concerns.  

With the reported average length of an enquiry reaching nearly three years for larger cases, having insurance to cover the professional fees in relation to a cross tax enquiry is essential.  Local businesses should be looking to learn more about the Tax Investigation Fee Insurance to provide peace of mind.