Every UK business owner will be familiar with HMRC and the often-stressful taxation process. Many believe that this system is too stringent and complicated but HMRC would argue that this is for an important reason – to prevent fraud. The vast majority of businesses will pay their taxes on time and without any problems but HMRC can and do conduct investigations, if necessary. A small proportion of these investigations are initiated at random but most are started because some sort of suspicious activity has been flagged. Should HMRC investigate an organisation or individual, what powers do they actually have?
What triggers an investigation?
Apart from the small amount of cases in which HMRC conduct a tax investigation at random, they’re usually instigated due to some sort of anomaly. For example, if a company has a drastic fluctuation in their turnover or profit. Also, if a business is claiming more expenses than usual or the expenses seem unrealistic, this could also raise a red flag. Of course, in other circumstances, HMRC may be tipped off by a third-party.
Although we all make mistakes, it’s important to remember that ignorance is not a defence with HMRC. If you have inputted the wrong figure or forgotten to include the correct evidence, it could still lead to an investigation and potential penalties.
If you have any major changes within the business, which could show up on your return, it’s vital to use the extra space to explain. This is your chance to provide HMRC with an explanation and avoid any potentially audits.
When it comes to the powers that HMRC have, when investigating a potential case of tax fraud, they utilise both civil and criminal powers.
Civil Investigation Powers
The civil powers that HMRC hold generally revolve around data collection. For example, they can request specific documentation to help them with their investigation. This can go even further with “bulk gathering” powers, allowing them to collect information from third parties, such as banks and employers.
When HMRC wish to utilise these data collection powers, they need to issue information notices. These include:
- Taxpayer Notices
- Third party Notices
- Identity Unknown Notices
- Identification Notices
Alongside data collection, HMRC can also visit and inspect a business premises, if they believe this will help with the investigation.
Criminal Investigation Powers
Should HMRC believe that serious offences have taken place, they can escalate their audit and utilise criminal investigation powers. It’s relatively rare for HMRC to go down this path as its more costly and requires more manpower. However, there are situations in which a criminal investigation is required- for example, obvious fraud, concealment of information, conspiracy, money laundering, forgery and theft. The agency may also choose to make an example of a well-known or trusted public figure.
When it comes to criminal investigation, HMRC has the same powers as regular law enforcement agencies, however their jurisdiction is specific to matters concerning tax. If necessary, HMRC can:
- Apply for production orders.
- Apply for and execute search warrants.
- Make arrests.
- Search both suspects and premises.
- Recover criminal assets.
It’s also worth noting that as recently as last year, the Government have shown interest in providing HMRC with even greater powers.
Running a business can be stressful at the best of times but even more so when taxes are involved. Taxation Investigation can provide a variety of expert services. Whether you’re completing your tax return for the first time and need some advice or you’re currently under investigation, they can help. Don’t hesitate to visit the website for a full breakdown on everything Taxation Investigation has to offer, otherwise you can contact them directly.