To become the subject of a tax investigation by the HMRC can be an extremely disruptive and agonizing experience for any taxpayer and/or business. The current economic climate has shifted the focus to improved tax collection and it comes as no surprise therefore that the director of the Crown Prosecution Service, Keir Starmer, expects the number of tax evasion cases handle by the CPS to increase to 1500 per year.
With a bigger budget and more powers at its disposal, HMRC is going to specifically focus on undeclared offshore accounts in countries such as Liechtenstein and Switzerland.
What to do?
What can the ordinary taxpayer or businessman do to avoid a lengthy and expensive dispute with the HMRC?
The simplest place to start is with the accounting side. Make sure that all accounting transactions are meticulously recorded and that the necessary supporting documentation is in place. Keep these documents for the statutory period to ensure that, if a dispute regarding a previous year arises, they are ready to present to the HMRC inspectors.
For someone with a small business, who cannot afford the services of a full-time accountant, the best option is to at least have a reliable accountant on standby as a part-time consultant. This will go a long way to ensure that tax and accounting records are kept in the necessary format that the HMRC requires.
Secondly, don’t fall for individuals who recommend ‘lucrative tax loopholes’. There are probably some unscrupulous accountants who might do just that, but in the end this could lead to expensive legal battles with the HMRC. In most cases these ‘loopholes’ are well known to the taxman, especially when they involve offshore banking. Only an experienced and highly-qualified accountant should be consulted regarding offshore tax havens.
Many individuals wittingly or unwittingly break the law by not disclosing income from second homes being sold. These properties are often subject to Capital Gains Tax. To encourage such individuals to come forward, the HMRC is offering a tax amnesty in 2013. During this period the penalty will only be 10% of the outstanding tax, instead of the normal 100%.
Remember that online businesses have to pay tax just like any other business. Even a small, part-time online business selling items on an auction site needs to keep the necessary records and declare all income to the HMRC.
If the worst happens and an individual or business ends up in a dispute with the HMRC, the best possible advice is not to try and fight the case without expert help. High net worth individuals in particular will undoubtedly benefit from using the services of a tax defence service.
These cases tend to be extremely technical in nature, particularly Code of Practice 8 and 9 investigations by the tax office. Only a tax consultant with extensive experience in these matters will be able to advice clients on what their rights and obligations are under the particular circumstances of the case. This is particularly relevant in situations where penalties and the new Alternative Dispute Resolution (ADR) are involved.
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