HMRC has the power to inspect business documents and assets at your premises, can ask for documents and information, make unannounced inspections and go back up to 20 years to investigate matters.
In recent years HMRC have launched various checks on specific industries. It is not uncommon for a business to receive a letter from HMRC advising that they want to carry out a routine VAT or PAYE check. This sounds fairly innocent but can often lead to a more in-depth enquiry because they are entitled to review all transactions across the business. IR35 and employment status disputes also seem to be on the rise.
Case Study: PAYE Enquiry
A company was subject to a PAYE compliance check that turned out to be anything but routine. HMRC went through all PAYE records but ultimately concentrated on every single item of entertaining expenditure. They required details of all people attending – including staff – and justification of every single item. This proved to be an administrative nightmare as they continued to probe for over 2 years.
Eventually HMRC accepted there was nothing untoward but over £10,000 of fees were paid under the Tax Investigation Service.
Case Study: Cross Tax Enquiry
HMRC launched a “Cross Tax Enquiry” into an engineering company that encompassed a full review of all entries on the corporation tax return and four years of PAYE and VAT records.
It became evident very early on that HMRC was unsure exactly what they were looking for and were undergoing a fishing expedition.
The questions asked were very detailed and seemingly endless and after one meeting alone, over 100 questions followed. Despite the best efforts of the advisor, the enquiry dragged on for 2 ½ years. With only minor adjustments to be made, over £35,000 of fees were settled under the Tax Investigation Service.