The HMRC Tax Investigation procedure differs depending on whether it is a tax compliance check, a civil investigation or a criminal investigation.
HMRC Tax Compliance check
HMRC may want to check that an individual or business has paid the correct amount of tax. If so, the first port of call is usually a tax compliance check. You or your accountant will hear from HMRC via phone or letter. HMRC will say it wants to conduct an audit and will outline what information it wants to see. Either, HMRC will want to focus on one particular aspect, such as VAT returns. Or, it will conduct a full enquiry.
HMRC officers will visit your home or business address, or will ask you to attend an office in-person. This meeting will last for however long the HMRC officer sees fit. It may go on for a few hours, or it could extend over the course of several days. HMRC will then decide if tax has been underpaid, overpaid, or paid correctly. If tax is owed, you must pay the debt within 30 days, plus interest. A penalty may also be issued if HMRC accuses you of wrongdoing.
If HMRC suspects that fraud or tax evasion has taken place, then the matter is escalated. HMRC has two options: pursue the civil procedure or the criminal procedure. HMRC prefers to take the civil route as it is more cost-effective.
HMRC has various forms of tax investigation. The most common where fraud is suspected are the Code of Practice 8 (COP8) and the Code of Practice 9 (COP9). Each one has a slightly different procedure.
Where COP9 is concerned, the formal process begins when you receive a letter of investigation through the post. You will be invited to participate in the Contractual Disclosure Facility. This is when you admit to wrongdoing and agree to fully co-operate with HMRC’s investigation. In return, you will be immune from criminal prosecution.
If you accept the offer, the first step is to provide something called ‘outline disclosure’. This is an overview of any wrongdoing that took place. This is followed by ‘formal disclosure’, in which you provide detailed information about your financial affairs. In complex cases, HMRC may ask you and your professional advisers to prepare a Disclosure Report. You may also be asked to attend in-person meetings with HMRC to discuss your conduct in more detail.
HMRC will then calculate how much tax is owing. You will have to pay this in full, plus interest. HMRC will also impose a financial penalty, the severity of which will be based on your behaviour, both in terms of the fraud and the way you co-operated with HMRC officers.
If you choose not to participate in the Contractual Disclosure Facility, HMRC will continue their investigation without your involvement. However, you can explain why you are rejecting the offer, and provide documents in support of your case. This may persuade HMRC that no fraud has taken place, meaning the COP9 investigation goes no further. Our solicitors can help you with this.
If HMRC’s Fraud Investigation Service determines that you have committed fraud or tax evasion, and you have refused the Contractual Disclosure Facility process, then you will likely be subject to higher penalties. Alternatively, HMRC may switch to a criminal investigation instead.
HMRC will launch a criminal investigation if it wishes to make an example of someone, or where the conduct is so serious that it warrants criminal penalties. There are two departments within HMRC that hold criminal investigation powers. They are the Fraud Investigation Service (FIS) and the Risk and Intelligence Service (RIS).
There is no set procedure for an HMRC criminal investigation. HMRC must comply with the rules and regulations, such as the Police and Criminal Evidence (PACE) Act and the Finance Act. Even within these parameters, HMRC has wide-ranging powers of investigation. You may be invited for an interview under caution, arrested, subject to a dawn raid or have your belongings seized. HMRC can also apply to court for a production order. If granted, it requires organisations to hand over information that is relevant to HMRC’s enquiry.
HMRC will pass the findings of their investigation to the Crown Prosecution Service (CPS). If there is a reasonable chance of securing a conviction, and the prosecution is in the public interest, then formal charges will be laid against you. You will receive a letter notifying you when to attend a hearing at the Magistrates’ Court. If the allegations are serious, the Magistrates’ Court will refer the matter to the Crown Court. There will be a criminal trial if you decide to plead not guilty.
HMRC Tax Investigation time limit
HMRC has 12 months to open a civil enquiry, starting from the date the return was filed. Officers can examine up to four years’ worth of records. This is extended to six years if HMRC can prove that careless mistakes have been made, and 20 years if there is any indication of dishonesty.
Are you facing an HMRC Investigation?
If HMRC has accused you of wrongdoing, please contact us at Altion Law. We specialise in HMRC investigations, compliance and regulatory matters, and director disqualification. Our solicitors can represent you throughout an HMRC investigation to get the best possible outcome. We can also help you appeal wrongdoing penalties.
If you would like to have a free confidential discussion with a member of our team, please either make a Free Request For Call Back or call us directly on 01908 414990 and we will be pleased to help you.