Posts Tagged ‘Tax investigations’
Some taxpayers with undeclared income believe that that are needles in haystacks, when they could be sitting ducks for the taxman? It is only a matter of time until HMRC finds your undeclared income. As the Government looks with renewed vigour at tax avoidance and tax evasion in order to raise the tax take, many of you are asking: ‘How can HM Revenue & Customs (HMRC) find out about my undisclosed income?’
Here are some of the ways that HMRC’s investigators separate the fully compliant taxpayers, whether high net worth or not, from those who have undisclosed tax liabilities?
- Showing off on social and traditional media alerts
Sounds ridiculous, but pictures in front of a new Aston Martin or similar on social networking site while declaring next to no income on their tax returns will be of immediate interest to HMRC. Press articles and media coverage have also long been used by HMRC as the trigger for further investigation into an individual’s affairs. Once HMRC has a suspicion that an individual has underpaid their tax liabilities, it has a range of powers and tools available for it to drill down into the individual taxpayer’s affairs.
- Statutory demands for information
There are numerous examples of buy-to-let landlords who have missed some of their rental income off their tax returns. HMRC has the statutory power to issue a demand to any tenant (whether a company or an individual), compelling them to inform HMRC how much rent they pay and to whom it is paid. This information is then be compared to the landlord’s tax return and is therefore a relatively simple way for HMRC to identify whether the income has been declared correctly.
- Tracking tools and search engines
HMRC have a range of information-gathering tools at their disposal, some specialised, recently it has introduced web trawling software to help catch eBay traders and similar and some publicly available, such as internet and social media search tools.
- Hotline tip-offs
Just like benefit fraud hotlines, HMRC also receives significant amounts of information via its Hotline from disgruntled third parties, such as neighbours or vengeful former spouses. Many individuals have found themselves subject to serious tax investigations following a tip-off from a wronged former spouse, neighbour or business rival.
- Information-trawling software
The new HMRC computer system allows HMRC to bring together information on property sales and can pull together a historical list of properties purchased by a landlord. This information can then be compared to what the landlord has declared to be chargeable to capital gains tax (CGT).
- Phone checks and official records
Rental adverts may also be reviewed and lettings agents may be contacted. It is quick and easy for HMRC to check with the Land Registry who owns a specific property. HMRC also have access to housing benefit records. It is similarly difficult to escape HMRC’s clutches when the time comes to selling the property. HMRC’s inspectors have always reviewed the local papers for houses for sale and the internet makes this process even easier, especially with the abundance of websites that show historic house sale prices.
In the end, it is a far better idea if you do have any undisclosed tax liabilities to come forward before HMRC finds you. Those who make unprompted disclosures will face far lower penalties than those found by HMRC’s investigators. Once your tax affairs are up to date you will have the peace of mind that you no longer have to look over your shoulder, in fear that an HMRC enquiry letter will be landing on your doormat.
Are you currently facing a tax investigation or worried about undisclosed income?
If you do find yourself the subject of an investigation by HMRC, think about getting some specialist advice. McGregors Corporate has years of experience in disclosures, defending investigations and disputes with HMRC, so do get in contact for a confidential, free initial discussion.
A very short and to the point final joke
What is the difference between tax avoidance and tax evasion …….. prison!
Steven Mugglestone BA FCA,
West Midlands Area Director and Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
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