Face to face
T first meeting, which can last for hours, is the make or break point of an investigation. It is vital to prepare as thoroughly as the Inland Revenue will undoubtedly do.
The Revenue has one aim - to discredit your business records. If achieved, payment of additional tax, interest, and penalties become a probability.
The meeting is usually held at the tax office. It is in your interest to agree to this venue rather than insisting on your premises. If an inspector is invited to your premises, then they can ask to see documents such as this week's business records, which may not have been written up.
Tough interview techniques
Expect to be professionally grilled. Inspectors receive guidance on interviewing techniques that probably include tactics to use when a taxpayer is angry, or in tears.
The inspector will have a considerable number of queries. Many can probably be answered satisfactorily; others will prompt further questioning. If information is held by the Revenue suggesting irregularities, questioning will be carefully worded to get to the truth, without revealing to the proprietor what the Revenue knows.
It is all too easy to give incorrect or misleading answers, irretrievably damaging your position. You should state that answers are given "to the best of your recall". If you do not know an answer, say so - do not guess.
Most inspectors will try to make you feel at ease. Do not be lulled into a false sense of security. Once you are talking openly, the conversation will move on to matters such as cash-income and expenditure.
Factors that affect business results will probably be discussed, such as pricing policy, wastage, and pilfering. You will have to describe procedures for wages, bankings and the maintenance of business records.
The inspector may ask a large number of intrusive questions about private expenditure. Cash expenditure will be scrutinised. Holidays and gambling habits will be questioned. You may be required to produce your passport.
Many proprietors have attempted to explain bank deposits as coming from betting wins or gifts. The Revenue takes a cynical view of such explanations without documentary evidence.
The inspector will wish to check items already adjusted for, such as private use of motor vehicles. He or she will look at levels of goods taken for personal use.
The inspector may ask to visit your home or business premises, or even your bank if you have admitted to a safety deposit box. This is best avoided - it prolongs the ordeal, and having the Revenue at your bank or home is not pleasant, even if there is nothing to hide.
Your adviser should be able to persuade the Revenue to allow him or her to examine the contents of a deposit box.
At the end of the meeting, the inspector will suggest that the Revenue's thoughts are sent to you in a letter. You will be offered a summary of the meeting. You may be asked to sign it. Check it carefully.
Something irregular may have been established. This may be an undisclosed bank account or asset, or non-recording of takings or drawings. Should the contention be made that the business records are inadequate, then your problems are probably only just beginning.
Next week Chris Lockett describes the conclusion of an investigation. If you wish to discuss an Inland Revenue problem, you can ring him at no cost and in confidence on 01159 353535.
