The Problem The hospitality sector is one of the hardest-hit industries in terms of coming under scrutiny from the Inland Revenue (IR). With the IR planning to collect more than £1.6b in extra tax revenue over the next three years, the question is no longer what to do if you're investigated, but when you're investigated.
You'll receive a letter that reveals that your company has been selected by the IR for an inquiry into its tax affairs. This can take two routes. The first is the "aspect" inquiry, when a tax inspector is simply looking to clarify an individual point, perhaps even a form-filling mistake. The second route is when your company will become subject to a full inquiry. If the investigation reveals a failure to comply, the case will inevitably lead to a fully-fledged investigation.
The key to responding to a more professional and commercially aware IR is to work with your specialist tax adviser to ensure that all "housekeeping" issues are in line with compliance. In addition, if you choose to embark on more aggressive tax planning, make sure the adviser has the expertise and experience to implement any cost-saving scheme.
Taking a proactive approach with an adviser may cost some time and money, but it should be seen as an insurance policy against a full investigation. It will also provide an understanding of the constantly changing and ever more complicated compliance regulations on an ongoing basis.
Having been a tax inspector myself, I can offer another hint when faced with a tax investigation - be as courteous as possible. Being rude and obstructive does nothing to smooth the process of an investigation, and will only work against you.
At the end of the inquiry, you and your adviser will be invited to attend an interview. The inspector can suggest a penalty of up to 100% of the sum owed. However, a specialist adviser should be able to negotiate a lower penalty.
Payment by instalments is also negotiable. You can also ask for an investigation to be concluded, if no satisfactory reason is given for keeping it going, by appealing to the Tax Commissioners. Making a payment doesn't mean that the IR will leave you in peace, particularly if it wasn't totally convinced about your tax affairs. It retains the right to review your tax affairs in the event of any additional liabilities being discovered.
The best thing to bear in mind is that if you have nothing to hide, an investigation should cause you little concern or disruption to the day-to-day running of the business.
Because of the increased complexities and volume of tax legislation, and the IR's increasing powers of investigation, it's more important than ever to have a specialist adviser.
- Get a good specialist adviser.
- If you've been chosen for an investigation, confirm with the tax inspector which year of accounts is being looked into, and then get your adviser to review the accounts for that year.
- Sit down with your adviser and discuss all the risk areas, and where you may be falling down.
- Make sure all your receipts and invoices tally with your accounts.
- Make sure all your accounts are up to date and consistent with what you're telling the inspector.
A civil investigation could result in penalties of up to 100% of the tax lost and interest on tax from the due date of payment to the actual date of settlement.
A criminal investigation could result in a prison sentence.
DTE Taxation Services
Tel: 020 8458 4384