The enquiry regime has been around for many years now but is both nuanced and complex, as result of which it is still often misunderstood by HMRC and advisors.
Enquiries can range from an aspect enquiry, in which one or more areas of a tax return are reviewed through to an onerous full enquiry where the entire tax return is checked in detail.
The vast majority of enquiry cases are opened only after HMRC has identified a tax risk significant enough to warrant focusing resources on issues likely to yield additional tax, hence no notice opening an enquiry should be taken lightly or handled without specialist, experienced support.
Tax is complicated. Self-assessment enquiries are not immune from that complexity so it may be that technical or procedural errors have been made by HMRC which an experienced specialist can identify. These may appear small, but they can impact on the chosen strategy and the validity of the entire enquiry.
HMRC does not have an automatic entitlement to see everything even if it relates to tax, the data must be ‘reasonably required’ in order to check the tax return under enquiry. HMRC might, for example, question historical transactions or ask about the affairs of other, perhaps related, parties such as close family members or subsidiaries of a holding company under enquiry. Detailed knowledge of the relevant legislation, case law, taxpayer's rights, safeguards and boundaries is vital.
A robust response to HMRC may be merited but sometimes it could be helpful to volunteer data; years of experience spent specialising in HMRC investigation work help inform such judgement calls.
Depending on the nature of any amendments HMRC might seek to raise assessments to collect tax for other years, or issue tax based penalties which can also be appealed. Again, the rules and case law on this are complex.
If HMRC refuses to close an enquiry, the taxpayer has the right to ask the First Tier Tax Tribunal to order that a closure notice is issued. This can be a powerful tool if used appropriately in the right circumstances.
Validity of enquiry
Closure notice
Company enquiries
Reasonably required
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