The pressure placed on HMRC by the Treasury to increase tax revenues has been well documented in recent years. Indeed the government’s spending review made £917m available to tackle tax evasion, avoidance and fraud, with HMRC targeted to collect an additional £7bn a year in tax by 2014/15.
HMRC have certainly reacted to this pressure, launching a number of different initiatives, which include the following features:
- The difference between the amounts of tax HMRC think should be collected and the amount actually collected (‘the tax gap’) is estimated to be more than £35 billion. HMRC believe that around 50% of this amount is attributable to the SME sector, which has become the focus of HMRC attention.
- HMRC have recruited an additional 2,500 Compliance Officers, who are tasked with enquiring into taxpayers’ affairs.
- HMRC will conduct 20,000 Business Record Checks this year, either remotely and/or by undertaking a visit in order to make sure businesses are keeping accurate records.
- HMRC has launched a number of Task Forces, which are teams which target specific trades in specific geographical areas. 12 taskforces were launched in 2011/12 and a further 30 in 2012/13.
- HMRC have launched a number of campaigns, whereby they provide an amnesty for taxpayers who may have under-declared tax. Taxpayers who should, but fail to make a voluntary disclosure under such an amnesty are likely to be targeted for enquiry.
- HMRC has a huge database that holds masses of data. This data is used as part of the risk assessment process, in order to determine which taxpayers to target.
- HMRC obtains information from various organisations, including banks and the Land Registry which again, is used in determining where enquiries should be opened.
Against this backdrop it really is important to consider the protection provided by Tax Fee Protection Insurance, which protects against fees incurred defending you in the event of an HMRC enquiry. Indeed our Fee Protection Insurance provider has seen a 20% increase in claims resulting from HMRC enquiries in the past year.
Whilst, as you would expect, this Policy does not cover fees incurred where a taxpayer has knowingly under-declared tax; any taxpayer can be targeted by HMRC in order to check that they are paying the right amount of tax. Answering HMRC’s questions takes time and the enquiries often drag on for months and sometimes, can take years to conclude. It can cost thousands of pounds to defend you, whatever the end result.