Make sure you have your tax i’s dotted and t’s crossed as HMRC investigations are on the increase.
Over the past year, HMRC has significantly increased its tax investigations opening around 250,000 new enquiries. Many of these enquiries have been targeted at high-net-worth individuals (“HNWIs”) and small businesses.
By utilising advanced technology and artificial intelligence, HMRC can now identify potential under-reported taxes by cross-referencing data from various sources, including banks, estate agents, and social media. Similar powers are also used for offshore matters.
According to the most recent polls, it is looking like Labour is heading for success in the general election, and they have stated that if successful, they plan to raise up to an additional £5 billion in tax annually by the end of the next parliament. So how will they do this?
Labour plans to support by a £555 million yearly investment in additional HMRC resources, focusing, perhaps unsurprisingly, on high-net-worth individuals (HNWIs) and larger businesses. Labour also intends to enhance HMRC’s authority when enforcing tax payments during ongoing investigations.
In 2022/23, HMRC recovered £39 billion from HNWIs, with even larger sums from bigger businesses, thanks to increased investments in staff and technology. These amounts are expected to rise further with the proposed changes.
Although there is to be a focus on large businesses, it is notable that small businesses represent the majority of tax avoidance cases, and additional resources will likely be allocated to address the recent decline in revenue from this sector.
These developments show the importance of taxpayers remaining vigilant regarding their tax obligations, as greater scrutiny from HMRC is anticipated.
The surge in investigations makes it essential for taxpayers to ensure accurate reporting of all income and gains. Complex tax affairs can increase the likelihood of errors, which can have significant financial consequences.
Submitting an incorrect tax return can lead to substantial penalties, calculated as a percentage of the additional tax owed. Penalties range from up to 30% for non-deliberate errors, 100% for deliberate errors, and up to 200% for deliberate offshore matters.
Additionally, late payment interest, currently at 7.75%, can be extremely costly if deadlines are missed.
HMRC’s investigations can be incredibly complex, with most of their enquiry and assessment powers being regime-specific and spread across various pieces of legislation.
This fragmented system adds to the complexity of the enquiry process, creates uncertainty, and can undermine taxpayers’ willingness to comply, potentially leading to unfair results.
HMRC is currently reviewing these powers to address these high levels of complexity.
The success of current investigation activities is anticipated to lead to more targeted campaigns, with ultra-high net worth individuals likely to be in HMRC’s focus.
HMRC will continue to broaden the scope for tax penalties, potentially affecting individuals who were previously not caught.
If your tax affairs are complex, seeking advice from a qualified tax professional is the safest option to ensure there are no easily avoidable errors.
Equally, any business or individual with unpaid tax needs to be aware that their chances of getting away with it are lower than they’ve ever been.
With tax investigations are on the rise it is important to get the right advice.
ETC Tax is here to help, so please do not hesitate to get in touch today.
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