Speaking at PfP’s Tax Investigations Conference in London, HMRC’s Executive Chairman Edward Troup has warned taxpayers that HMRC will not compromise when taking legal action against them.
Taxpayers can therefore expect HMRC to maintain its increasingly hard-nosed attitude in any upcoming investigation.
During his speech, Troup warned that HMRC would look to take tax disputes to court wherever necessary. He also stated that HMRC would not settle outside of court for anything less than what it thinks it is owed and would not split the bill on any outstanding payments.
The implications of this are that if you cannot persuade HMRC at an early stage that you are paying the right amount of tax, they may be relentless in their pursuit, making it more important than ever to have a tax professional to help you in your dealings with HMRC.
This warning comes as HMRC looks to increase the revenue generated through its compliance work and close the tax gap. This is the difference between the amount HMRC thinks it is due and what it actually collects. Last year, the tax gap increased to £34bn, up from £33bn in 2014/15.
HMRC believes small and medium sized enterprises (SMEs) were responsible for 46% (£15.5bn) of the overall tax gap in 2015/16.
SMEs are unfortunately often viewed as an easier target by HMRC as they are unlikely to have the resources to employ in-house tax specialists who can close down or limit tax investigations.
Indeed, new data shows that HMRC collected £504m in extra revenue from investigations into the tax affairs of SMEs last year, an 8% increase on the £468m it collected in 2015/16.
Tax investigations can be costly, disruptive and stressful for SMEs, and may even result in long-term reputational damage.
With HMRC set to ramp up investigations following the introduction of the Criminal Finance Act on 30th September 2017, more and more businesses are taking out tax investigation insurance to protect themselves.