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Cross tax enquiries are on the increase. Since HMRC came into being, with the merger of Inland Revenue and Her Majesty’s Customs and Excise in 2005, there has been a greater desire for the departments to work more closely. What began with small joint-working teams dealing with ghosts and moonlighters has now moved into the main-stream resulting in the working of cross tax enquiries by the Wealthy and Mid-Sized Business Compliance Directorate (WMSBC).

Although the perception may be that cross tax enquiries are generally undertaken into larger companies, the WMSBC is responsible for around 100,000 businesses with a turnover between £10m and £200m so your smaller business clients are at risk too. HMRC takes into consideration a number of factors including the rate of growth of a business, its past compliance, sector and ownership to name but a few. 

Typically, HMRC will present a team which includes specialists in Corporate Taxes, VAT and PAYE together with data handlers but may call on other specialists as and when required. It is not unusual for HMRC to enquire into the directors’ personal tax affairs, either at the start or during the enquiry, using the statutory powers available.

When HMRC carry out a cross-tax enquiry they will typically wish to review the following periods:
  • Corporate Taxes: the accounting period under enquiry 
  • VAT: the VAT quarters in the last 12 months which may be extended to four years if appropriate
  • PAYE: a 12 to 24 month period, which can be extended if appropriate  

The financial and time costs of dealing with a cross-tax enquiry can be considerable. It is important to steer HMRC away from a full tax audit of the business and towards a more meaningful, cost-efficient and targeted review.

As soon as your client receives the opening letter, it is advisable for you to speak to the lead officer to discuss the perceived risk areas and to agree the best way forward to progress the enquiry. 

HMRC will generally seek an early meeting with the directors to discuss the business activity, their role and the record-keeping systems in place. As with all civil enquiries, HMRC cannot insist the directors attend and we always consider whether the meeting will benefit the client or HMRC. 

The directors, more often than not, have the best understanding of the business, its systems and processes and are best placed to explain them. The meeting is an opportunity for the directors and their advisers to propose the best approach to deal with HMRC’s concerns.  

In the first four months of 2018, we have seen a 40% increase in the number of claims relating to Corporation Tax full enquiries compared to 2017. Anecdotally it appears that the number of cross tax enquiries conducted by HMRC increased last year and this has continued in 2018.

The reported average length of an enquiry is nearly three years in larger cases so it is important to make sure that your clients are protected to prevent your fees from going unpaid. Our fee protection insurance offers peace of mind for you and your clients and comes with a range of benefits. To find out more about switching to Abbey Tax call us on 0345 223 2727 or send us an email.
Found in: Tax, HMRC, VAT
The information provided on this site is of a general tax nature and may not apply to any particular set of facts or under all circumstances. It should not be construed as tax advice and does not constitute an engagement of Abbey Tax. Tax laws are constantly changing. The information on this site was accurate at the time of posting and we make every effort to keep it current, however we are not responsible for outdated material.