I've got an Inland Revenue Investigation. What now?
When the Inland Revenue launch an enquiry into a taxpayer's returns, there may or may not be a suspicion that there is anything wrong – it could be a random check.
The bottom line is that even if there has been an omission or error which has triggered the enquiry, there is a basic assumption on the part of the Inland Revenue that the taxpayer has not deliberately or constructively tried to pay less tax than he owes.
However, if – in the course of the enquiry – the Taxman discovers possible evidence to suggest that the taxpayer has either not complied with tax law in a positive effort to pay less tax or not reported revenue or costs honestly, then the enquiry can become an investigation. This then becomes a completely different ball-game, with the ultimate objective being not just the recovery of the unpaid tax, interest and penalties, but also the possibility of criminal charges.
I think the most helpful and positive advice I can give to any taxpayer in this position is to understand the Inland Revenue's position. You yourself may know that you are honest, honourable, law-abiding and genuine. However, the Taxman doesn't. Think about all the who-dunnits you have ever watched – from Midsummer Murders and Inspector Morse to Columbo and Inspector Lindley. The possible murderers (although never tax evaders) almost always include a dashing young honours graduate; a middle-aged dodgy cad; a dim-witted handyman; a glamorous heiress; a mysterious foreign stranger with dubious intentions towards the lady of the manor and a bespectacled, flower-arranging librarian with a passion for knitting unpleasant yellow cardigans. As viewers, our suspicions alternate between the foreigner and the cad and occasionally we reckon there might be more than meets the eye to the graduate or handyman. But, ultimately, we often find it was the inoffensive librarian in hideous knitwear who actually did the ghastly deed. The moral of this is that the Inland Revenue have no idea who are the bad guys and who are the good guys, and the only way to find out is to investigate. The law states that if the Revenue have any reason to suspect there might be possible tax fraud, then the procedures for criminal justice have to be followed.
If you find yourself on the sharp end of an Inland Revenue Investigation, then there is one AND ONLY ONE thing to remember. And that is, the sooner you can show the Inland Revenue that you have nothing to hide and that there are simple and innocent explanations to all and any of their suspicions, then the sooner the Revenue will decide not to invest in a detailed and lengthy investigation which will cost them – and you – a great deal of time, effort and money. The problem with most tax inspectors is that they have never been contractors or self-employed professionals, and therefore they can only think and reason in terms of tax law without necessarily understanding the circumstances relating to a particular discipline or professional specialialisation. Once an investigation becomes a potential criminal prosecution by the Special Compliance Office of the Inland Revenue, it is essential that you do two things:
1. Ask yourself if you are entirely and genuinely innocent of doing anything to deliberately and constructively pay less tax than you owe.
2. Ask yourself how much you can afford to pay in accountancy and legal fees to defend yourself against criminal proceedings by the Inland Revenue.
Depending on the answers you give yourself, you may decide to sit down with the Inland Revenue and/or the Special Compliance Office at the earliest opportunity to talk through their concerns and assuage their fears about tax which may or may not have been "at risk" (the Inland Revenue's own term for avoided and/or evaded).
Alternatively, you might decide to put yourself in the hands of a tax accountant or solicitor who can handle your case for you and represent your interests. Whatever you decide, you must remember that such proceedings can be lengthy, stressful and expensive, and at all costs – if there is an opportunity to satisfy the concerns or suspicions of the Inland Revenue at the earliest opportunity – you must try to prevent the proceedings from proceeding in the first place.
Article by Angela Brooks Wong