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Markel Tax

16 Apr 2018

Deafening silence on the part of HMRC

My client runs a small, sole-trader business and her 2017 tax return has been under enquiry for several months. Following the provision of her business records, HMRC have said that they believe that cash sales have been understated. The client accepted that there were errors and offered to settle with HMRC. HMRC mentioned that they had to consider the penalty position and then requested records for the previous year, which were duly provided. Since then, nothing more has been heard from HMRC for nearly three months. What does this mean? Have HMRC decided to move on because this case is effectively closed?

If HMRC are satisfied that all errors have been identified and there was nothing more to consider they are required to issue a closure notice to you and your client.  There could be a number of legitimate reasons as to why there has been a delay on HMRC’s part. In your client’s case, where HMRC have stated that they believe your client had deliberately evaded tax, it would not be unreasonable to assume that the officer has asked the Evasion Referral Team (ERT) whether the case was suitable for Code of Practice 9 and the Contractual Disclosure Facility. 

These cases are dealt with by the Fraud Investigation Service (FIS) and one of the purposes of elevating the enquiry to this level is to challenge the client as to whether they had deliberately submitted an incorrect tax return, which would lead to a tax-geared penalty of 35% to 100% of the tax paid late.  It should not be forgotten that in cases of deliberate behaviour, HMRC can go back up to 20 years, using their extended time-limit discovery powers. 

In the worst case scenario, a Criminal Investigation could be started with a view to mounting a criminal prosecution.

When experiencing a period of inactivity, and HMRC have suggested that your client has acted deliberately, we recommend that the adviser contact HMRC to find out why the case has gone quiet.  While HMRC will not normally acknowledge that the case is being considered by the ERT, you may still be able to rule out all the normal explanations for the delay, such as holidays and extended sick leave.  Forewarned is forearmed in this situation so if you suspect HMRC are evading the question it may be time to speak to the client to discuss any possible reasons why HMRC could suspect there was deliberate behaviour to disclose. If there are, early disclosure to HMRC would minimise the risk of a criminal investigation. 

Here to help
With more than 75 highly skilled tax and funding specialists, advising on over 2,000 complex tax issues each year, we work with your practice to provide up to date, practical solutions. If you have a client in a similar situation, or have a tax question of your own, we're here to help on 0345 223 2727. Or to find out more about our services, email
Tagged HMRC
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28 Mar 2018

Tax advice: Changes to venture capital reliefs, new rules for termination payments and increases to diesel supplement

Every year our tax and VAT helplines receive over 55,000 calls. Each month we provide a round up of topical news and below is a short summary of the key points our team has been discussing with accountants in March.

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