When HM Revenue & Customs (HMRC) write to the Finance Director of a large and complex businesses introducing a Customer Compliance Manager (CCM) and enclose factsheet CC/FS1c, take care and seek specialist advice. An investigation is underway into all taxes (corporation tax, PAYE, VAT etc.) operated by the company which will be linked to simultaneous enquiries into the tax affairs of all the Directors.
Such letters will be issued on all companies in a group on the same day in an effort to coordinate their investigation. If handled incorrectly, this can be a devastating blow and undermine a life’s work in building up the business. HMRC will want to examine every aspect of how the company operates and will leave no stone unturned.
What do you do?
Firstly take it seriously. HMRC have not written the letters on a whim. A team of inspectors have already spent many hours assessing the likely risks facing the business in getting all the tax returns correct. Background research has been undertaken in order to prepare the lead inspector with a comprehensive profile of all concerned.
Penalties can be high
Tactics from the outset are key. Think of the endgame. All tax investigations have to come to an end and cannot go on indefinitely. So how can you make the process go away swiftly?
HMRC will seek a payment of tax plus interest on the inevitable late payment of that tax. But in addition there will be a financial penalty for having got it all wrong.
Penalties are based on a taxpayer’s behaviour and assuming the ostrich position will cost you dear. Whereas cooperating and helping HMRC in their enquiries will pay dividends and keep the overall cost down.
Is there a Disclosure to be made?
Telling HMRC about minor mistakes as soon as they are discovered is helpful. But if there is something more extensive, a formal Disclosure should be considered. And timing will be key. Invariably HMRC will seek to visit the business premises to undertake their checks and will propose a date and time at least 30 days in advance. Use this time wisely.
If there is anything to be disclosed, gather the facts sooner rather than later. Assess the situation and carry out a damage limitation exercise.
Don’t underestimate HMRC
HMRC have wide ranging powers and receive reliable information from numerous sources. Moreover, their systems auditors will want to interrogate the company’s electronic accounting records. With the aid of their CONNECT software, transactions can be cross checked and linked to data from around the world provided to HMRC every year under the Common Reporting Standard.
If you fail to prepare, prepare to fail
Consider it all as a process. The sooner it starts, the sooner it will finish. There will be disruption. Employees will be nervous and worried even if there is nothing wrong. Competitors will swoop on any customer that is not being looked after during the process that can last months.