HMRC’s perception of you as a taxpayer is undoubtedly important in how they approach potential investigations and penalties.
It is rare that HMRC conveys its true views of a taxpayer. However, occasionally an Inspector will intentionally or inadvertently let the stone wall slip.
The true view can be informative.
With all due respect …
Not a expression that is ever sought in any communication from HMRC.
The signal is clear and it isn’t going to be good, especially when it is followed by comments along the lines of:
- I remind you that between the tax years 2010 to 2019 Mr X had paid just £1,200
- Mr X has a history of non-compliance and an inability to keep up to date with his financial affairs
- Mr X has failed to respond to correspondence from HMRC (filing tax returns over 3 years late)
If the message hasn’t reached home even at this stage the inference when HMRC states “.. it has a duty to try to ensure equality of treatment for all taxpayers, most of whom pay their tax on time, often in difficult circumstances.” is clear.
HMRC’s perception of this taxpayer is very dim and negative.
Should the taxpayer be bothered?
Where HMRC’s perception is negative, it will impact:
- the aggression and intrusiveness of HMRC’s enquiries;
- the scepticism HMRC will attach to any un-evidenced response; and
- the level of financial penalty charged.
A negative perception is bad news and realistically needs to be tempered as part of resolving any open matters.
Even if a numerical settlement can be reached without addressing perception, that same (negative) perception will inform the penalty position.
But is the perception correct?
Sometimes yes, sometimes no.
HMRC’s perception may be founded on a legacy of late returns and ignored communications.
But what is the real reason for the problems? Has the taxpayer been ill (either physically or mentally), have they been away from the UK, have they been let down by others.
There can be reasons why non-compliance has occurred. Explaining the reason(s) to HMRC will go some way to changing the perception. It won’t remove the enquiry but will have a much greater chance of moderating how the enquiry progresses.
A change of perception?
Changing HMRC’s perception is not simple or easy. But it is well worth the effort to try.
Explaining from the taxpayers perspective why failures have arisen is a good start, co-operating with the HMRC enquiry and meeting deadlines sends a different message. Providing evidence to support assertions and solutions to HMRC’s queries rather than just documents will all demonstrate the perception HMRC held could possibly have been ill formed.
Taxpayers do not relish HMRC enquiries and, having experienced one, do not wish to encounter any more subsequently.
Leaving HMRC with a changed, and more positive, perception, reduces the risk of further scrutiny.
A soft touch?
Does attempting to change perception mean writing a blank cheque to HMRC. No.
If HMRC raise a valid point that cannot be rebutted, it will only affirm HMRC’s perception if an attempt is made to contest otherwise.
Alternatively, if HMRC raise a point that can be rebutted, with direct or indirect evidence, it will only aid the representation of perception.
HMRC’s perception is important
Recognising perception at the outset and whether it can be changed can have a material, and positive, bearing on HMRC scrutiny.
No taxpayer, or adviser, wants to be faced with any HMRC comment commencing “With all due respect…”
It can be avoided if consideration of HMRC’s perception is recognised as early as possible, and addressed.