What if one day you receive an envelope in the post; inside is a letter from HMRC telling you that they are making some enquiries into your tax return or tax credit claim.
How will you feel? You might be worried or confused or instead you might feel irritated or even angry. It might be a mixture of these.
And what do HMRC mean by their letter? Do they think that you have actually done something wrong and if they don't know whether you have, why then, are they going to ask questions?
The important thing to remember is that there are strict guidelines for HMRC that they have to follow.
In this section we look at old-style enquiries under the self-assessment system, and new-style ‘checks’ which HMRC can carry out at more or less any time – subject to safeguards for you, the taxpayer. We advise you how to react if HMRC want to discuss with you in depth your business affairs in How to survive an enquiry.
As the drive to gather in more cash intensifies the range and type of approach from HMRC will vary and the errors that may be discovered may impact not only on income tax liabilities but on a tax credit claim (indeed it may extend even wider into a claim for housing or council tax benefit). We look further into this issue in our section on Enquiries in more detail.
If HMRC charge you or threaten you with a penalty, do you have to pay it? Can you appeal, and if so, how? What is the legal basis, and what are your rights?
If you have made an innocent mistake, can HMRC charge you a penalty at all? Even if you have done something to merit a penalty, can you persuade HMRC to reduce it? And if so what arguments do you use, and how should you expect HMRC to react? What are your negotiating strengths and weaknesses?
A new regime for charging penalties is now in place, graded according to the taxpayer’s behaviour. Our section on Tax penalties covers the facts about the new regime – types of behaviour which determine the size of a penalty, mitigating factors, appeal rights and human rights matters.
Any investigation by HMRC can lead to unexpected debt and the most important thing to do is not to ignore the problem. If you know how HMRC approach people with debt problems (and you can get sympathetic treatment) then you may negotiate the best deal to get you through the crisis.
The best advice on tax debt can be found on the TaxAid website and we would advise someone in debt to review their material and if necessary ring their free helpline for further help.
