Why Investigations Start
Local office enquiries
HMRC does not need to have any reason for opening an enquiry. Some Local office enquiries are opened at random as part of HMRC’s way of checking a proportion of the self-assessment returns which are submitted.
Other returns are pre-selected for enquiry because of a suspicion that a tax return contains errors. The taxpayer may not discover the reason for the enquiry, but whatever the situation, it is likely to be stressful, time consuming and expensive.
In recent years, most HMRC are risk assessing more cases and so it is now more likely that there is a reason for their questions.
Special Investigation Office / (Contractual Disclosure Facility) CDF
SI and CDF Tax investigations are not common, but when they do occur, they are serious. Generally there are only about 500-1000 of these cases opened each year.
Some recent CDF investigations are being opened as a result of not fully co-operating in a previous HMRC campaign. For example, people who have offshore accounts held with one of the banks for which HMRC holds information are more likely to receive a letter from SI, opening a CDF enquiry, if they did not disclose a particular account when they had an opportunity to volunteer the information.
The officers working these cases are some of the most experienced investigators in HMRC. If a letter or communication is received from the Special Investigations office, or mentions the CDF, it is essential that it is handled immediately by someone who has expertise and experience in this area.
- Unusually high business expenses, for instance legal or travel costs
- Disparity between profitability of similar firms in sector/area
- Bank interest incorrectly reported on tax returns
- Sending in Tax Returns or accounts late
- PAYE Irregularities
- Excessive use of consultants
- Large petty cash accounts
- Complicated group structures often involving offshore income or assets held in trusts and overseas banks
- Unexplained increases in income, cash, bank transfers
- Other suspicions of Serious Fraud such as false invoicing
- Duties (tax, interest and penalties) of at least £75,000 outstanding