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When an inspector calls: How to prepare for a tax investigation

When your financial affairs come under the spotlight of a tax investigation, it can be an emotional rollercoaster ride. When it occurs, usually following the arrival of an unsettling brown envelope with the letters “HMRC”. denial and terror are usually the first reactions. But with these top tips from Manchester based accountants Alexander & Co, you may just survive it.

1. Keep a cool head

Being and keeping calm is the essential first step. An investigation brings up plenty of violent emotions - not least the thought of being thrown in jail. But really, only a small amount of cases end with custodial sentences, so don’t fear the worst. 

2. Seeking help

We recommend that you seek an experienced advisor. Having an experienced tax advisor on your side who is well versed in tax investigation situations will help take much of the stress off your shoulders. It is likely to be more cost-effective in the long run too. 

2. Don’t destroy documents

Destroying your documents, or evidence as a tax inspector will see it may lead them to think you are hiding something. If you didn’t keep records in the first place, you need to try and obtain replacements, like bank statements.

Work alongside your tax adviser make estimates and reasonable assumptions to fill any gaps.

3. Seek clarification

If you don't understand why those conducting the investigation are asking certain questions, keeping asking questions back. HMRC’s own advice urges their tax inspectors to work collaboratively in order to resolve disputes.

4. Don’t under-deliver after you over-promise

If you cannot manage a deadline, speak to HMRC and explain your situation - you may be able to agree on a new timescale. Missing any of these deadlines may lead to formal demand for information.

Furthermore, if you owe money over a period of time, let the taxman know right away. Be realistic about the amount you can afford to pay as missing payments that have already been arranged can have grave consequences.

5. Full Disclosure

If there is anything wrong with your tax return, let HMRC know. Letting them know why things went wrong in the first place and providing them with all the relevant information will reduce your penalties and a potential criminal investigation.

6. Staying ahead

If you think the taxman is going to ask a certain question next, prepare a draft response in preparation and provide supporting documents for your responses. Doing your utmost to help and granting access to your files and records is another method that can help reduce penalties.

7. Preparing for meetings

Prepare carefully and ask for an agenda of the meeting. Stay calm during the meeting and simply say if you don’t understand a question. Check any meeting notes the Revenue provides as more often than not misunderstandings happen. As the HMRC rely on these notes, let them know what amendments are necessary.

8. Be on your best behaviour

Once you have resolved the investigation and come to an agreement, don’t offend again, as second- time offenders are viewed in a much more serious light.

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