It’s the law that everybody is entitled to peace of mind and closure on their tax affairs. You have a year to file it, HMRC has a year to check it. But that goes out the window when an investigation hangs over you. Tax investigations are going to increase because of government support rushed out in response to Covid. Interest free loans, furlough and self-employment grants were paid before even we knew how they would be treated within your accounts.
Not surprisingly then, there was a lot of fraud in the past year. Reading the accounting forums, almost everyone knows several clients who took money they shouldn’t have. The only check was to tick a box, so why wouldn’t you? Of course, there were more cynical operators who set up new companies, got several new loans and then drained the account. The banks knew this too, but they were pressured to supply liquidity, and were ultimately underwritten by someone else.
Certainly, large numbers of people have abused the schemes intentionally. But because of the way they were rolled out with limited guidance, we are in a combustible new space. If HMRC told you you were eligible and you therefore accepted the offer of free money on good faith (and you were busy keeping your dental practice on life support), but it now tells you that, ah, sorry, actually you weren’t eligible, how would you feel?
Lots of people didn’t have accountants to guide them. And it is confusing — we’ve even advised some accountants not to accept Covid money because they weren’t eligible. Meanwhile the government, via its attack on the economy, has created a tax revenue crisis on top of all the new debt, and so HMRC is going to recoup everything it can.
More people are going to discover, whether they are guilty or not, that the cost burden is on them to defend themselves. Tax investigations are not a fair or equitable process. You need to pay for an accountant, and it will be specialist fees. There’s a cost to justice, even if you have done everything correctly. And if there’s nothing wrong, HMRC won’t reimburse you.
On top of that, HMRC can be incompetent. It might ask you the same questions a few times. It might say you haven’t responded to questions that you have responded to. It might question your responses even though one of your answers proves its question is not valid. In each case you will have to pay because you need your specialist adviser to help you. Investigations can be open ended and unstructured. There is no template, and that’s why they can’t be budgeted for. You are at the whim of the investigator. Tax inquiries are a nightmare.
One strategy HMRC now uses is to invoke recently created anti-abuse rules that say if you’ve done something we don’t like, in principle, we’ll assume you’re guilty until proven innocent. They exist as a threat and aren’t used often but can be useful when HMRC can’t find a legitimate angle for it’s challenge. It then asks lots of questions. If your answers don’t reveal a problem, it keeps asking, hoping you will trip up. Then it will go quiet but keep the case open, so you have to sit with anxiety.
At the moment HMRC is being bad at paying refunds for the last tax year. Our clients are getting letters saying “we need to verify your ID before we can issue this refund” or “sign this form saying the refund is correct”. This is stalling and obfuscation (HMRC obviously has these clients’ ID and permission already). Some people got a letter saying “we’re checking your tax return, when we’ve checked it we’ll let you know if it’s alright or if we need more information”. But six months later we are still waiting. We write to HMRC asking them to confirm whether the tax return has been checked or not and get no clarity. This behaviour feels coercive and unfair and it’s not what the system’s for.
Before Covid, when someone got investigated, people tended to assume they must have done something to deserve it. Now, given the large number of people at risk of investigation, it’s different. The goalposts have moved. You can no longer assume that if you keep your affairs above board you won’t get investigated. HMRC has already started sending nudge letters to furlough recipients, making it seem as though they have done something wrong. These letters are not enquiries, they are pre-emptive attempts to get people to hold their hands up.
The big rise in enquiries will come as people start filing their tax returns for 2020-2021. If HMRC investigates too many of the wrong people, expect the public mood to turn nasty. The government could be looking at mass non-compliance in future tax years. The social contract is already under strain after a year of lockdowns and I’ve noticed that the attitude of some dental practice owners, in the face of all the government interference, has been to shift their moral compass. I’ve heard people say, “If money is available then I want to take it.”
Some were even running an NHS practice with guaranteed income, but they claimed it on top anyway. Almost every dental practice owner I know who took funding said they didn’t really need it but they took it in case they needed it. This to me signals a breakdown in trust between the state and business owners, especially for dentists who were completely shut down in the first lockdown, then allowed to trade from June 2020. For three months they were shut and didn’t need to be, especially as they have expertise in infection control.
But we are where we are, and we don’t know who will be investigated. In anticipation of the surge in investigations Hive Business can provide you with tax inquiry fee protection cover to give you peace of mind. It costs no more than the equivalent of two hours’ of a tax specialist’s time, a maximum of £300, depending on your business structure. It means that if you are investigated, you won’t suffer any further costs. So if HMRC comes for you, we’ve got you covered.
Get in touch to find out more.