Every month, Ainsley Gill, BA (Hons) FCA, shares some useful financial facts and tips especially for Business in Hastings readers. This month the focus is on HMRC Tax Investigations.
HMRC’s determination is to get its pound of flesh from the middle class. How can you stay on the right side of the law but still keep your tax bills to a minimum?
The taxman is now going after the middle classes, no longer targeting just the super-rich, but everyday professionals are now feeling the pressure of this greater scrutiny with an increased likelihood that their tax returns will be challenged.
HM Revenue & Customs (HMRC) has doubled the number of inquiries into taxpayers it feels are not paying enough tax over the past two years. When such inquiries become in depth investigations they can take years to conclude.
New powers have been proposed to allow HMRC to take money directly from taxpayers’ bank accounts, including joint accounts, without first obtaining a court order. If the proposals, which are subject to a consultation, are approved, there are concerns that HMRC will withdraw incorrect sums from accounts before giving taxpayers a chance to argue their case.
HMRC says that they do not plan to empty bank accounts completely as rules are in place to ensure that, after the tax owed is taken, a sum of £5,000 must remain in the individual’s bank accounts. The money can only be taken after four requests for the tax owed have been ignored.
Other existing measures, such as the creation of special “task forces” to target certain job sectors such as freelancers and buy-to-let landlords, have also helped boost the Revenue’s total tax take.
HMRC has beefed itself up by doubling its use of bailiffs and debt collection agencies over the last two years. Its focus on evasion and non-payment looks set to gather force.
One of the most controversial snooping powers the taxman uses to spy on individuals is obtaining information from third parties, including banks, credit card providers, employers and other government agencies such as the Land Registry.
The Revenue will also snoop on the websites that taxpayers use and check up on an individual’s mobile phone usage. They can use bugging or telephone tapping, but in practice they are rarely used.
This policy is seen as hitting the ‘easy’ target, using all its powers to crack down on individuals, rather than companies or other better resourced institutions. The sums involved may not be huge when compared to going after a major corporate, but individuals are a much easier target to squeeze and collectively they are now paying out a huge amount of extra tax. They are more likely to have made tax return mistakes but they are also more likely to capitulate without arguing, making HMRC confident of success.
Another aggressive tool used by HMRC is by threatening taxpayers with higher penalties as part of its tougher stance, which has helped increase tax returns for the Revenue because individuals are paying automatically to avoid receiving higher fines rather than looking at the amount owed and challenging the taxman if they think it is incorrect.
Need more help?
This feature aims to give some informal hints and tips. Mcphersons are offering businesses free advice so get in touch now to arrange your meeting – we can help you protect your money!