Most enquiries/investigations are concluded by way of agreement with the Inspector. If agreement cannot be reached, and it is felt that the Inspector is being unreasonable, then an approach may be made to the officer in charge, though this should not be contemplated except as a last resort as:
i) It will undoubtedly make the working relationship with the Inspector more difficult;
ii) The officer in charge will generally publicly support an Inspector.
If agreement still cannot be reached then recourse is to the General or Special Commissioners. If you would like to discuss appeals to the General and Special Commissioner with one of our tax investigations specialists then please click here.
The details set out below deal with the situation where a settlement is being negotiated with the Inspector.
Stage 1 Obtain the information necessary to compute the level of understated profits or income, or to demonstrate that the figures were properly stated.
Stage 2 If amendments are likely, the Inspector will normally request that the following be completed:
Certificate of bank and building society accounts; Statement of assets and liabilities; An adoption certificate if the information at stage 1 is contained in a report commissioned by those under enquiry.
Stage 3 The level of additional profits will be agreed. The issues that are the subject of the enquiry/investigation will generally fall into four specific categories:
i) there is definitely no additional tax payable
ii) profits/income have been understated by a known amount
iii) it is not clear whether profits/income is understated
iv) it is clear that profits/income is understated, but the extent cannot be precisely ascertained.
‘i’ and ‘ii’ will be agreed with the Inspector, leaving ‘iii’ and ‘iv’ to be negotiated.
The level of tax payable if any, may then be calculated.
Stage 4 The Inspector will normally, at this stage, ask for a certificate of full disclosure to be completed.
This certificate and those set out at ‘stage 2’ are extremely important documents, as submitting deliberately incorrect or incomplete certificates may lead to prosecution.
If you would like to discuss with one of our tax investigation specialists the formal documentation that may be requested in an enquiry/investigation then please click here.
Stage 5 Interest payable under S86 TMA 1970 (income tax and capital gains tax) and S87A TMA 1970 (corporation tax) will now be calculated
Stage 6 If the Inspector can demonstrate that there has been
a) failure to notify chargeability
b) failure to make a return
c) fraudulent or negligent delivery of an incorrect return
then penalties will normally be sought.
Generally penalties will be tax geared, and may be up to 100% of the tax payable, with the following maximum reductions:
20% for disclosure and the extent of its completeness (30% where this is entirely voluntary, and not prompted by any Inland Revenue action or fear of discovery)
40% to recognise co-operation generally, including how quickly information was made available
40% for the size and gravity of what has happened.
Note that under self-assessment both a surcharge and a penalty may not be charged on the same tax. S.98 TMA 1970 sets out penalties chargeable for failures in relation to certain ‘special returns’.
Stage 7 When the level of tax, interest and penalty has been agreed, the matter will normally be concluded by way of contract settlement.
It is sometimes possible to negotiate the payment of outstanding liabilities by instalments, particularly where it can be demonstrated that necessary funds are not available and cannot be borrowed from elsewhere.
For self-assessment enquiries concluded in this manner, no notice of completion is required.
Under self-assessment, if there is no contract settlement, then it is important to ensure that a completion notice is issued, as this ensures that there can be no further enquiries unless a discovery is made.