HMRC Tax Investigations And COVID-19

Due to social distancing restrictions, there has been a reduction in face-to-face HMRC tax investigations. HMRC staff are mainly working from home and not carrying out customer-facing compliance work. They have therefore given taxpayers extensions and/or the option to suspend compliance work.

However, compliance works have not completely stopped and some taxpayers are being notified of new tax enquiries. We as accountants are also receiving correspondence regarding ongoing enquiries on a regular basis.

Whilst this is certainly a quiet period for tax investigations, this will not continue in the long term.

hmrc tax investigations

Tax Investigations Into Coronavirus Support Claims

Many of the Coronavirus support grants and schemes made available to employers and self-employed workers were subject to self-validation during the application process. For instance figures, such as self-employed earnings and employee contracted hours were left to the applicant to provide without any rigorous checks.

As a result, the grants and schemes are open to abuse, and due to a heavy workload, it is not practical for HMRC to check all claims at the present time.

However, this does not mean they will remain un-checked. HMRC will undoubtedly be checking the measures which have been put in place to support the economy through the lockdown period.

Increase In Tax Investigations

Prior to the COVID-19 pandemic, there was a surge in tax enquiries as a result of the introduction of the Connect system.

Connect cross-references more than 22 billion lines of data including customers’ Self Assessment returns, property and financial data.

Connect also identifies more than 500,000 cases (onshore and offshore) for HMRC to enquire into every year.

The connect system provides HMRC with a wealth of data which they use to carry out automated wide-scale checks.  Combined with the introduction of Making Tax Digital this has resulted in an increase in HMRC tax investigations.

hmrc tax investigations

Post-lockdown Checks

More than a quarter of the UK workforce is currently being supported by the CJRS or Furlough scheme at a cost of £19.6bn. The self-employed income support scheme has also received 2.6 million claims at a cost to the government of £7.5bn.

As businesses begin to emerge from lockdown there will be more challenges ahead. It is widely predicted that the UK will enter a period of prolonged austerity.

This will inevitably create demands on HMRC to generate tax yields to help fund the huge level of government spending throughout the lockdown period.

This will be achieved by increasing activity and checking that the grants and schemes measures put into place during lockdown have not been abused.

Checks into CJRS and SEISS claims will also lead to checks into wider business affairs and we expect to see a rise in HMRC tax enquiries.

The Cost Of Tax Investigation

If you are selected for a tax enquiry by HMRC the process can be detailed and very time-consuming.

HMRC will write or phone to say what they want to check.

This could be:

  • any taxes you pay
  • accounts and tax calculations
  • your Self Assessment tax return
  • your Company Tax Return
  • PAYE records and returns, if you employ people

If you use an accountant, HMRC will contact them instead.

During this process, HMRC may visit your home, business or accountants office. After the check, HMRC will write to tell you their findings.  If you’ve paid too much tax you will be repaid, or, if you owe tax you will be asked to pay the amount due within 30 days.

You may also have to pay a penalty. HMRC will look at:

  • the reasons why you underpaid or overclaimed the tax
  • whether you told HMRC as soon as you could
  • how helpful you’ve been during the check

This lengthy process means that even if no extra tax is payable, the cost to your business can be substantial. It is for this reason that many businesses take up tax investigation insurance.

hmrc tax investigations

Tax Investigation Insurance

Also known as Tax Enquiry Insurance, Tax Fee Protection or TFP schemes, Tax Investigation Insurance protects you and your business from HMRC tax investigations.

Our normal annual accounting fees do not cover the additional professional costs of handling tax enquiries and compliance checks. Therefore, we strongly recommend that you are protected against such unexpected costs by taking out the Tax Investigation Insurance.

Taking out tax investigation insurance with K.A.Farr & Co means that you will be robustly defended against unjustified questions by HMRC and the cost of our time is covered by your premium.

We partner with Vantage Fee Protect to offer you the best rates with the most comprehensive cover. This insurance is second to none, and our rates are very competitive.

An additional benefit of our premium is FREE expert telephone advice on general legal issues which also covers the complex areas of Employment Law and Health & Safety.

You can find a sample summary of cover here.

Two Months Free

Let us take care of it for you… our annual cover is only £125.95 per annum and we are currently offering 14 months for the price of 12.

All you need to do is contact us on 01704 211434 and request to purchase Tax Investigation Insurance.

We can also answer any questions you may have regarding the cover and our services, you can also contact us by email at