Tax investigations

Posted on

AccountingWEB has been a having a discussion of tax investigations. This is topical. The UK's 'tax amnesty' will give rise to a fair number, either because the Revenue do not accept voluntary disclosures, or because people who choose not to disclose now will be forced to do so sometime soon.

It seems to me, based on my experience of doing investigation cases and of taking over such cases from other people that:

1) Many accountants do not know enough technically to do these cases
2) Most accountants don't have the personality to do these cases
3) Most accountants don't prepare their clients for these cases
4) Many accountants fail to do the legwork required to get a result in these cases
5) As a result they don't make money from them.

My attitude is simple when doing an investigation. I want the right amount of tax (and interest and penalties) paid and no more. If the client owes, then they should pay. If the Revenue overstate the claim it's my job to make sure that there is evidence to counter this.

This requires a robust approach with the client and Revenue, but both are based on offering full cooperation. The client has to cooperate with you. You have to cooperate with the revenue, and you expect the same in return.

The part most accountants won't do is tell their clients what to expect when being investigated. Let's put this simply. Being investigated by HMRC is for some people the worst experience of their adult lives. They've told me that. I believe them. The client has to know that in advance.

To mitigate this the accountant has to do two things. The first is thoroughly appraise the evidence to see where the holes are, what needs to be plugged and how, and all in advance. This takes time and experience. The second is to prepare the client. In my opinion anyone who takes a client into a meeting with the Revenue without having had one or two trial interviews with them in advance where the style of the Inspector's questioning (which is predictable) has been practised is failing their client. The reason is simple. The accountant needs to know into what embarrassment they are being lead, and it's much better for this to happen in a trial meeting than in the real thing. Second the client has to be shown how to answer questions. So they must be warned against exaggeration and false claims, or simply hasty answers. That can only happen in advance. And thirdly the accountant may find things out that need to be addressed before getting to see HMRC.

And when that moment arrives the accountant needs to be robust, including objecting to unfair questions when appropriate and being willing to intervene, ask for breaks, instructing the client of their right not to answer until facts have been determined, and so on.

I've been told by some accountants that this is not playing by the rules. That's wrong. These are the rules if the objective is to pay the right tax. Better always for example to have the client say "I don't know, but we'll get back to you" than to make rash statements.

The trouble with this is that it takes some force of personality. And unless you're willing to project that representing clients in this game is likely to be unrewarding in every sense.

Anyone facing an investigation needs to know their accountant will do these things.

There's one other thing they should expect. A good accountant will expect to be paid upfront. Don't argue. It's you whose in trouble, not them.

PS I'm not seeking further investigation work at present.