Sometimes, it’s easy to forget some of life’s simple truths. The institutions we deal with on a daily basis, for example – banks, the council, even your internet provider? How easy is it to forget that, ultimately, they’re all run by people? People just like you.
It’s the same with HMRC.
We don’t think it’s much of an exaggeration: receiving a letter stamped with those four letters can strike fear into anyone’s heart. And if you’re faced with a tax investigation or enquiry, it’s often hard to escape the thought that you’re battling a behemoth. David vs Goliath.
But it doesn’t need to be this way.
Because at the end of the day, the HMRC officer dealing with your enquiry? They’re just a person. A person who, like all of us, can make mistakes.
A person who, sometimes, might ask a little too much.
It goes without saying – if you’re under investigation with HMRC, your assigned officer is going to request information or clarifications regarding your tax returns. But sometimes, they’ll ask for things that aren’t exactly reasonable. Sometimes, even, it might seem like they’re overstepping the mark.
Sometimes, they’ll forget they’re dealing with a person too. You.
But how do you hold you’re ground during an HMRC enquiry? What do you do if you feel like your officer has asked for information that seems of no bearing to your income or your tax returns?
Most importantly, you’re going to need to seek advice. Then, you’re going to need to choose your battles.
And you’re going to want to choose the battles you can win, right?
Here are five examples of information you can keep from HMRC.
1. Drawings, proprietor’s capital accounts, or a director loan.
As seen in our previous post, HMRC will often demand information using a statute known as Schedule 36. Even so, sometimes, they’ll ask for information that just isn’t covered – information you don’t have to provide.
As silly as it sounds, an HMRC enquiry into your tax return is about one thing. You guessed it: your tax return! So if your HMRC officer starts questioning how your profit is spent, or how funds to finance your business are raised – really speaking? It’s just not of any consequence.
Some people are even targeted because they’re drawings are too small. But it’s a heck of an accusation. Whose business is it but yours if your living expenses are being paid for by your partner and not your business, for example? Ultimately, it’s an invasion of privacy.
So if you’re faced with this kind of request? Don’t sweat. Be polite but firm: you’re on solid ground here.
2. Personal bank statements kept separate from the business.
Didn’t we just talk about an invasion of privacy?!
It’s requests like this that give HMRC they’re… shall we say, ‘less-than-good name’, isn’t it? But don’t worry. Even if they request details of your private, personal bank accounts, it’s rare they need to see your private statements – not if they’re separate from the business, anyway.
Imagine, if you’re a sole trader – a hairdresser, let’s say. Well, you decide to volunteer your private statements when under enquiry, because you’re just that keen to play nicely. It might seem like the right thing to do.
But what’s to stop your HMRC officer then deciding that they’ll examine every single receipt for possibly diverted incomes?
‘Look,’ they’ll say, ‘here’s £6.47 that’s come into your account two years ago! How do you explain that?!’
Apart from the fact it’s very unlikely anyone would commit fraud over such a small sum, there’s a whole host of reasons why you might have seemingly unexplained amounts appearing in your personal accounts. Maybe you’ve had a refund from an online shop that went out of business. Maybe you even won the pools!
At the end of the day, our personal accounts are constantly seeing money go in and out. If they’ve clearly been kept separate from the business, they should be private. And even if an HMRC officer asks? Consider whether there’s alternative means to help the officer achieve whatever information they’re after.
And if you’re still unsure? Ask us.
3. Appointment diaries
As mysterious and exciting as it might sound, who can really say they’d be able to live a double-life?
Who can say they really manage to keep their business and personal lives truly separate?
Let’s face it, once again, HMRC requesting to view your appointment diary is arguably an invasion of privacy. And really speaking? Your diary is a source of information that’s… well, less than trustable.
That’s not to say you’re not trustable, obviously. But if your diary isn’t accurate, how can it be used as a judge of your income? Plans change, don’t they? We miss appointments or they’re straight-up cancelled. And, sometimes, we might not really want to go to the gym. Even though we might say we have…
So why do they need to examine our every single move?
The short answer is: they don’t.
Imagine you’re a physiotherapist. Do you think your clients would be happy knowing you’d told random strangers about their ailments and treatments? As unlikely as it is that your clients would find out, if there’s no financial details at all in your diaries and the HMRC ask to see them? Once again, remain polite but firm. There’s just no need – the supposed evidence your diary might supply is just not valuable when you can’t prove every appointment date did or didn’t go ahead.
So, if they ask, argue your case. Just keep calm, polite, and to the point.
4. Third party information.
Your partner and your children: one of the main reasons you work as hard as you do. You want to provide for them. To keep them warm and well-fed. To keep them safe, even.
So it can be a bit of a challenge if you’re ever asked for information regarding their income or their bank accounts. It can be hard for tempers to remain steady.
‘Who are they to pry into my family’s privacy?!’ you might ask.
Well, don’t worry – and keep a level head. Because ultimately, anything information that’s not normally in your possession, the taxpayer in question? You don’t even have the power to provide it!
If HMRC ask you for details about your partner’s income, just be honest. Tell the truth: it’s their business, not mine. So what purpose does it serve?
Of course, your HMRC officer’s decision to ask for your partner’s account information might stem from a valid reason – you may have a joint bank account, perhaps. In fact, say you have a joint bank account, mixing both your personal and business transactions. Well, first off, that’s not the best position to be in! But if this is the case, HMRC could argue that you have the authority to reasonably provide this account’s transactional information. Whether your partner likes it or not.
But really speaking? It all comes down to what can be considered ‘in your power’ as the taxpayer. If it’s not your name on the account, it’s not for HMRC to worry about.
5. An accountant’s working papers.
Once again, how is this in your power to obtain? Technically, any work done by your accountant may be considered their property. In short, it’s not even in your possession.
That’s not to say that HMRC won’t send out a notice requiring your accountant to provide such information. But even so: don’t worry. What’s important to remember here – with all these points, really – is that your HMRC officer can’t, and shouldn’t, hassle you for this information.
Really speaking? You simply have to explain your case. Because if it’s not in your power to obtain, how can you provide it?
So what can we take away from this?
Facing a HMRC enquiry can be testing for even those of us with nerves of steel. But it’s important to remember, like we said above, HMRC is run by people just like you. Whilst it’s easy to think you’re facing impossible odds, in turn, your HMRC officer may forget that they’re dealing with a real person. A person who might be facing an incredibly stressful investigation.
Well, don’t worry. If you stay strong, if you remain polite but firm, you can ride this enquiry out. And if you’re being asked for any of the information above, or anything else that seems unreasonable, you probably have cause to stand your ground.
Whether they are asking for third party information or information that seemingly holds no bearing on your case, be honest. Ask them: why, exactly, do you need to see this? And remember, if you’re still unsure as how to proceed?
Talk to us. And we’ll give you peace of mind.
The Tax Haven.