An inspector calls

GB Magazine on Nov 2007 by Jon Card

Can you really be worse than the black market? You’re an easier target as far as the taxman is concerned, though. Watch out

No wonder the taxman is targeting you. Statistics show HMRC brings in more than double the amount of money from investigating businesses than it does from chasing criminal activity known as the black market. In 2006/07 full company inquiries yielded £109.2m compared to £49.9m from the ‘hidden economy’.

You’re probably too busy growing your business to worry about dotting every ‘i’. Sadly, your tax office knows this. For several years now, the tax authorities have been profiling businesses to determine the most likely underpayers. HM Revenue and Customs (HMRC) won’t say what the criteria is, but anecdotal evidence suggests that if you are in the construction industry, run a cash business or are simply going through a period of rapid growth, you are likely to appear on the radar. And, as about 5% of inquiries are just random, you could just be unlucky.

HMRC starts by requesting information to support your tax return. If you are up to date, it should be a simple response. But if they aren’t satisfi ed they might ‘invite’ you to an interview. You’re not obliged to go, but you should tread carefully. Anne Eager, a partner at accountancy firm Robert James Partnership, says HMRC often requests information it has no right to, and entrepreneurs should not give it to them. And she says that what might appear to be informal chats are often fishing exercises for gathering information to use against you.

“The Revenue has really upped its game and won’t be fobbed off. Their attitude is you are guilty until proven innocent,” she says. A full inquiry can be very disruptive, time-consuming and expensive. It is likely you will be asked to pay more tax. If you fight it you are up against a formidable opponent. But Eager says it is remarkable how wrong the HMRC can get it. “I have a customer who was charged £50,000 and we negotiated it down to £20,000,” she says.

Jeff Doble, founder of £20m estate agency Dexters, has had his business investigated for 10 years in a row. The business has grown rapidly since founding in 1995 and has made a number of acquisitions. However, Doble says the main area where he has been penalised has been his employee benefits scheme. HMRC have changed the rules on these and have backdated the changes.

“They demanded interest after changes had been made,” he says. “Apart from the employees’ scheme they have never really found anything. But unlike Dexters, many companies simply give in to the taxman’s demands immediately rather than pay professionals to defend them. Where will you stand?

TIPS FOR SURVIVAL