Each year HM Revenue & Customs (HMRC) will undertake a number of tax enquiries into individuals and businesses in order to ensure that they have paid the right amount of tax. Since 2010 HMRC have strengthened their approach from this point of view and the general trend has been a year-on-year increase in the number of tax enquiries opened.
2020 was unprecedented in so many ways and when the first lockdown hit last March HMRC found themselves in the same boat as most, adapting to working from home, unable to undertake face to face compliance work and given that politically it was not the time to actively pursue taxpayers, compliance work was largely suspended. What was clear was that this always represented the calm before the storm, that there would eventually be pressure on HMRC to generate more tax in order to fund the enormous spending through this period, as well as a need to check that the measures put in place to support the economy had not been abused.
The provider of our Tax Fee Protection Scheme, which covers professional fees we incur dealing with such HMRC enquiries, has seen this play out in recent months. The number of claims from tax enquiries has increased quickly since May 2020 and now exceeds pre-covid levels. HMRC are targeting all aspects of taxation, but specifically, HMRC is targeting any type of repayment claim as well as taxpayers that have utilised the Coronavirus Job Retention Scheme (CJRS).
For the latter enquiries will typically put the onus on the taxpayer to demonstrate that their claim was credible. HMRC will write to the taxpayer confirming that they believe they need to repay some or all of a CJRS grant received, as they may have claimed for more grant than they are entitled or not met the conditions for the grant (perhaps by including employees who are not eligible). Taxpayers are given the opportunity to voluntarily make a repayment, without any penalty from HMRC.
Where HMRC undertakes such checks and it is necessary for us to be involved, the enquiry will be covered by our Tax Fee Protection Scheme subject to the normal terms and conditions. As you would expect where a claim is fraudulent or contains significant inaccuracies it will not be covered by the scheme.
In the recent budget, the government announced that they will invest over £100m in a task force of 1,265 HMRC staff to combat the estimated £3.5bn fraudulent claims made in respect of Covid-19 support packages. The task force will target CJRS, the Self-employment Income Support Scheme and will help police bounce back loans. It, therefore, appears that the surge in HMRC activity will undoubtedly continue in the coming months and against this backdrop, the protection afforded by our Tax Fee Protection Scheme, at a relatively modest cost, will have more value in 2021 than ever before.
Our Tax Fee Protection scheme renews in July each year and if you are not currently protected by our scheme you will have an opportunity to purchase this protection then, alternatively you can contact us for details on how to join the scheme prior to the renewal date. If you are currently protected by the scheme, then we strongly recommend that you take the opportunity to renew this protection when the time comes.