Tax investigations – meeting the Inspector

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What should you expect during a meeting with a Tax Inspector reviewing your Self-Assessment Return?

HMRC uses such meetings as an opportunity to find out how you run your business.They may even be looking at a range of taxes on the same day – eg VAT Returns and business tax returns declaring profits. The Inspector(s) will ask about the day-to-day operations; who handles the cash; how many staff you have and how and when they are paid; what contemporaneous records are kept.  (Contemporaneous means ‘created at the time’ in HMRC speak).

The Inspector is trying to establish if there are opportunities for money to go astray i.e. not through the till or books. This is more likely in a cash trade such as a pub or newsagents than a business issuing invoices and being paid by cheque or BACS.

As well as the business the Inspector may well ask about your personal life.  He will try and obtain a picture of your lifestyle and the amount of money such a lifestyle needs. Strangely most Inspectors find they only interview taxpayers who neither drink nor smoke, rarely go out (and never to the pub), never take foreign holidays and generally live a miserable, frugal life. Odd that?

It doesn’t need to be this way. Everyone is entitled to a life, holidays and the occasional party. An Inspector will believe you if you admit to going out, buying presents and holidaying abroad.  He will then also be more willing to believe the other things you have told him. Your problems only start if you are trying to convince him all this is done for a family of 6 on £100 per week.

It is important to remember that an HMRC enquiry into a particular Self-Assessment Return relates to the year the Return shows the figures for. It is not an opportunity for a fishing trip into earlier years. An Inspector can only embark on such a trip if he has found a hole (mistake) in the year under enquiry.

It is a fine balancing act between being co-operative over questions outside the limited legal scope that HMRC truly has and allowing them to walk all over you.

At the meeting the Inspector, or his friend (if he has brought one), will take detailed notes of the questions asked and your replies. You are entitled to a copy of these notes (which are typed up after the meeting) and no Inspector should refuse such a reasonable request. He is not entitled to a copy of any notes you or your accountant may make. I would advise that your side does keep a record at the time so that you can compare your recollection of events with that of HMRC. It could prove important.

Huston’s Hint

Get a copy of the notes of the meeting from the Inspector.  They are always prepared so if you see them you can check what is going down on paper – and correct it if inaccurate.