Would you be ready if HMRC lodged a formal enquiry into your Income Tax Return? 

A tax enquiry is the process by which HMRC check in detail that the information on a tax return is correct and complete. HMRC have the right to make a formal enquiry into every tax return submitted to them. This enables them to look closely at the individual entries within the return and often taxpayers will be asked to support each entry with the relevant documentary evidence.

HMRC receive information from certain third parties about income received by taxpayers. For example, UK banks and building societies will give details to HMRC of any interest paid to UK taxpayers. Therefore, HMRC want to make sure that the individual’s tax return is consistent with the information they already have.

When can HMRC enquire into a Tax Return?

HMRC have 12 months from the date you filed your Tax Return in which to open an enquiry. However, this is broadly speaking and if HMRC suspect a deliberate tax evasion, they can investigate as far back as 20 years.

“Why have they picked my return?”

Every year, HMRC select a random sample of Tax Returns to enquire about. However, they do also focus on certain areas. Below are a couple current examples.

HMRC launch letter campaign on Income Tax Provisional Returns

HMRC have commenced a campaign directed at tax agents relating to Self-Assessment Provisional Returns. HMRC begun sending letters on 10 August 2023 and the aim is for this to be concluded by the end of August.

Although this campaign is aimed at tax agents, HMRC will soon be challenging individuals directly. 2021/22 Self-Assessment Tax Returns can be amended anytime now up until or on 31 January 2024, and therefore should be rectified and submitted as soon as possible to avoid accruing late payment interest.

UK resident, non-domiciled individuals claiming Remittance Basis

The terms ‘domicile’ and ‘remittance basis’ were made famous by Rishi Sunak’s wife, Akshata Murty however the definitions have been outlined below.

Definition of Domicile

Domicile is a legal concept, completely separate from Residence. It is not the same as Nationality and you can only have one domicile at any one time. HMRC will never provide advance agreement of an individual’s Domicile position and so the task of proving Domicile will always fall on the individual concerned.

There are three types of domicile, as follows:

• Domicile of origin
• Domicile of choice
• Domicile of dependence

You normally acquire a domicile of origin from your father when you are born. Your domicile of origin will often be the country in which you were born. However, if you were born in a country and your father was not domiciled there at the time you were born, then your domicile of origin may be your father’s country of domicile.

Definition of Remittance

‘A remittance is any money or other property which is, or which derives from, your offshore income and gains which are brought to, received or used either directly or indirectly in the UK for your benefit or for the benefit of any other relevant person.’

HMRC Enquiries

If an individual wishes to claim non-domicile status and the claim is relevant to their income tax and capital gains tax liability, they should complete the ‘Residence, remittance basis etc’ supplementary pages (SA109) of the self-assessment return. HMRC will then raise an enquiry if they wish to challenge this.

HMRC have exercised their authority to enquire into an individual’s tax affairs at a much more frequent rate in recent years. Particularly deep diving into how individuals, who take advantage of the remittance basis, fund their lifestyles.

When an individual retains all foreign income overseas and additionally shows no UK income on their UK Tax Return, HMRC are suspicious on how that individual is living. It may be that the individual has significant savings, but HMRC are asking the question and require evidence of this.

How can FPM Help?

At FPM we understand how receiving a HMRC enquiry can seem daunting and therefore have a dedicated HMRC Investigations Team full of tax experts who are readily prepared to take the reigns and deal with HMRC from start to finish to get an enquiry closed as quickly as possible.

If you are concerned about your tax obligations or if you’ve received a HMRC enquiry letter, we are here to support and offer guidance. Please do not hesitate to get in contact with Seamus McElvanna or another member of our Tax team who are ready to help you navigate the complex and challenging landscape of tax compliance.