If we look at the additional taxes that need to be raised to cover the budget deficit and add to that the new penalty regimes which start at 15% and increase up to 100%, we can expect HMRC to continue to increase PAYE investigations for the foreseeable future.
However, the businesses that should perhaps be most concerned are the larger ones. Statistics highlighted by Hacker Young show that every £1 HMRC spent on investigations into multinationals during 2008/09 they recovered £ 181 of tax. By contrast investigations into SME's have generated only £10 of additional tax.
The impact though of a PAYE investigation can be enormous for a smaller business. An investigation into an SME is likely to be far more disruptive. Most smaller businesses do not possess the internal people or skills to effectively deal with and enquiry and they will usually involve more senior management time than it would in a larger business.
And so to our top tips for dealing with an enquiry
- Avoid one in the first place - keep your tax affairs up to date. File your returns on time. Late filers may suggest disorganised people and businesses worthy of a review
- Don't panic! - Just because you are being investigated, it does not mean it will necessarily be the end of the world.
- Get advice - should seek out independent advice / support from your professional advisers
- Keep it quiet - don't discuss your tax affairs with anyone but your advisers. Advice from a guy down the pub may not be what you need and they are more than likely going to get it wrong.
- Tell the truth - don't, under any circumstances, lie to HMRC. It'll will do you no favours in the long run.
- Don't underestimate the taxman - don't assume HMRC is ignorant of anything. It will amaze you the level of resources that HMRC have at their disposal.
- Be prepared - be well prepared for any meetings, you need to be aware of what you might/will be asked, so have enough prepared to be able to give adequate answers.
- Pay up quickly - Make significant payments on account. In other words, if you are fairly confident on what settlement you need to make - then pay up as soon as you can. It emphasises your co-operation and can help to minimise ultimate penalties.
- Don't destroy evidence - don't try to destroy evidence. If you don't have the paperwork, HMRC may assume you are trying to hide significantly more than you actually are.
- Tell the whole story - don't tell half the story and wait for HMRC to catch up. In very serious cases, false or deliberately misleading statements can result in prosecution and are more likely to result in higher penalties.
- Don't do it again - once you've settled, save yourself time and money and don't re-offend again. HMRC could, and most likely, will be harsher on a re-offender.