Taxman’s swingeing powers put firms under pressure
28/02/2008

Company owners are being urged to brace themselves - and their families - against an onslaught of 'police state'-style tax investigations.

The warning comes from business adviser Kevin O'Brien after the government recently signalled its intention to increase the number and intensity of random tax investigations. Currently some 7,500 fresh probes are started every week - and the figure is rising.

"Investigations are launched out of the blue, often leaving a business hamstrung for more than 12 months," said Kevin O'Brien, a partner at accountancy and advisory firm DTE.

"Domestic life can be wrecked as tax inspectors quiz family members on topics such as holidays, weekly shopping and hairdressing bills. Even children's savings accounts can be subject to examination.

"The government's determination to 'get tough' with taxpayers and boost the number of investigations is underscored by the commitment of substantial resources to training more and more inspectors."

HMRC has introduced a new training programme for on-site investigations, which covers all types of taxation, including PAYE, income tax, national insurance, corporation tax, capital gains tax and VAT.

"The tax authorities have the absolute power to investigate without giving any reason and have far reaching powers with regard to the information they can ask for. I have known cases where those being investigated could be forgiven for thinking they were living in a police-state," said Kevin O'Brien.

An investigation may start with a PAYE compliance visit. However the person carrying out the review will also be trained to consider all other taxes during the one visit and report back to the appropriate colleague with their findings.

"A recent case I was involved in took six months, which I consider to be a quick turnaround. Often cases can take longer, up to one year and beyond in more complex situations," said Kevin O'Brien.

"The costs in terms of tax payable and significant accountancy fees are matter of record. What cannot be quantified is the stress, worry and anguish caused to the taxpayer and their immediate family.

"This is caused by fear of the unknown, not understanding the investigation process, not knowing whether the request for information is reasonable and generally not knowing how to handle the tax inspector."

If the inspector finds an irregularity in the company's records, the initial inquiry will often be extended into the personal affairs of the taxpayer and his or her family.

"The inspector will look at their private residence and lifestyle and ask all manner of questions about the smallest and most personal details of family life," said Kevin O'Brien.

"The worry and sleepless nights do not go away until a settlement is in sight and can affect relationships in the home. Seeing your spouse suffer is bad enough, but often husbands and wives can also become involved in the process if the investigations extend to their affairs and personal bank accounts. Even savings accounts set up for children will be looked at."

Kevin O'Brien is advising business owners to keep their records in order and seek professional advice immediately if they are concerned.

"HMRC and the Treasury are committed to increasing the amount of Revenue collected through investigations and are getting their act together, so it will pay businesses to respond accordingly," he added.