Tax Investigations

Replying to the Taxmans’ letters cost you and your Adviser time and money. Co-operate, be patient and be on your guard.

What will he need?

An enquiry by the taxman is an examination of your self-assessment return to ensure it is true and fully completed. He may need to ask you questions and request explanations about the information in the tax return or ask for information and documents. He can legally ask for any information about tax he desires. At first he will ask that you give up the information freely, however if you do not he can use his powers to gain the information in other ways. It is therefore easier and cheaper for you to reply to the taxman’s letters as soon as possible.

Don’t Delay!

The investigation will be settled more effectively and faster if you comply quickly with his requests. The longer it takes, the harder it is to keep track of everything. However you should keep reviewing the correspondence, (“I am referring to my letter dated March 23 to which I still haven’t received a reply.”) Occasionally a delay maybe beneficial to you, but its not recommended. Usually it is best to get on with it as fast as possible, rather then having it looming over your head.

Keep him on his toes

The taxman will sometimes delay getting in contact with you, he is quick enough to demand information from you, but as soon as he gets it, it can take months before he reviews it. His usual excuse will be that he has a shortage of resources, however don’t let him take forever, if you need your books back then request them. If he carries on delaying the process let him know you will not pay interest for his delay.

The Truth

You should reply to the taxman’s correspondence in truth, don’t over-elaborate it. Keep your replies to a minimum, but be precise and clear. If he asks How you arrived at your sales figure, simply reply Business records. If he asks for a breakdown of a certain cost, simply attach the documents to your reply making sure that he knows they are attached.

Tax Law

The taxman’s actions must be within the tax law. If you are unsure whether a document is relevant to the investigation then ask him for the statutory authority for his line of questioning. When this happens the Taxman may cite a case. The tax law is quite unclear and a case is taken to the courts to decipher what a certain section of an act means on the facts. The outcome is a definitive position, but only where the facts fit a particular case. If your problem is not identical to the facts of the case, the taxman quotes at you it may be that the case can’t be used against you. However it may be possible for you or your adviser to find a case more suitable to your facts. Make the taxman aware of this in your letters.

Don’t Guess

If you are asked a question that you do not know the answer to, tell the taxman you don’t have the answer at hand (don’t guess!) and query when he will need the answer for, give the taxman regular updates to show you are co-operating in retrieving (or finding) the information.