Each year HM Revenue & Customs (HMRC) will undertake a number of tax enquiries into individuals and businesses in order to ensure that they have paid the right amount of tax.
Since 2010 HMRC have strengthened their approach from this point of view and the general trend has been a year-on-year increase in the number of tax enquiries opened.
2020 was unprecedented in so many ways and when the first lockdown hit in March, HMRC found themselves in the same boat as most, adapting to working from home, unable to undertake face to face compliance work and given that it was clearly not the time to actively pursue taxpayers, compliance work was largely suspended. In addition, HMRC became preoccupied with the provision of the government’s Covid-19 support packages, taking a ‘pay now, check later’ approach so that this urgent support could be delivered quickly. What was clear was that this always represented the calm before the storm, that there would eventually be pressure on HMRC to generate more tax in order to fund the enormous spending through this period, as well as a need to check that the measures put in place to support the economy had not been abused.
The provider of our Tax Enquiry Fee Protection Service, which covers professional fees we incur dealing with such HMRC enquiries, has seen this play out in recent months. The number of claims from tax enquiries has increased quickly since May 2020, with a particular increase in the early part of 2021 which is also reflected in HMRC statistics.
It therefore seems that HMRC’s attention has turned back to compliance work, with HMRC needing to catch up following 2020 and so once again targeting all aspects of taxation. Enquiries are also targeting taxpayers that have utilised the measures put in place to support the economy through the pandemic, including the Job Retention Scheme and Self Employment Income Support scheme. This comes as no surprise with the government announcing in a recent budget that they will invest over £100m in a taskforce of 1,265 HMRC staff to combat the estimated £3.5bn fraudulent claims made in respect of Covid-19 support packages.
Against this back drop the surge in HMRC activity will undoubtedly continue in the coming months and years and the protection afforded by our Tax Enquiry Fee Protection Service, at a relatively modest cost, will have more value than ever before.