Code of Practice 11 - Applies to Sole Traders, Partnership, Director, Landlord & Investors

► What is a Code of Practice 11?

This Code of Practice 11 tells you that HMRC local offices will carry out enquiries into income tax self assessments (SA) made up to 5 April.

This Code of Practice promises you a fair treatment under the law and the start of an enquiry process.

QUESTIONS

► What is wrong with the SA?

HMRC want you to pay the right amount of tax: no more, no less. To discourage tax evasion and ensure the whole system is operating fairly, they will select some tax returns for enquiry at random to check if anything is wrong that may not be apparent at first glance.

► Who can help me?

HMRC recommend that you can choose to be professionally represented, by an accountant or tax adviser. You may exercise that right at any time and likewise may change or stop using a professional adviser at any time.

The enquiry process involves sending you an opening letter. We have noticed that all HMRC opening letters whether enquiries or investigations have stated this line, “I am sending a copy of this letter to your tax advisers” – sample letter

► How long is an enquiry?

HMRC state that they will end enquiries as soon as possible.

► How far back can they go?

HMRC can assess the last 6 years from the enquiry year. In extreme cases they may assess the last 20 years.

► What are the HMRC’s areas of concern?

HMRC’s areas of concern are the areas we specialise in. Click Here.

► Do I have to attend meetings?

You do not have to attend any meeting stated in the Code of Practice 11.

► How much extra income tax I have to pay?

If HMRC finds nothing wrong, they will tell you and let you know that their enquiries have finished.

If HMRC finds something wrong in your tax return they will suggest changes in the light of all the new information and explain how they arrived at your revised tax liabilities.

Interest is payable whenever amounts are paid late.

HMRC can only seek penalties for incorrect tax returns and when calculating any penalty, they will take into account the extent to which you voluntarily disclosed anything that was wrong and the seriousness of your errors or omissions.

► How are penalties worked out?

The penalty figure will be a percentage of the tax underpaid. In law it could be 100% of that amount.

HMRC start with a figure of 100% and reduce it by an amount which depends on three factors:

Disclosure - A reduction of up to 20%.

If you make a full disclosure at the time HMRC first open the enquiry, you will get a considerable reduction in the amount of the penalty.

If you deny until the last possible moment that anything is wrong, you will get little or no reduction for disclosure.

Between these two extremes a wide variety of circumstances is possible. HMRC will consider how much information you gave, how quickly, and how that contributed towards settling the enquiry.

Co-operation - A reduction of up to 40%.

If you supply information quickly, attend interviews, answer questions honestly and accurately, give all the relevant facts and pay tax on account when it becomes possible to estimate the amount due, you will then get the maximum reduction for co-operation.

If you put off supplying information, give misleading answers to questions, do nothing until we take formal action against you and generally obstruct the progress of the enquiry you will not get any reduction at all.

Between these extremes there is a wide range of possible circumstances and we will look at how well you have co-operated with the enquiry.

Seriousness - A reduction of up to 40%.

Your actions may amount to a premeditated and well-organised fraud or something much less serious. We will take into account what you did, how you did it, how long it went on and the amounts of money involved. The less serious the offence, the bigger the reduction in the penalty.

► Will I have to pay VAT?

HM Revenue & Customs (HMRC) deal with direct and indirect taxes. It depends what amendments are made, generally if there is undeclared taxable income, there is a vat liability. However if there is undeclared investment income there is no vat due.