Paul Malin Consultancy

How does HMRC use AI in tax investigations? HMRC continues to evolve and modernise the way it polices the tax system and how it launches and deals with tax investigations. So, how does HMRC build a case from scratch against a taxpayer and where is AI now featuring in HMRC tax investigations?

Do you have clients living in Spain, but have they actually left the UK? Have they left behind unresolved UK tax issues? Many UK citizens decide to move to Spain without genuinely considering the tax issues they may be leaving back in the UK. As a starting point, has HMRC been notified (via form P85)? If not, HMRC will continue to treat your client as a UK taxpayer. Simply not knowing where in the world a taxpayer may be can often lead to HMRC launching a tax investigation at some point. Think of the pressure and stress this can put you and your client under. DO YOU HAVE CLIENTS THAT… - Live in Spain and retain and manage a business based in the UK. - Live in Spain and have real estate in the UK. - Have properties in multiple countries. - Live in Spain but rent out a property or multiple properties in the UK. I see many people failing to properly sort out their UK tax affairs before they move to Spain, but we are here to help them through the minefield of a UK tax investigation. If you have clients like the examples above and would like to discuss the specific clients’ circumstances confidentially, then book a free 30-minute video consultation FREE OF CHARGE.

If you are helping one of your clients through a tax investigation at the moment but struggling to understand how best to deal with the investigation or HMRC, then listen to my podcast 'The Life and Death of a Tax Investigation'. Each episode breaks down a specific area of a tax investigation that will help you navigate the grey areas and answer the questions you need answered. https://lnkd.in/e-Kzn9mj If you need more help and advice on how to navigate your clients through a tax investigation, contact me.

If you decide to handle a tax investigation for a client, how do you know you are taking the right approach? See my do's and don't when handling a tax investigation.

DO YOUR CLIENTS MIX BUSINESS WITH PLEASURE? Most business owners and entrepreneurs don’t mix business with pleasure. Often, their whole life is focused on their business. They don’t have a separate business life. Some may take positive steps to segregate business from their private lives. But after, say, a week, are they still succeeding? So, when it comes to recording the costs, how do you identify the main purpose of a trip? Or is there are mixture most of the time? Is it a mixture of, say, 50:50 or some other ratio? So, then they get a visit from the taxman. Years after the event. Or worse still, there are multiple subsequent years now to be considered. They have forgotten your concerns and leave you to sort it all out. It doesn’t matter which part of HMRC undertakes the review. They will never be blinkered and will pass on any concerns to their colleagues back at the office (if they are not already on site). So how do you go about sorting it out? Have you considered the merits of making an unprompted disclosure at the commencement of the HMRC meeting? With an appropriate Payment on Account of taxes. And a schedule of dates, amounts, narrative etc. It does pay dividends even if HMRC may not agree with you that it is unprompted. But how do you get your client to agree to this approach in the first place? If you need help in dealing with an HMRC meeting like this or making a disclosure on behalf of a client, I can help.

CIVIL vs CRIMINAL TAX INVESTIGATIONS The vast majority of tax investigations conducted by HMRC are on a civil basis as opposed to a criminal basis. HMRC have a Criminal Investigations Policy which it follows – by default, all other challenges will be on a civil basis. It is important that all the relevant facts are identified. Not all challenges by HMRC result in any additional income or gains being identified. A successful challenge by HMRC on a civil basis will result in any additional tax, interest and penalties being included in a Settlement. A successful challenge by HMRC on a criminal basis will result in the taxpayer having a criminal record. This is irrespective as to whether it is a custodial sentence or a suspended sentence. Cooperation with HMRC investigations can help your clients' case stay as a civil matter. If you need help with a client facing a tax investigation, contact me.

HMRC will check on your clients via many sources... All too often I see cases where taxpayers don’t properly declare income to HMRC and think that HMRC won’t put 2+2 together or catch up with them. Wrong! HMRC look at various sources of data to piece together a full picture of a client’s activities. QUESTION: Where does HMRC get its information from? ANSWER: Anywhere & everywhere With the advent of AI, HMRC are now able to interrogate far larger data sets to piece together information from hundreds of sources on taxpayers. One such instance was a builder of houses. HMRC were notified of numerous parking tickets being incurred by the builder next to a building site. A building site where small retail units were being developed. Whilst the builder ensured the expenditure was recorded, the client forgot to record any of the income and declare it to HMRC! Waiting for HMRC to catch up with the client is a dangerous stance for your client to take. These tax irregularities are capable of be rectified. Timing is important. If a taxpayer goes to HMRC and not the other way around, penalties can be halved. Contact me if you want help and advice on how to help one of your client’s out of this type of situation.

Residency position on tax returns Another nudge letter from HMRC possibly to your clients just before Christmas and the peak of the tax return season. This time HMRC are wanting taxpayers to review their residency position before they submit their tax returns, or to undertake a “repair” if they have already done so. Applying the Statutory Residence Test each year can be tricky as it applies to income tax, capital gains tax, inheritance tax (and not forgetting corporation tax). In summary, HMRC may consider a person to be resident in the UK and taxable on their worldwide income if they spend 183 days or more in the UK but this can be triggered for some if they spend less than 183 days. Interest and penalties can apply to any tax paid late. Ignore HMRC at your peril (and your client’s peril). If you need any assistance, please contact me at paul@pmc.tax or call me on 07979 313 010

Why is HMRC so interested in your client’s hobbies? When we do things that we enjoy, we can often get submerged with everything about it and lose sight of what it is and where we are going with it. If it is all work related and fully disclosed and taxed, then it may not be of any concern or interest to HMRC. But if it is done outside of work then that can be a different matter. For example... One client renovated classic cars as a form of relaxation. They were exhibited and sold nationally, and he was recognised for the quality of his workmanship. HMRC also recognised him at a show and an investigation followed. Whilst the expenditure was recorded, the client forgot to record any of the income! Do you have clients with hobbies that are not properly declared to HMRC? If so, get in touch with me and I can help you to unravel and rectify the situation and potentially halve your client’s penalties.

HMRC don't horse around! All too often I see cases where taxpayers have hobbies that make money or where costs of the hobbies are put ‘through the company’s books' and are not properly declared to HMRC. But your client’s should BEWARE! HMRC can and will find out and will investigate! One such example is below: One client throught that seeing the company’s logo on a new horsebox was good for business. Whilst the logo only cost a couple of hundred pounds, the horsebox cost £200,000, plus VAT and it all goes through the company. The client says that it all for business purposes, the asset, is used as a talking point, a form of advertising. Really? The horsebox was very much the state of the art and included sleeping accommodation and a rest area. The hotel owner used the rest area to interview potential staff to work in the UK hotels supposedly. All the costs were claimed as a deduction against taxable profits, there was no income. You might think this situations is farfetched. Wrong. I’ve seen multiple instances where taxpayers have been accused of fraud. Yes, fraud. These tax irregularities are capable of be rectified. Timing is important. If a taxpayer goes to HMRC and not the other way around, penalties can be halved. Do you have clients with hobbies that are not properly declared to HMRC? If so, get in touch with me and I can help you to unravel and rectify the situation and potentially halve your client’s penalties.