What is a Cross-Tax enquiry?

It is likely HMRC will also seek to understand how those in control of the business benefit from it, investigating any taxable transactions that have been reflected on personal tax returns. Often enquiries into the personal tax returns of key individuals involved in the business (including major shareholders and key directors) are opened alongside the cross-tax enquiries by HMRC in conjunction with the enquiries into the business.

Why do HMRC open cross tax enquiries?

HMRC do not open enquiries speculatively. They will have reason to consider one or more significant tax risks associated with the business based on evidence they hold, leading them to deem the business high risk from a tax compliance perspective. HMRC may also have concerns in relation to the individuals who control the business and wish to explore whether there are untaxed transactions between the business and those individuals. HMRC will not necessarily make it overtly clear at the start of the process why it has chosen to enquire.

What you expect if your business is subject to an enquiry

In the first instance, HMRC will likely want to meet the business owners, and potentially key staff members to better understand how the business operates and its financial processes. While meeting with HMRC can be an effective way to move an enquiry forward, it is not mandatory and HMRC cannot force anyone to attend a meeting. All taxpayers who meet with HMRC should consider seeking professional advice and having an adviser attend any meeting either in place of, or alongside them.

HMRC will often request a full electronic download of the business’ accounting system, allowing it to interrogate the data and further inform where it may wish to focus its enquiry. HMRC will also request the business’ physical records to enable it to carry out its tax audit and ensure the reporting across the respective tax heads is correct. HMRC’s requests for records can often be wide ranging and it’s important that these requests are not overly burdensome and are commensurate to the risk being checked.

Following a review of the records, HMRC will seek to clarify certain matters with the business, or it may form a view as to whether the business’ tax reporting is correct. In either case, it’s important to keep an ongoing dialogue with HMRC to ensure matters progress. It’s also important to ensure that HMRC’s check remains targeted, and that information and documents requested are relevant to checking the business’ tax position.

If HMRC deem the risks identified before and during an enquiry have been explored and answered, it will seek to close the check, bringing into charge any additional tax, interest or penalties it considers is due.  However, if HMRC discover information that leads them to suspect fraud, they may escalate this, such as opening an investigation under Code of Practice 9.

How our Tax Disputes Resolutions specialists can support

We recognise that facing an HMRC enquiry can feel overwhelming, but our extensive expertise in handling such matters means we are well equipped to support your business throughout the entire process. Our priority is to safeguard your interests at every stage. HMRC enquiries can significantly disrupt daily operations, so we work to minimise this impact by liaising directly with HMRC on your behalf and actively progressing the enquiry, allowing you to focus on running your business without unnecessary stress.

If there are any errors in the tax returns, we can assist the company and individuals by advising how best to communicate and voluntarily disclose this to HMRC and mitigate any penalties HMRC may look to charge.