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It pays to protect your business

Protecting your business against a tax investigation makes financial sense.

The government has recently announced a new tough line on tax prosecutions and a promise to prosecute five times as many tax cases as Labour did. The much talked about tax gap means HMRC are more determined than ever to claw back money from taxpayers. They have even announced that debt collection agencies will now be used to collect an additional £140m of tax debt.

HMRC’s increased powers has led to a recent explosion in new cases to the extent that our insurer has seen a 39% increase in new claims in the rolling 12 months to June 2012. Disputes with HMRC can quickly spiral into time consuming and costly affairs so it’s more important than ever that you are protected from costly investigations.

Even if you are found to owe no tax at all, you will still have to pay the professional fees incurred in us handling your case. With our Premier Protection service you can have peace of mind that we will represent you without you having to worry about potential spiralling expenses.

Colin McDonald, Head of client insurances at CCH Fee Protection comments on the recent increase in tax inspections “Combining the Inland Revenue and Customs and Excise into what is now HMRC and providing the department with greater powers aligned across all taxes has provided an opportunity for greater and more effective compliance activity. Arguably, the UK budget deficit is just the kick in the pants HMRC needed to pursue the opportunity vigorously. Fee protection insurers – who pay for the professional costs of defending taxpayers in HMRC investigations – have seen plenty of evidence of this in the last few years. They responded to the new compliance regime by widening their cover to protect taxpayers whatever tactics HMRC employs. Not only do HMRC’s tactics seem to indicate a desire to get every penny it can, there have also been attempts to impose significant penalties on taxpayers who have failed to meet some relatively minor obligation whilst consistently continuing to pay the right amount of tax at the right time.

Thankfully, sense appears to have prevailed in these particular matters. HMRC was robustly challenged by CCH and at relatively little professional cost. Nonetheless, one small sole trader might have succumbed to paying a VAT penalty demand of £15,000 but for a few hours of quality professional’s time. That this kind of thing arises at all should give us all cause for concern. Clearly, HMRC has been given a task to collect what the Exchequer is rightly due. Where HMRC makes efficiency savings the resource is being redeployed into additional compliance activity. Consequently, despite the already significant level of compliance activity being felt by taxpayers, we should all brace ourselves for it to increase further.

Stories of hugely stressful, long-lasting investigations continue; CCH recently concluded a sole trader enquiry after seven years, with professional costs of £49,500. HMRC was originally seeking £85,500 in tax, interest and penalties. This case was reluctantly settled for £4,500 purely to avoid the further significant expense of going to tribunal. It should come as no surprise that boundaries are also being pushed elsewhere. The well-publicised AD and J Forster v HMRC [2011] UKFTT 469 (TC01319) case is a good example. In this instance, CCH successfully overcame HMRC’s argument to seek recovery of VAT from a small bed and breakfast business by arguing that its turnover should be aggregated with that of the farm, thus driving it over the VAT threshold. I doubt this case would have arisen if it wasn’t for the current economic environment.”

Please contact us for more information on how Stafford & Co can help you protect your business.