Tax Disputes and Investigations

We can guide you through the entire process, analysing where HMRC have misapplied the law and leveraging upwards from that point. We have many years’ experience of resisting millions of pounds in demands for taxes and penalties on behalf of businesses. HMRC have internal targets to meet for the amount of taxes, penalties and interest which they recover. If the investigation is not handled properly, this could result in serious financial disadvantage, even bankruptcy, to you and your business.

We act as your agent for the recovery of EU VAT refunds for businesses established and registered for VAT purposes within EU states. EU businesses need agents to avoid having their EU VAT refund applications rejected, which is a regular occurrence causing businesses to miss out on millions of pounds of EU VAT refunds.

The law surrounding the custom duty payable on goods imported, modified and developed and then sold on is complex and different rates of assessment apply. Disputes arise which can impact on the profits available on the goods. Another area of dispute arises on the tariffs due on imports, particularly high value goods, such as metals and art. A practical working knowledge of the import and export customs regime, combined with knowledge of latest practices, can put you at a substantial advantage. We are experienced in bringing a successful appeal on behalf of businesses whose application for licences to import have been declined.

When a taxpayer submits a VAT return claiming a VAT repayment, HMRC may be liable to pay the taxpayer an additional repayment supplement (calculated at five per cent of the amount claimed) if it fails to release the amount due to the claimant within the legal time limit of 30 days.

The clock starts ticking for HMRC on the day the VAT return is received or, if later, the day after the end of the VAT period to which the claim relates. However, HMRC is entitled to pause the 30-day clock for the time it takes to raise and answer any reasonable enquiry related to the claim. The clock is stopped on the date when HMRC first raises the enquiry and restarts on the date when HMRC receives a complete answer to its enquiry. The clock is running again while HMRC considers that answer. HMRC is not liable for a repayment supplement if the VAT return is submitted late, or if its enquiries reduce the value of the claim by 5 per cent or £250, whichever is the greater. Five per cent of the VAT refund due can add up to a significant sum, especially in these cash-strapped times, so businesses claiming refunds should always watch the amount of time that HMRC takes to process their refund, and fight for repayment supplement if that refund has been unduly delayed.

HMRC have increased the pace of investigations into tax evasion. They have the power to prosecute tax avoiders and deal with evasion as a criminal offence including prison. For advisers there is the risk of prosecution for failing to prevent the facilitation of tax evasion. Obtaining professional advice as early as possible is almost invariably hugely advantageous to the outcome. There is often scope to negotiate before charges are brought. We are able to represent clients at the police station who are being interviewed under caution by the police and HMRC. We are also experienced in advising on response to ‘dawn raids’.

In appropriate cases where law enforcement agencies have abused their position of power, we may challenge by means of bringing judicial review proceedings. The threat of a judicial review challenge may be enough to deter HMRC and apply the law appropriately. The same also applies to the use of search warrants, disclosure failures and use of information.

HMRC is vigorously pursuing claims erroneously paid to employers under the Coronavirus Job Retention Scheme, collecting double the amount wrongly claimed as a penalty. Early advice including making voluntary disclosure and arguing mitigating circumstances can significantly reduce the penalties.

HMRC carry out compliance checks on businesses and individuals. We are able to establish what triggered the check, ensuring that you are paying the correct amount of tax at the right time, claiming the correct allowances and tax reliefs and that the tax system is operating fairly.

From 6 January 2023 taxpayers who have used electronic sales suppression (ESS) tools to reduce their tax liabilities will be able to make a formal disclosure to HMRC.

ESS (in this context) refers to the use of software or hardware tools used to manipulate sales recorded by an electronic point of sale (EPOS) device, such as a shop till. It’s the modern equivalent of cash-in-hand sales that are never put through the business’ books.

Using ESS tools, the sales records can be manipulated either at the point of sale or later to supress certain sales, leaving a credible and apparently complete audit trail. To ensure the trader’s bank receipts match the total amount of sales recorded by the till, the card payments for those missing sales are routed through an offshore bank account. In this way, both the record of the sale and the revenue disappear from the business records. We can help you to pre-register for a disclosure facility. HMRC was given extra powers to tackle ESS in FA 2022, schedule 14, including the power to obtain details of ESS software developers’ source code and the structure of data within an end of period statement (EPOS) system.

There are new ESS offences relating to the possession, making, supplying and promotion of ESS software or hardware, and the penalties relating to those offences are set out in the ESS compliance factsheet: CC/FS68.

Promoters and suppliers of ESS tools can be hit with penalties of up to £50,000 per ESS tool provided when they do any of the following:

• make an ESS tool
• modify a non-ESS tool so that it becomes an ESS tool
• supply an ESS tool to another person
• promote an ESS tool, – in other words, give information to another person so that they are able to use an ESS tool.
• Those who use or have ESS tools in their possession can receive an initial fixed penalty up to £1,000. However, HMRC will first write to the trader asking them to remove the ESS tool. If the trader does this to the satisfaction of HMRC, they will escape a fixed penalty.

HMRC do not consider cryptoassets to be currency or money, or that buying or selling cryptoassets is gambling. This means that, in HMRC’s view, profits or gains from buying and selling cryptoassets are taxable.

Depending on what you do and how you get money from cryptoassets, you might need to tell HMRC and pay tax. In some situations, you must tell HMRC about your cryptoasset activities and pay tax by certain deadlines. If you do not do this, HMRC might fine you.

There are a number of ways you might get money from cryptoassets:

• You can buy cryptoassets using ‘normal’ currency and then later sell them (or otherwise ‘dispose of’ them, such as using them to buy things) at a gain or profit.
• You can earn cryptoassets by playing a part in maintaining the system on which that particular cryptoasset is based. For example, you might be involved in mining or staking, depending on the structure of the cryptoasset.
• You might be involved in lending or borrowing cryptoassets. This is called decentralised finance (‘DeFi’) and includes ‘providing liquidity’ (also called staking) where you lend your cryptoassets to a platform which then lends the cryptoassets on.
• You might earn ‘free’ cryptoassets via an airdrop in return for a service or simply because you own some other type of cryptoasset.
• Your employer might give you cryptoassets in return for your employment duties.

If you are not resident in the UK, then in general you are not liable to UK capital gains tax on disposals of cryptoassets. However, see Capital gains tax for individuals not resident in the UK, which explains an exception if you are non-resident in the UK only temporarily.
If you are earning income from cryptoassets (for example, by mining or staking), and you are not resident in the UK, then you are only liable to UK income tax on your trading profits if they arise from:

• a trade carried on wholly in the UK; or
• the part of your trade which is carried on in the UK.

If the income is treated as miscellaneous income, then you are only liable to UK income tax on this income if it arises from a source in the UK.
Therefore, income from mining, staking and airdrops may not be taxable in the UK if you are non-resident. However, HMRC have not published guidance on this point and we would recommend taking professional advice.
If you are non-resident and there is any UK connection to your activities, you will need to consider all the facts and circumstances to work out whether it is either from a trade carried on in the UK or from a UK source. For example, even though you are non-resident, the income may be taxable in the UK if the activities are carried out while physically in the UK or if the computer equipment used is physically located in the UK. In case of any doubt, we recommend you seek professional guidance.