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“Pause” in HMRC investigations will not last forever… so what do you need to know about a rebound in activity?

The current pause in HMRC launching new investigations due to the coronavirus crisis is only temporary and taxpayers and we can be assured that compliance teams will be out of the blocks quickly when the time comes. So, what do you need to know about a possible rebound in activity?

Firstly, as accountants will know, HMRC has not stopped all investigatory work and continues to push ahead with older cases started before the coronavirus crisis struck. It is likely that desk research to prepare for the launch of new investigations is also taking place behind the scenes.

The coronavirus crisis will also see HMRC investigating new areas of non-compliance and fraud. For example, there has already been over 800 reports about the misuse of the furlough scheme by businesses. 

Once the current pause in investigations is lifted, taxpayers and their advisers can also expect HMRC’s specialist taskforces to roar back into action – including new taskforces focusing on non-compliance arising from the coronavirus crisis.

HMRC already has 209 taskforces in operation to actively investigate very specific groups of taxpayers. A taskforce is a team of specialist investigators that focuses on one slice of individuals or companies. This narrow focus makes it easier for taskforces to build up a picture of the that niche and identify cases for investigation.

The latest data shows taskforces collected £541m in extra tax for HMRC last year, up 17% from £464m in 2017/18. The amount collected has quadrupled over the last five years. This success in collecting extra tax means HMRC is likely to increase the number of taskforces in operation to help cover growing coronavirus-driven public expenditure.

The use of taskforces has become a key part of HMRC’s strategy for tackling tax evasion since the first one was created in 2011. HMRC’s strategy is focused on preventing tax evasion before it happens and the actions of taskforces are seen as effective way of sending a strong deterrent message to other taxpayers.

So, what can clients do to reduce the risk of being investigated by a taskforce? Although HMRC will not reveal the names of the taskforces currently in operation, looking at previous taskforces can be helpful in understanding the types of businesses that are targeted.

At least 390 taskforces have been created since 2011, with many focusing on businesses which handle a high volume of cash transactions. For example, market stall traders, dog breeders, taxi firms and the restaurant and takeaway industry.

Taxpayers with offshore interests have also been targeted by HMRC taskforces, including UK taxpayers with offshore property. One of HMRC’s highest profile taskforces is the Panama Papers Taskforce which is focused on launching investigations following the leak of 11m documents from a Panamanian law firm in 2015.

Taskforces received a further boost following the announcement in March that HM Treasury is providing HMRC with more funding to help it collect an additional £4bn in extra tax over the next five years. Taskforces are likely to get a significant chunk of this funding to aid with their investigations. 

For now, accountants and their clients have breathing space to revisit their tax affairs to ensure everything is in order. Utilising this time effectively should be a priority as investigations can be costly and time-consuming for all involved.