Five typical tax enquiries and how to handle them
Accountant Anthony Brand has some advice for GPs who run the risk of unintentionally falling prey to a tax inquiry
Tax inquiries into GPs remain relatively rare. Most GPs occasionally receive a request from HMRC for information on aspects such as an interest or pension payment and the accountant normally deals with these. GPs who experience these relatively passive inquiries should have little to fear provided they stay on top of their financial affairs.
However, the profession has become a good source of inquiry for HMRC. Indeed, readers may recall HMRC’s 2010 Tax Health Plan (THP): after an amnesty period HMRC inquiries were accelerated and the most serious cases led to prosecution.
In November 2011 HMRC advised that in excess of £10m had been disclosed following the THP. Since then HMRC has issued over 1000 inquiries. A full, detailed, extensive inquiry will be time-consuming, stressful and expensive, with the potential for criminal proceedings or ‘naming and shaming’.
Four fundamental principles will help you avoid showing up on the HMRC radar:
1.Keep detailed records and receipts.
2.Justify expenditure claims – they have to be factual not just realistic.
3.Tell your accountant everything – if they don’t know about an aspect of your affairs how can they help you?
4.Be prompt. Many tax investigations begin life as routine enquiries. If these enquiries aren’t dealt with promptly and accurately, it’s possible that a full investigation will begin soon after.
Finally, an inquiry will not just take up lots of your time but your accountant’s as well. That means a large bill. There are insurance policies available to cover the fees on some types of inquiry and these may help provide some peace of mind.
This article focuses on five specific scenarios in which a tax inquiry could get serious.
1. Offshore bank accounts
‘The opportunities to hide your money offshore are disappearing and the net is closing in,’ according to a Government minister who signed a tax information-sharing agreement with Guernsey and Jersey. This follows a similar agreement with the Isle of Man. All of the Crown Dependencies have now agreed to the automatic exchange of information with the UK.
These agreements will enable HMRC to receive information relating to all offshore investments in existence on or after 30 June 2014 that are held by UK-resident individuals, partnerships, companies and trusts.
If you have any doubts about whether the source of funds held offshore should be disclosed in the UK, seek professional advice immediately.
2. Foreign income
Many GPs and consultants settle in the UK to pursue their careers. As such they are usually UK resident for tax purposes, even though their domicile may be overseas. Some may still have income generated overseas. Having money offshore is not in itself illegal. However as a UK resident, you are usually taxed on your worldwide income and have to declare it on your UK tax return. There is also the complicated issue of domicile, which can have a significant effect on the extent of foreign income that is taxed in the UK.
If you are, or think you might be, non-domiciled in the UK and in receipt of foreign income, seek further advice.
3. Income from property
This can particularly be a source of inquiry a GP with a large portfolio of buy-to-let properties. Non-disclosure of disposals and high expenses claims such as repairs are susceptible to review. HMRC has a vast range of sources of information such as the Land Registry, estate agents and banks. Documentary evidence and a clear trail of records will both be essential to you if you are investigated by HMRC.
4. Private income
Under the THP, HMRC gained valuable information about healthcare professionals from NHS trusts, private hospitals, undertakers and medical insurance firms. Because of its sources, you must assume that HMRC already knows what you have earned.
If HMRC is looking at your finances, then they have the perfect opportunity to review your expenses at the same time. The favourites for review will be:
Motor expenses – these have been given greater prominence since the Samadian ruling. Before you submit your next claim seek advice on the difference between habitual and itinerant journeys. Tell your accountant about the nature of the journeys made – not just the cost.
Home office costs - interestingly in one recent case (Dr Samadian v HMRC), HMRC accepted the validity of a claim for home office expenses. However this still has to be justified. This might be easier for a GP to do if there is remote IT access to the surgery, for instance.
·Spouse’s salary - claims by individuals for these do still exist but ask yourself:
What does your spouse actually do?
Is the hourly rate justified?
Should you be running a proper payroll?
Anthony Brand is a partner at Haines Watts Chartered Accountants, Maidstone, a member of the Association of Independent Specialist Medical Accountants