If you find yourself under investigation, don't be alarmed. The rules demand that a tax inspector must open a formal inquiry even if he or she only wants to obtain a little additional information about your tax affairs.
Full investigations are set up on the basis of a risk assessment of the returns the Revenue thinks are likely to have errors; or even using third- party information (including anonymous informers).
These tend to concentrate on businesses. Depending on the nature of your business, you have a 5 per cent chance of being selected for investigation. If you are not running a business, then your tax returns have a much lower chance of being probed.
There's a standard procedure for all full inquiries. First there's a review of the taxpayer's file. The Revenue then sends a formal notice to the taxpayer stating what information is required. You won't be given a reason for the inquiry. Next, the tax inspector will ask to meet you. There is no legal requirement for you to agree to this, but it is usually in your interest to attend. If you can't come to an agreement with the inspector you will have to settle the dispute at an independent tribunal.
If the inspector decides you have understated your tax liability, you have to pay the unpaid tax - with interest. You may also have to pay an extra penalty. It pays to be nice to the tax inspector. There are reductions for admitting errors, and giving your full co-operation to the investigation.
Facing an inquiry can be harrowing, and you may feel that you could benefit from professional advice. The Association of Taxation Technicians and the Chartered Institute of Taxation can provide details of their members. Call 0171-235 9381.
Frank Collingwood is a chartered tax adviser and president of the Association of Taxation Technicians.Reuse content