Tax Disputes: Legal Strategies for Resolution     

If you, as a business owner, are unlucky enough to face a tax enquiry, it can be a very challenging process that can lead to a tax dispute. Dealing with tax enquiries, also called tax investigations and disputes, can be expensive and resource-intensive. They can also significantly disrupt your business activities. In addition, dealing with a tax issue can affect your tax position in other parts of your business and other countries where you may do business. You must seek legal advice if facing a tax investigation or tax dispute. This article will explain tax enquiries, tax disputes, and legal strategies for resolution.  

What is a Tax Enquiry? 

A tax enquiry or investigation is where HMRC believes you or your business has not paid as much tax as you or your business should have. Where this occurs, HMRC will open an investigation to decide whether this is the case, and you will receive a letter informing you. Tax enquiries could concern, for example:

• your indirect taxes, such as customs duties;
• landfill taxes;
• gaming duties; and 
• VAT.

If HMRC decides to start a tax investigation on your business, they must abide by legal time limits regarding how far back they can investigate the tax issue. This varies depending on the tax issue, and a good lawyer will be able to check if they are within the time limits. 

Generally speaking, HMRC can start a tax enquiry up to six years ago if they believe you made a careless mistake, or 20 years ago if they think you purposely evaded the tax you owed. 

Why Might HMRC Decide to Start a Tax Investigation?  

While HMRC usually begins a tax enquiry on a business because they suspect an underpayment of tax, some specific issues can trigger their suspicions. Unfortunately, HMRC will not tell you the reason for their tax enquiry into you or your business. However, there are some common triggers:

• a clear mistake that has been made in a tax return;
• an obvious inconsistency in a tax return;
• information they receive from a third party; or
• suspicious activity from your business.

Suspicious activity could include:

• significantly differing annual returns; or
• profits that vary considerably from other businesses, which play a similar role to yours.

Alternatively, HMRC may start a tax enquiry with your sourness because you created a random check. 

What Happens in a Tax Enquiry?  

When HMRC starts a tax investigation because of a tax dispute about your business tax affairs, you must comply with any reasonable request they make. You must also be honest and transparent about your tax situation. This helps resolve the tax enquiry faster.

In addition, you may be required by law to respond to specific requests. Therefore, you must pass these on to them, such as if they issue you an information notice for particular documents, which may need a response within a specific time frame. However, it can be possible to challenge what HMRC asks for if it seems they are asking for something other than what is reasonably required to resolve the tax dispute. This is because they are limited by law in only asking for this. 

If the tax investigation is civil, you may be asked to attend an interview, which is not a legal requirement, so it is discretionary whether you attend. However, you should seek legal advice. If the tax dispute is criminal, HMRC may ask you to participate, so you have no choice. 

What is a Tax Dispute?

If you disagree with a decision made by HMRC, your business enters a tax dispute with them. This could be over several different issues, such as:

• the decision in a tax investigation or enquiry;
• not agreeing with your tax compliance history;
• appealing a tax penalty; or 
• information from an overseas tax authority through the Automatic Exchange of Information agreements. 

If you enter into a tax dispute with HMRC, negotiating with them carefully is the best way to resolve this. However, where this does not work, you may wish to take formal action. This could include:

• going to a tax tribunal; and
• a form of alternative dispute resolution (ADR) such as out-of-court settlement, like mediation. 

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Key Takeaways

If you face a tax investigation, this could lead to a dispute and can take up your resources. HMRC may launch a tax enquiry or investigation if they believe you have not paid the tax you should have. If so, they will send you a letter stating this. HMRC investigations cover various areas of tax, such as the VAT, and it is essential to note that there is a time limit for how far back HMRC can enquire. There are multiple reasons why HMRC may carry out a tax investigation. This includes, for example, suspicious activity from your business, such as significantly different annual returns. 

During a tax enquiry, HMRC may, for example, ask you for documents through an information notice. When HMRC decides on your tax, and you disagree, this becomes a tax dispute. For example, you may appeal a penalty. One way to resolve a tax dispute is through an alternative dispute resolution (ADR), such as mediation. 

If you need help understanding tax disputes, our experienced disputes and litigation solicitors can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today at 0808 196 8584 or visit our membership page.

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