Corporation Tax investigations

Company investigations tend to be rather more complicated than income tax investigations so you can expect to be dealing with an experienced and senior officer. The enquiry will normally originate from your "Local Compliance Office" and you will receive a copy of HM Revenue and Customs’ Code of Practice 14.

Companies and their directors are legally separate persons although their financial affairs are often inextricably linked. This presents particular difficulties for HM Revenue and Customs with particular regard to private bank information they would want to see as part of their enquiries. Inspectors have to establish that weaknesses exist within the business records and accounting systems before they are entitled to ask for private bank account information. It is not acceptable for an officer to start an investigation into the director’s personal self assessment returns as an alternative means of obtaining private bank account information.

HM Revenue and Customs will be particularly keen to establish if the company directors have (mis)appropriated company income or charged private expenses through the company accounts without declaring personal benefits in kind. This may result in a wholesale rewriting of directors loan accounts with the consequence that the directors may be deemed to be indebted to the company. Overdrawn directors’ loan accounts create additional tax liabilities by virtue of a special charge which arises under Section 419 of the Income and Corporation Taxes Act 1988. Company investigations can be very lucrative for HM Revenue and Customs.

Larger companies can expect the investigation to deal with both VAT and Employer Compliance issues. A multi-disciplinary investigation team will review all aspects of the company’s tax affairs. We are in a transitional period at present with regard to the manner in which HM Revenue and Customs review business records. In the longer term we expect to see more "real time" reviews taking place at your business premises. For the present we advocate that you resist this approach as it will disrupt your business. A good alternative is to have your business records examined at your accountant’s offices. Under no circumstances should you take your business records to the inspector’s offices and leave them there to be reviewed at HM Revenue and Customs’ leisure.