AAB has experienced a significant increase in new enquiries across the multiple areas and in particular business tax investigation enquiries have increased by 50% in the last six months.

AAB’S specialist tax investigations team believe this is in part due to evidence of HMRC’s renewed focus on tax investigations, in particular overseas income and gains, UK property income and gains, large multi-taxes investigations into businesses, and fraud investigations into company directors and the self-employed, following a pause on this activity during the height of the pandemic.

This trend of increasing tax investigation activity is expected to continue with Chancellor Rishi Sunak also announcing the launch of a COVID fraud team within HMRC. HMRC estimates that up to 10% of furlough cash may have been claimed fraudulently, a sum now equal to more than £5 billion.

Alongside these relatively ‘new’ types of investigations HMRC routinely open hundreds of Employer Compliance reviews each year across a vast array of business sizes and types, and now these could include questions around any furlough claims made by employers.

Stuart Petrie, director and head of tax investigations at AAB, commented: “The last year has been exceptionally challenging, and whilst the various COVID support measures introduced by the Government have been welcomed, the changes, extensions and volume of different measures may have resulted in errors which could lead to potential investigations. There are steps which can be taken to correct these errors if employers and individuals act now.

“HMRC has wide-ranging powers which enables it to enquire into the tax affairs of any business and, due to the increasing volume of third-party data they are able to obtain, more and more investigations are being opened. Investigations can be complex, and we expect this to increase, particularly with HMRC’s COVID fraud team being introduced.”

The rise in tax investigations is hitting individuals as well as businesses. Lynn Gracie, private client director at AAB, added: “Individuals with assets overseas need to be aware that since the advent of international tax transparency, HMRC now has visibility of data across more than 100 jurisdictions and is processing unprecedented amounts of data provided to them by overseas countries.

“With the complexities associated with some overseas sources, innocent errors can easily be made and penalties are severe – up to 200% of any revised tax due plus interest for late payment – so it pays to ensure your tax affairs are correct.”