HMRC to add nearly 5,000 compliance officers for tax audits!
- TBA
- Nov 22, 2024
- 3 min read
Updated: Feb 25
With the conclusion of the UK general election, the Labour Party has become the ruling party and introduced a series of new fiscal measures in its Autumn Budget. As part of the new measures, the Treasury plans to increase funding for HMRC in order to hire 5,000 new employees to combat tax fraud.
This means that tax audits in the UK will become stricter! Even a slight oversight could result in hefty fines, and the accounting fees during the audit process could also become a significant expense.
The UK is further intensifying tax audits
The newly appointed finance minister responsible for HMRC, James Murray, briefly outlined his plan to tackle tax avoidance and allocate HMRC funds in a written statement to Parliament.
As early as May 2024, the previous Conservative government provided HMRC with £51 million in emergency funding to address the urgent resource issues caused by the decision not to close a series of HMRC helplines.
During the campaign, the Labour Party stated that to recover £6 billion in unpaid taxes over the next five years, they would take action to eliminate the abuse of the tax system. Before being elected, the Labour Party also indicated that it would provide up to £555 million in new funding for HMRC as part of its anti-tax evasion efforts, outlined in a document titled ‘Labour’s Plan to Close the Tax Gap’.
This will increase HMRC’s planned budget for 2024/25 from £4.7 billion to £5.27 billion, a 12% rise. Murray told MPs that the government will take a comprehensive approach to addressing the tax gap and ensure that more unpaid tax revenues are collected properly.
Can timely tax filing lead to a tax audit?
It’s possible, because tax audits are somewhat random.
Any individual, sole trader, or business can be audited by HMRC, even if you submit your tax returns on time and pay your taxes on time.
Additionally, if your upstream or downstream business partners are audited, you may also be investigated.
How to reduce losses caused by tax audits
Given the increasingly strict tax audits, what can businesses do to avoid large losses during an audit?
If you are audited by HMRC, your accountant will need to assist you in communicating and defending the case with HMRC, potentially gathering evidence across regions, incurring time costs.
If the case involves another city, the accountant may also need to travel for work, leading to additional expenses like travel, accommodation, and meals. Accountants will inevitably charge these extra fees during the audit period, and it can become quite expensive.
However, if you are one of our existing clients and have purchased our Compliance Fee Protection Service (CFPS), you won’t need to pay these additional expenses, which could save you thousands of pounds!
Note, though, that the CFPS does not cover the following situations:
Investigations of Fraud
Cases handled by HMRC’s Fraud Investigation Service, Civil Investigations of Fraud, Criminal Investigation Sections, or The Counter Avoidance Directorate.
Late Submissions
Tax returns (income tax, corporate tax, VAT, or IHT) submitted more than 90 days after the statutory tax date, or failure to notify HMRC of tax obligations or VAT registration within the statutory period.
Voluntary Disclosure
Investigations arising from voluntary disclosures to HMRC; tax, NIC, or VAT liabilities arising from deliberately misleading HMRC; or submitting incorrect tax returns.
Business Record Fees
Professional fees incurred during pre-HMRC PAYE/VAT audits for reviewing/preparing business records, preparing and checking returns, accounts, or statutory declarations, and professional assessment costs, including VAT Returns, Construction Industry Scheme (CIS) Returns, and Real-Time Information (RTI) submissions. Third-party fees, such as property valuations for SDLT/LBTT/LTT returns, are also not covered (unless prior written consent from the firm is obtained).
Penalties, Duties, or Interest
The plan does not cover fines, interest, or duties payable by the taxpayer or tax-paying business.
As HMRC strengthens its compliance audits, both individuals and businesses will face stricter tax reviews. CFPS can help reduce unnecessary losses during an audit.
Different business entities can select the type of tax compliance audits covered and the service period.
The firm will determine whether the audit notice is eligible based on the date and specific details as specified on HMRC’s audit letter. Contact us for more information about the CPFS.