A tax investigation can be random, risk based and/or intelligence led. For example, HMRC might hold third party information that doesn't agree with numbers in your tax returns.
HMRC have a range of powers that enable them to verify the declared taxable positions including, but not limited to, forcing third parties to disclose information, sharing of information within government bodies, extensive sharing of information with financial institutions and agreements with governments overseas to share information.
Should I be worried?
It depends! If you owe HMRC tax - you ARE in trouble. You will need to repay the extra tax along with interest and penalties (which could be up to 200%!) Do any of the following apply to you?
- Making a mistake on your tax returns (typically happens when taxpayers don't seek professional advice)
- Having a view of the law that differs to HMRC guidance
- Deliberately understating your income/gains
- Not declaring income or gains (such as not paying tax on the sale of a property)
- Avoidance tax (finding legal loopholes to avoid paying tax)