Is the HMRC on a fishing expedition?
A new law allows government departments to investigate your financial affairs if they can’t see where your wealth came from. So does this mean HMRC can now go fishing in your tax records when it wants to?
Tax inquiries. There are strict rules that say when HMRC is entitled to start an investigation, or inquiry as they are now referred to. It is allowed to make a relatively small number of random checks into self-assessment tax returns, otherwise it must have a reason to start an enquiry. “Unexplained wealth orders” (UWOs) widen these powers.
Wealth v income. Since 1 February 2018 UWOs can be used to allow government departments, including HMRC, to investigate an individual’s financial affairs if it appears their wealth isn’t backed up by sufficient income to justify it. However, HMRC can’t act on a whim; UWOs will only be issued if:
- You own assets worth £50,000 or more; and
- HMRC, or other government departments, can prove there are “reasonable grounds” to suspect something is awry.
Vague condition
Only then will the High Court (Court of Sessions in Scotland) issue a UWO. In our view “reasonable grounds” is a rather vague condition and it probably won’t be difficult for HMRC to convince a judge.
Untested. Only time will tell how HMRC will make use of UWOs, and the willingness of the High Court to assist, but at face value our view is that they don’t offer HMRC an easy way to start a fishing expedition.
Written by Duncan Callow of Indicator-FLM. Exhibiting on stand 786 at Accountex 2018.
