Number of HMRC "interventions" set to increase

YORKSHIRE investors could find themselves being informally investigated by HM Revenue and Customs if a campaign planned by HM Revenue and Customs (HMRC) is given the go ahead.

According to information obtained under the Freedom of Information Act by York-based accountants UHY Calvert Smith, HMRC hopes to launch a new interventions campaign next Spring.

The campaign looks set to affect a far greater number of people than existing interventions, which are aimed at taxpayers with property income and offshore bank accounts.

Far greater numbers of taxpayers have investment income in shares, bonds and UK banks accounts than receive income from propert or offshore accounts.

The newinterventions involve HMRC contacting taxpayers by telephone, letter or in person to discuss aspects of their tax affairs identified as being at high risk of error.

The interventions allow HMRC to avoid having to open a formal tax enquiry, which can be far more restrictive in terms of the areas it can probe.

UHY said that although HMRC would more likely select only higher rate taxpayers records show that around 250,000 individuals could be affected by interventions.

It also warns that the campaign could be a “way in” for HMRC to start digging into other tax affairs at the same time.

In its response to the Freedom of Information Act enquiry HMRC also revealed it is about to issue a second batch of letters to taxpayers with offshore bank accounts, following the 5,198 letters sent to taxpayers with overseas accounts already.

HMRC also disclosed it has sent 7,371 intervention letters to buy-to-let landlords within the last four months alone.

Keith Ward, partner at UHY, said: “HMRC is ploughing on with new interventions targeting taxpayers with investment income despite the worry this will cause to taxpayers and the lack of success from previous campaigns.

“It seems particularly inappropriate at a time when many people will have made very significant capital losses on the same investments that might be providing them with a very small income.”

He added: “A campaign targeting taxpayers with investment income could be the most far-reaching of all in terms of the number of taxpayers contacted.

“Investment income encompasses a very broad spectrum of assets and could include anything from share dividends and bonds to interest on UK bank accounts. It could potentially take in far more taxpayers than all the other types of interventions put together.”

Mr Ward warned that although there was no legal requirement to comply with interventions, taxpayers who are contacted should take it seriously and those who think they may owe tax should make an early disclosure as part of a negotiated settlement.

Figures released by HMRC last year revealed that the new interventions cost taxpayers nearly twice as much as the additional tax they yielded.

At the end of the six month pilot period to April 2007 interventions cost HMRC £1,071,101 to administer but yielded just £664,478 in extra tax – a yield/cost ratio of 62p of tax recovered for every £1 spent by HMRC.

By comparison, non-business self-assessment enquiries have a yield/cost ratio of 268 to 1.