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All the world's a stage and all the GPs merely players

A client of mine has endured one of those full HMRC investigations - one of those where HMRC don't take anything for granted.

The client had to produce their bank statements, cheque books and paying-in books, and had to justify where they get cash from, and whether or not the profits declared support the style of living that HMRC determine the client has. This particular investigation started a year ago, ended this week and now it is over I am struck how similar this enquiry is to a dramatic play.

It begins with an seemingly gentle letter from HMRC informing the client politely that they will be looking into their tax affairs, and requesting detailed information from the client.

From this gentle beginning, the drama increases with HMRC making more and more allegations, raising the dramatic tempo to an almost unbearable pitch. In this case, HMRC alleged that the client should have been VAT-registered on the non-NHS activities and that the client had insufficient cash declared to meet the cash expenses (in other words income was undeclared).

They argued that PAYE should have been operated on two family members who had done some casual work, and lastly they wanted to go back a minimum of six years. In short, potentially HMRC were looking to recover some £70,000 plus interest and penalties.

At this stage in the proceedings the client was in an extremely anxious state. Now in her late 50s, this could jeopardise her financial stability and force her to change her retirement plans. But this is of course the high point of the drama, and just as in a play, the pace has to rise to an unbearable tension before the cavalry rush in and save the day.

The secret in these investigations is knowing when to step in with guns blazing. Too early and you have wasted your weapons; too late, and it's all over.

In this case the timing, if I say so myself, was spot on. Consequently, HMRC have dropped the VAT issue, dropped all but £1,500 of the undeclared cash, dropped the PAYE issue, and most importantly agreed not to go back to any earlier tax years.

This drama has played itself out with the client having to pay less than £1,000 in additional tax.

Many years ago, an insurance company used to advertise its services with the slogan 'we won't make a drama out of a crisis'. What could my client have done to reduce the drama? In short, not much. Perhaps better record keeping, but the same drama is going to play itself out in almost all these investigations. Perhaps the main lesson for the client is to hold your nerve until the curtain falls.

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