I’m sure most people will be familiar with the recent headlines around the tax affairs of the former chancellor of the exchequer, Nadhim Zahawi, and will have no doubt been reading the revelations in a state of disbelief. The man that was responsible for the nation’s finances, seemingly couldn’t manage his own.
The reports have centred around the use of an offshore registered family trust, which had the effect of saving an amount that is believed to total £3.7m in tax on dividends and capital gains. Or so Zahawi thought. Unfortunately for him, HMRC disputed this arrangement and deemed that there were errors in his tax affairs, which needed to be rectified. Not only did Zahawi have to cough up the undeclared tax, but he was also handed a penalty of 30% of the tax due.
“Nadhim Zahawi had acted in a careless and not deliberate manner”
The conflicts of interest in this scenario need no further comment, but it does really highlight how costly errors in tax submissions can become if HMRC believe that reasonable care has not been taken by the taxpayer. Mistakes happen, particularly with regard to the ever-changing taxation legislation, but as long as you can demonstrate that you had taken reasonable care in assessing your position, HMRC will not issue a penalty. In Zahawi’s case, he was deemed to have not taken reasonable care to ensure the accuracy of his returns, with HMRC concluding that he had acted in a careless and not deliberate manner. Given the position held and the financial resources in place, it is hard to believe that detailed advice was not obtained on this arrangement, but that is a topic for another day.
Need support?
Using a competent tax adviser will usually help to demonstrate that reasonable care has been taken, however, this will not guarantee that you or your company will not be selected for an enquiry. Where a taxpayer is selected for an enquiry, sometimes at random, HMRC will often undertake a rigorous investigation. This process can span many months and cost the taxpayer a significant amount in professional fees that are necessary to assist with responding to the enquiry.
There is no getting away from the fact that HMRC tax enquiries can be stressful and in many cases costly. However, these costs can be mitigated to a large extent, through taking out a tax enquiry insurance policy. SAS offers such a policy, starting from just £125 per annum, which would cover the cost of professional fees resulting from an enquiry up to an amount of £100,000.
If you would like to find out more about our tax enquiry cover, then reach out to a member of Team SAS today.
