Noshir Avari: In these taxing times, it is wise to keep your affairs in order

ONE OF the worst fears of any business is to receive a letter from an officer of HM Revenue & Customs inquiring into the accuracy of the individual's tax return and the accounts of the business.

HMRC's work programme in this respect falls into three basic categories. The smaller end of the inquiry work is carried out by local compliance offices, whereas the more complex and serious inquiries are carried out by offices of the civil investigation of fraud offices. There is a third leg which stands on its own, which is responsible for the conduct of criminal investigations with a view to prosecution.

The 27th HMRC Report submitted in March to the House of Commons committee of public accounts concludes, that over the past three years, the department has increased yield whilst reducing costs through better targeting of its work. Over the next four years, the department is aiming to raise around 18 billion per annum from increased efforts to tackle fraud, evasion and debt. In the year 2009-10, HMRC collected altogether 435bn in taxes, noting that whilst most taxpayers comply with the law, a tiny minority deliberately evade their obligations.

The level of compliance activities in HM Revenue & Customs is set to gather momentum rapidly. It is expected that HMRC will be making further regular announcements to entice people from different walks to make a voluntary disclosure regarding their unpaid taxes. First, there was the amnesty given to doctors and dentists to notify their intention to make a disclosure by 31 March and it was recently announced that plumbers and heating engineers are being offered a similar amnesty until the end of May.

HMRC can easily afford to be generous with its various amnesty programmes given the huge volume of very useful and damning information that it now holds in its "intelligence bank". It is well known, for instance, that the department holds very valuable and extensive information on people holding offshore accounts. For those holding undisclosed offshore assets, there have been three amnesties. With the tightening of investigation activities within HMRC, it is important that everyone affected should now urgently take stock of their position. A "head in the sand" approach is simply too dangerous to continue.

A tax investigation can be a harrowing experience, especially if the inquiry drags on. The disclosure must include all taxable income and gains not previously disclosed; that means from all sources within and outside the UK. HMRC will be looking for cases where the nature and the amount of the offshore income suggests UK profits might have been missed and these cases will produce significant investigations. It is most important to pause for thought before signing any final disclosure certificate, the critical document required of a taxpayer at the time of reaching a settlement with HMRC. Prosecution cases can result from such documents being proved false.An experienced adviser will always be able to defuse any traumatic situations, as well as use expertise to make use of any technical opportunities which might be afforded, for example, by a proper consideration of the complex rules relating to residence and domicile. The subject becomes ever more complicated and even HMRC's own literature for the lay public is now contained in hundreds of papers, as opposed to the previous booklet. These highly technical matters are key to determining liability in individual, corporate and trust situations. Then again, in these credit crunch times, experience suggests that HMRC can be flexible in negotiations, both in arriving at taxable income figures and in agreeing final settlement figures.

Experienced professional representation is vital. In even a relatively small case, assembling and interpreting all the relevant material and calculating the liabilities can be difficult enough. But with many currencies to deal with, unfamiliar investment vehicles, double taxation issues and withholding tax to consider, taxpayers and inexperienced practitioners can easily be out of their depth. Experienced agents could well save their costs in advantageously negotiated settlements, in addition to removing the stress inevitably caused to the subject of a tax investigation.

• Noshir Avari is the principal of Avari and Associates, tax investigation consultants. He served the Inland Revenue department for 20 years before setting up Avari in 1988.