What does it mean if HMRC have sent me a Section 9a Tax notice letter?
Section 9a of the Taxes Management Act 1970 gives HM Revenue & Customs (HMRC) the right to investigate any tax return of a taxpayer. This right applies to the original tax return, and to any subsequent amendment to the return made by the taxpayer.
A Section 9a notice informing you that your tax return has been selected for an enquiry isn’t the most pleasant of letters to receive.
What you need to do if you get a Section 9a letter?
If you do receive a Section 9a letter, it will inform you what law the Revenue are using to allow them to legally look into your tax affairs. For example, the letter might make reference to a “Section 9A TMA 1970” which is the type of enquiry we’ll be looking at in this blog.
A Section 9a investigation must be opened by the Revenue within twelve months of your tax return being filed. Anything later than this and once their error has been pointed out, the Revenue will not be able to take the investigation any further under Section 9a.
The initial letter that is sent to you will outline the information the Revenue are seeking. It might be the Revenue have just a few specific questions relating to a few aspects on your tax return, or it might be they are raising an enquiry into your whole tax return and are therefore wanting all of your financial documents. If the latter, and if your business is sizeable, the Revenue will arrange for an inspector to visit your business premises to review your financial records. This meeting can take place at our offices.
The Revenue will also give you a deadline for replying and it is important these deadlines are adhered to or, if you have a good reason why you cannot meet the given deadline, you explain to the inspector why you need more time.
What triggers a Section 9a Enquiry?
People who are selected for a Section 9a enquiry want to know what has caused the investigation. The Revenue do not usually give the reason.
Your return might have been picked at random, however the most likely cause is that the Revenue suspect there is an error in your return. The Revenue hope their enquiries will uncover underpaid tax and so they use a variety of methods to detect potential errors on individuals’ tax returns. Some of these methods are as follows:-
- A tax return might report earnings that appear too low to support the tax payer’s lifestyle;
- The tax return figures – particularly the ratio of direct costs to sales – might change considerably from year to year. Normally these would stay fairly consistent;
- The tax return figures are out of the ordinary – in terms of size, type or profit percentages – when compared to other businesses in the same industry;
- Unusual figures in the tax return have caught the Revenue’s attention e.g. large “capital introduced” or repairs;
- Filing tax returns late can also trigger an investigation.
It can be seen from the above list that in order to help avoid a Section 9A enquiry, it’s important you file accurate and complete tax returns on time. There is a box on the tax return in which you can provide additional information. Use this to explain unusual figures in the return, or if your living expenses are funded by means other than your earnings eg your partner helps pay for living expenses, or you receive tax credits or use savings.
A number of self-employed people have investigation insurance to help with the professional fees if they have an enquiry.