There are strict rules that say when HMRC is entitled to start an investigation, or enquiry. It is allowed to make a relatively small number of random checks into self-assessment tax returns, otherwise HMRC must have a reason to start an enquiry.
Since 1 February 2018 UWOs can be used to allow government departments, including HMRC, to investigate an individual’s financial affairs if it appears their wealth isn’t backed up by sufficient income to justify it. However, UWOs will only be issued if:
- you own assets worth £50,000 or more; and
- HMRC, or other government departments, can prove there are “reasonable grounds” to suspect something is awry.
Only then will the High Court (Court of Sessions in Scotland) issue a UWO.
While most taxpayers will easily meet the £50,000 condition, the purpose of the new rule isn’t to catch everyone in the net. It’s to give HMRC a crack at very wealthy individuals who are able to hide most of their wealth but are unlikely to be able to manipulate it below £50,000. UWOs can be obtained to look into the financial affairs of individuals, or organisations that hold funds for individuals, like trusts.
Time will tell how HMRC will make use of UWOs, however, it seems unlikely that HMRC will be able to use the new “unexplained wealth orders” as a general means to start an enquiry. Primarily, this is because it must first obtain approval from the courts. If you find yourself at the wrong end of a UWO, it’s serious and you should take advice from an accountant and probably a lawyer too.