Revenue & Customs is taking a tougher line with taxpayers it calls in for investigation as it comes under government pressure to pull in as much cash as possible.

The amount of tax squeezed out of taxpayers after investigation shot up 35 per cent last year, Revenue figures show. Inspectors netted an average £1,629 in extra tax from individuals in the 2005-6 tax year, compared with £1,206 in the year before.

Roger Williams at Wilkins Kennedy, an accountant, said: “This is a huge jump. Since the merger of the Inland Revenue and Customs & Excise, inspectors have become more aggressive in pursuing uncollected tax.”

Revenue & Customs has adopted an uncompromising approach to help plug a £3.6 billion hole in the public accounts.

The taxman has the power to launch a probe into any of the 9m self-assessment returns it receives each year. Last year the Revenue looked into the affairs of more than 160,000 individuals. One in ten inquiries is random but most are triggered by discrepancies on tax returns.

If you filed your 2004-5 return before January 31 last year, the Revenue has until the end of this month to launch an inquiry.

From that date it has 12 months to look into the 2005-6 tax return, which needs to be filed in the next 10 days. If you file your return late or amend your return, the Revenue gets extra time to launch a probe. Once an inquiry has begun, it can go back over the past five tax years or 20 in serious cases.

You should keep all documents, including bank statements, dividend declarations, pension reports and company accounts or invoices, for at least six years in case you come into the Revenue’s sights.

An inquiry can be expensive. Even if your case is settled with no tax or penalty to pay, you may still have to cover accountants’ costs. They charge anything from £30 to £300 for every hour spent on the inquiry. There are two types of probe: an “aspect” or a “full” inquiry.

Aspect inquiries focus on one or two parts of your return, such as income from buy-to-let properties, bank interest or expenses claims. Usually they are resolved over the phone or by post.

Full inquiries are more complex and usually involve face-to-face meetings. The average cost of a full investigation is £2,671, or £500 for an aspect inquiry.

If you feel at risk, you can take out insurance to cover the costs of an investigation. The average premium for a policy covering full inquiries is £252 a year if you buy direct from Abbey Tax.

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