What You Need to Know About Tax Investigations

by | Feb 9, 2023

Occasionally, you may receive a letter or phone call from HMRC informing you that you’re due to undergo a tax investigation.

Firstly, it’s important to note that this may not necessarily be because you’ve done anything wrong: HMRC can launch an investigation into any business’s taxes if it should choose.

It’s best to understand why and how tax investigations happen so you’re not caught off guard. Here’s what you need to know.

What is a tax investigation?

At any point, HMRC has the right to check your business tax dealings to make sure you’re staying compliant and paying the correct amount at any given moment.

If your business is due to undergo one, HMRC will contact you and tell you what they’ll be looking for. This could include:

  • the tax that you pay
  • your accounts and tax calculations
  • your self-assessment or company tax returns
  • PAYE records and returns
  • VAT returns (if you’re registered).

If you hire an accountant, it’s more likely HMRC will get in touch with them, but you’ll be kept in the loop.

During an investigation, a team from HMRC will audit your accounts and question you on your activity. This could be during a visit to your home, business or accountant’s office.

What can trigger an investigation

Although HMRC carries out many random investigations, a few things can act as the catalyst for it to look into your taxes.

The most common triggers are submitting late or incorrect tax returns, so it can save you a lot of grief to use experienced accountant services to handle your tax filing (much like ours).

Other triggers include:

  • someone alerting HMRC to suspicious activity
  • noticeable inconsistencies
  • a high level of cash-in-hand transactions

What are the three kinds of investigation?

There are three main levels of investigation, each slightly variating from the other.

A full enquiry will mean HMRC reviewing all of your business records. This is usually because they believe there is a significant risk of error in your taxes. HMRC will also investigate your company directors if you run a limited company.

An aspect enquiry will look at certain areas of your accounts, such as inconsistencies in a recent tax return.

Lastly, a random check is precisely what it sounds like. HMRC can open an investigation whenever it chooses, regardless of the state of your accounts.

What can you do?

The best step you can take is to prepare. While it can still be a shock to find out you’re due an investigation, there are still measures to prevent you from feeling the brunt of the impact.

Firstly, you must ensure your returns are started and filed accurately and on time. Whether it’s your self-assessment, your corporation tax return or your VAT returns, it pays to get ahead.

Hiring an accountant can mitigate these risks if you’re pressed for time, as you’ll likely be when you’re running your own business.

Furthermore, your business could benefit from tax investigation insurance. This way, if you do have to undergo an investigation, all of the professional costs will be covered, meaning the time and money going into the process won’t have to be a concern.

We’re here to help

We understand that a tax investigation can stress out someone running a business. They can be costly and take you away from your main duties, too. We’re here to make sure that doesn’t happen.

Get in touch with our team to discuss our tax investigation services.

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