For any business owner, the idea of an HMRC investigation can be a scary one. While the prospect of an investigation will always create stress, knowing what prompts one and how to get ready can take a lot of anxiety out. Here’s what you need to know.
What Triggers an HMRC Investigation?
HMRC has advanced software in place to identify any questionable discrepancies within the tax return. Some red flags are just bound to catch their notice. Large gaps in your income versus your lifestyle, for example.
Being late with tax returns or payments puts a person in the disorganised or even avoidance zone. Significant variations in income or expenses without a reasonable explanation will lead to questioning. Another sign is that your expenses are abnormally high and well above others in the industry.
Random checks happen too. HMRC routinely checks all industry sectors, so good record keeping alone would not ensure you will never face a visit from HMRC.
Types of Investigation
Not all investigations are equal. A complete investigation delves into all of your financial matters and can be exhaustive, as well as mentally taxing. A part inquiry, on the other hand, involves more in depth areas like classed receipt claims or wage streams. These have more limited application. There is a provision of compliance checks as well which are not so formal and get sorted out quickly provided your records reflect the same.
How to Prepare
Document all income and expenses. Keep receipts, invoices, bank statements and correspondence copies for a minimum of six years. Digital is fine as long as the files are safely stored. So, always ensure proper filing of your tax returns on time. Mistakes happen but when repetitive errors or tardy completions occur, it starts to be perceived negatively. If you aren’t sure, ask rather than guess.
Be honest and transparent. Failing to report income or exaggerating expenses — that is tax evasion and there are serious consequences. HMRC is typically more lenient providing you come forward of your own accord if mistakes have been made because the taxman can make errors too.
Consider professional representation. Need a business accountant to liaise with HMRC — make eligible claims, attend meetings when you need them? For Cheltenham Accountants, visit www.randall-payne.co.uk/services/accountancy/cheltenham-accountants
Stay Calm
But please understand — an HMRC investigation does NOT mean that you are guilty of anything. Your best protection is good record-keeping, honest reporting and the guidance of a professional. Although nobody wants to end up in a situation where they have to explain themselves, in taxation — perhaps more than anywhere else — an ounce of prevention is worth a pound of cure.