HMRC has the right to check your financial affairs including your business and personal accounts at any time. You will receive an official letter, so be sure to double check this is genuine to avoid any scams.
There are 3 different types of enquiry
- A random check – this is activated just from a random selection of businesses.
- An enquiry – usually trigged by an inconsistency in your reporting
- A full investigation – they believe there has been a potential serious issue in your reporting and they will investigate all your affairs in full.
Many investigation are minor and more of a ‘compliance check’. Many taxpayers will face this at some point. Being investigated by HMRC is not an inference that you have done something wrong within your accounts or tax affairs. You may have been randomly selected or work with a person or organisation involved with a tax investigation.
Tax investigations can feel intrusive and unsettling. However common sense, honesty and following these tips can lower the stress and complexity involved…
6 Tax investigation Tips
1. Keep Calm and Quiet
It’s easy to panic when the brown envelope arrives. Remember – if you have not done anything wrong, you should have nothing to worry about. It’s also best to restrict the people you tell to your adviser (such as your accountant) and maybe close family. This avoids the myriad of well-intentioned but often inaccurate advice that will be confusing and distracting.
2. Be 100% Honest
Always be completely honest and transparent with HMRC. If you’re unsure of the answer to a question, say “I don’t know” rather than guess or tell a half-truth. Thanks to a vast array of systems and information, comprehensive material about you and your business will be accessed as an investigation begins.
3. Take Professional Advice
It’s important to know your rights during a tax investigation. For example, do you know that the HMRC cannot insist that you meet with its representative? (If you go ahead with a meeting, insist upon seeing an agenda in advance.) Appropriate advice from a tax expert will save time and anxiety during the investigation.
4. Keep Accurate Records
Make sure that your accounting information is readily available. This is made much easier by using online accounting systems such as Xero. You are obliged to keep financial records for six years from the end of the last financial year (companies) or last tax year (individuals) that they relate to. If there are any gaps, HMRC will use its own calculations. Without accurate records, these figures cannot be disputed.
Being obstructive will not help the investigation. It’s best to cooperate and follow the guidance of your advisor, who will have experience of working with other clients going through tax investigation. If a mistake is spotted, pay any monies owed as soon as possible. This demonstrates complete cooperation and reduces any penalties involved.
If you have done something wrong, even as a genuine mistake, HMRC is likely to revisit your affairs in the future. Make sure that you learn from your mistakes.
“We understand that being involved with a tax investigation can be worrying,” says Suzanne Spicer of Spicer & Co Chartered Accountants. “Discrepancies are not always intentional. Mistakes happen. It’s important to be open and honest with HMRC… and with the professional who is giving you guidance.
“Plus, we offer a Tax Investigation Service for our clients which means that you won’t incur any additional accountancy fees should HMRC investigate you and/or your business. This is available to all our clients and offers fantastic peace of mind.”
Would you like reassurance that you’re ‘squeaky clean’ should a tax investigation take place?
Would you want to avoid additional fees should an investigation happen?