How do I avoid a tax investigation?
In short: you can’t. Tax investigation by HMRC can be lengthy and invasive for business owners and although it’s impossible to avoid being selected, there are a few things that might minimise the threat. Here are some of the common triggers to an HMRC investigation:
Out of the ordinary
If there is a fluctuation in your figures, for instance you are suddenly reporting a larger drop in profit than in previous years or amount drawn for personal use, HMRC will notice. When reports are submitted there is space for notes: use this to show HMRC that you are aware of any changes and to give reasons and evidence.
No changes at all
We’ve looked at unusual changes, but what about no growth at all? Years of reporting no profit will also raise a flag at HMRC. If there is a good reason for this, such as investments tiding you over, state these in your notes and provide evidence at the time of submission.
To err is human
Everyone makes mistakes, but too many may initiate a tax investigation. You can help the process with good standards of record-keeping. If your return is consistently late or tax is paid late, HMRC will become suspicious.
Get in with the right crowd
HMRC will likely compare your figures to your industry standards. If your figures are vastly different, this may raise a flag. Your accountant should also look at your business type to check that it is the right fit for you.
Tipping-off
Even if you are as clean as a whistle, a disgruntled employee can still cause trouble by tipping off HMRC. You should make sure you pay the correct amount of tax (which is where your accountant comes in) and declare all of your sources of income. If your lifestyle ‘appears’ to be inconsistent with your income, be prepared to explain why. HMRC will use all avenues, including social media, during investigations.
Employ an accountant
Though one cannot avoid a tax investigation, employing an accountant can increase your trustworthiness and the precision of your accounts in the eyes of HMRC.
What happens if my company is selected by HMRC?
Your accountant will help during the stress and disruption of an investigation. We can manage your communications with HMRC and assist with document submission, with the aim of a satisfactory outcome all round.
As the fees for an investigation can run into the thousands, you can take out insurance against these costs too. We can help you to find a policy that suits your needs.
If you would like to speak to one of our experts about HMRC investigations or insurance, speak to one of our experts on 0161 476 9000 or contact us here.
