Just the thought of an HMRC investigation can send shivers down the spine of any business owner, but fear not!
We’ve got precautions and strategies to share with you that can significantly reduce the likelihood of finding yourself under HMRC’s microscope. They will also help guide you through an investigation smoothly.
What is an investigation from HMRC?
An HMRC investigation is a thorough review of an individual’s or business’s financial records to verify tax compliance. These investigations can range from simple checks of tax returns to comprehensive audits involving a deep dive into accounts, transactions, and records.
What triggers investigations from HMRC?
HMRC investigations into businesses can be triggered by several factors:
Inconsistencies in tax returns compared to previous years or industry norms often attract scrutiny.
Regular late filings or payments can signal potential compliance issues, prompting an investigation.
Tips from whistleblowers, such as disgruntled employees or competitors, can also prompt HMRC to examine a business more closely.
Businesses operating in industries known for high levels of evasion, engaging in international transactions, or those with complex corporate structures, particularly involving offshore entities, are at a higher risk of investigation.
Lifestyle audits may also be conducted if there’s a noticeable disparity between an individual’s lifestyle and their reported income.
Lastly, businesses that stand out from industry benchmarks or make substantial claims in high-risk areas, like tax reliefs, might trigger HMRC’s interest.
Additionally, HMRC conducts random audits across various sectors, meaning any business could be subject to an investigation or further checks. So sometimes – if you´ve done everything right to avoid being flagged but you still are – an investigation doesn’t mean you’ve done anything wrong!
Understanding these triggers can help prevent the possibility of an investigation, so engaging with a good accountant can be crucial at this point. However, if you have been contacted by HMRC, an accountant can also be invaluable here too. Their insights and knowledge can not only assist you, but they will also shoulder the burden and stress of dealing with HMRC at an already stressful time.
What can you do to reduce the impact of an HMRC investigation?
Whether you´ve received that dreaded brown envelope or not, there are measures that you can put in place to reduce the impact of an investigation on your business. Here is how you can prepare yourself:
Ensure you keep good records: Good records are something every business should aim for, but it also helps if HMRC wants to review any documents or transactions.
Keep up to date with tax regulations : The tax rules are always changing, so keeping up to date is essential. You can either review the HMRC website or discuss your sector with your accountant.
Maintain transparency in transactions : Document the nature and purpose of all transactions, especially those involving large sums or international transfers, to provide a clear context for HMRC.
Seek professional advice : By liaising with a professional accountant, you can benefit from internal audit checks and be aware of any risks or areas of concern. This way, you will be prepared if HMRC comes knocking.
Ensure timely and accurate filings: Submit all tax returns and payments on time. Accuracy in filings reduces the likelihood of discrepancies that could trigger an investigation.
Cooperate fully: If HMRC does make contact, ensure to cooperate fully. Providing all requested information and being honest about any shortfalls will help in the long run. It can also reduce the amount of time the investigation is open compared to delaying or hiding information.
Consider subscribing to a tax investigation service: If you do get selected for investigation, if you subscribe to a tax investigation service, then this should cover the professional fees of an accountant to represent you with HMRC so that you do not have to worry about the professional costs of an investigation.
Future-proof yourself against brown envelopes!
Facing an HMRC investigation can be unsettling, but you don’t have to go through it alone. There are things you can do to significantly reduce your chances of being investigated, as well as things you can do if you are randomly chosen for one, and an accountant can help with both.
If you want to future-proof yourself against brown envelopes and have the peace of mind to sleep soundly, reach out to us at SJB & Co. We’ll help you put the necessary pieces in place and will handle the heavy lifting in any investigation – from liaising with HMRC and defending your case to managing all communications.
Please feel free to forward this newsletter to any colleagues or friends who may be interested in it.
For more information or to discuss any issues raised above please contact Simon Bell by phone on 01376 571358 or email [email protected]
This article is written in general terms and therefore cannot be relied on to cover specific situations; applications of the principles set out will depend on the particular circumstances involved and it is recommended that you take professional advice before acting or refraining from acting on any material in the newsletter .