What you need to know about Tax Investigations to be prepared.

A tax investigation is a financial audit from the HMRC where they will look into your tax computations and liabilities. 

 

If you have been selected for investigation, then you, or your accountant, will receive an official letter or phone call from the HMRC. You will be told what they will want to look at in more detail. 

 

It is really important that you comply with their requests and provide the information that they require. 

If computational abnormalities are noticed on your tax return or if you regularly submit your tax return late, that very much ups the ante for a tax investigation. Other triggers might be that the industry you are in is deemed as ‘high risk’, someone has alerted HMRC about your tax return, or your accounts do not match industry norms. 

 

It is not always something that you have done, it might be that the HMRC has selected you at random for investigation. 

 

Ensuring that your books are well kept, and everything is up to date will help you to work with them to conduct the enquiry. 

A team will arrive and conduct a full audit of your accounts and ask lots of probing questions. As long as you are willing to answer and produce the information they are asking for, it will go as smoothly as possible. It can feel overwhelming and stressful for individuals, but the key is to produce the appropriate answers to their questions along with the evidence requested and then the process will run more smoothly. 

If you have been selected for an enquiry and you know that there is a discrepancy in the figures, then it’s sensible to come clean. Penalties for inaccurate returns are often reduced or on occasions quashed altogether if the taxpayer co-operates and recognises their position., notwithstanding of course any underpaid tax plus late payment interest will still be due. 

 

Talk to your accountant if you have one, they should be able to go back through the figures to see if there has been a mistake. 

 

It might be sensible to conduct an internal check on you accounting records to ensure that everything that should be in there is. 

To reduce the odds of the Tax man knocking on your door there are three main things that you can do: 

 

1. Ensure that your books and records are all in order 

2. Keep hard or electronic copies of all invoices and other relevant paperwork 

3. File your returns and pay your tax on time 

 

Ask an accountant to help you. They are generally happy to check over your books and your tax return before you submit it to make sure that there are no anomalies or that nothing stands out that might attract the watchful eye of the taxman.