What you need to know about Tax Investigations to be prepared.
Posted on 25th March 2021 at 09:48
Each year you submit a tax return as requested by the HMRC. It is an annual requirement that can take a while to make sure that everything is in order and submitted correctly. Often it can be a stressful process for a business owner or accounts department.
If you are then called for a tax investigation, you will need to be ready. This guide will help small business owners to better understand Tax Investigations and how to be prepared for the auditor to make it as painless as possible.
What is a Tax Investigation?
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.
Why might you have a Tax Investigation?
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.
What happens during a Tax Investigation?
There are three types of enquiries that may be conducted and what happens during the investigations will be dependent on which one you are being investigated under.
1. Full Enquiry – during which, HMRC will conduct a full review of your entire business records. In a limited company, they may look at company directors and their tax affairs too.
2. Aspect Enquiry – a particular part of your accounts will be investigated possibly because of inconsistencies that have been noticed in that specific area for instance if you have sold a property you inherited that may be subject to a capital gain.
3. Random Enquiry – this is as it suggests, completely random. It might be that you have done nothing to trigger it but are selected for an investigation at random – effectively you’ve drawn the short straw!
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.
How can I be prepared?
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.
What else can you do?
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.
For advice about tax investigations or to find out more information about our Croner taxwise service call us today on 0121 550 8509 or email email@example.com.
Share this post: