9 Reasons You Might Be Singled Out For a Tax Investigation (…and 5 ways to reduce the risk)

HMRC Tax Investigations are known to last 16 months on average and cost thousands of pounds in accountancy fees.  That’s before you even pay any unpaid tax you might be liable for or any penalties.  The good news is that you can protect yourself from a tax investigation.

First of all, understand what causes red flags to pop up at HMRC and avoid them.

9 Reasons your might be singled out for a Tax Investigation

  1. Late filing, late paying or errors in your submission
  2. Unusually high costs for your industry
  3. High-risk industry such as those that routinely take cash payments
  4. Your industry has been targeted by HMRC
  5. Inconsistency between your lifestyle or business activity with your tax returns
  6. Property income
  7. Offshore bank accounts
  8. Tip offs to HMRC
  9. Sometimes it’s just random


5 ways to reduce the risk of a tax investigation

  1. Keep good books and records, it shows you are professional in your approach to running your business and makes it easier to answer any questions that may arise. Keep electronic or paper copies of invoices, receipts and bank statements. Apps such as Xero and Receipt Bank will make this easier to do.
  2. Take the time to review your accounts/VAT returns or other documents before they are submitted to HMRC. If a figure looks unusual then query it.
  3. Get your taxes filed on time. Late returns can attract attention from HMRC: the later the submission, the higher the risk. Using a good accountant will reduce this possibility, but you’ll still need to provide what is required in a timely manner.
  4. Personal Tax and Corporation Tax Returns have “White Space”, where you can add comments or notes if necessary. This can be used to explain apparently irregular figures and reduce the likelihood of an inspector needing to ask for further explanation at a later date.
  5. Always get specialist advice from the outset and don’t attempt to deal with HMRC on your own.
  6. Tax Investigation Protection. There are various Tax Investigation Protection Insurances on the market.  Our Tax Investigation Fee Protection Scheme covers the cost of dealing with any HMRC investigations. For a small annual fee, this covers not only the cost of our time dealing with HMRC but also gives you access to a team of tax specialists who can handle the enquiry and negotiate with HMRC on your behalf.


What you should do during a Tax Investigation.

First and foremost, don’t ignore it. HMRC won’t get bored and go away just because you don’t engage with them.

Whether you have Tax Investigation Protection or not, you need to seek professional advice as soon as you are notified of an investigation by HMRC. Your accountant can check your records and methods, meaning that audits will be quicker and easier, as you will have all the most up to date information.

Try to respond as much as possible in writing, through your accountant, rather than meetings or telephone conversations alone with the tax inspector.  Your accountant will know if HMRC is requesting unnecessary information or making unreasonable requests, so you don’t overshare.  It’s important to remember that investigations can expand, which, ideally should be avoided.


If you’re worried

Ask us about our tax investigation service, it gives peace of mind and unlimited advice, as well as 24/7 access to a business legal helpline.

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