4 Tips to Avoid a HMRC Investigation

4 Tips to Avoid a HMRC Investigation

4 Tips to Avoid a HMRC Investigation

January can bring plenty of stress, with post-Christmas and January blues and, for those who are self-employed, the dreaded tax return at the end of the month. So, in this article, we’re going to provide four useful tips on how to avoid a HMRC investigation. 

It’s that time of year again – when companies and individuals alike panic-complete their tax returns. The question is, what happens if you commit deliberate mistakes on your return?

If this is discovered by HMRC, an investigation may begin. If you are subject to a HMRC investigation that leads to deliberate wrongdoing, it could be escalated to criminal status.

Where this happens you deserve a specialist defence lawyer who will fight your corner. But, to prevent this ever becoming a reality, we have four tips to help you avoid a HMRC investigation. Read on to find out more…

What is a HMRC Tax Investigation and What Triggers One? 

To ensure self-employed persons are correctly paying tax, the HMRC has the right to investigate, particularly where details are not adding up. If they need to do an investigation, they will contact you or your accountant, if applicable, to provide evidence or further information. Some of the aspects they will take a look at include:

  • The percentage of tax you pay  
  • Your accounts
  • Your tax calculation 
  • Previous completed tax returns
  • Your PAYE records and returns for employers
  • Your VAT records for those VAT registered 

The GOV.UK website can provide further information on the type of details they might check and what the process is.

There are many reasons as to why the HMRC might pursue an investigation into your tax records, particularly where there are unexplained anomalies or incorrect figures submitted. Sometimes, HMRC receives tip offs and occasionally will investigate these.  

What Are the Different Types of Tax Investigations? 

When HMRC carries out a tax investigation, there are three audit levels, including: 

Full Enquiry 

A full enquiry will involve HMRC reviewing the entirety of the documents. This is most usually done where they believe there is a significant number of errors with the details that have been submitted to them. 

Aspect Enquiry 

An aspect enquiry only looks into part of your return where they believe there is inconsistencies.

Random Check 

Random checks can happen at any point and on any person, whether your details have alerted their system or not. 

Tips to Avoid a HMRC Tax Investigation 

Hire an Accountant

One way to avoid any type of HMRC tax investigation is to hire a qualified accountant who has dealt with many different types of tax returns. They will make sure you have provided them with all your financial details, such as income, expenses, and capital investments, as well as ensuring all that information is processed correctly.

Most often, tax investigations occur when details are submitted wrong, either wrong figures and/or figures in incorrect sections. HMRC also consider the use of an account as trustful due to the rules they have to follow.

Not only are accounts beneficial when it comes to avoiding a tax investigation, but they too are incredibly helpful for those who own small businesses and have a lot of details to put through.

Double Check Your Tax Return Before Submitting 

Regardless of whether you did your tax return yourself or used an accountant to do this, it is really important to ensure that, before your accountant submits the document, you have completely double checked it to see that all the necessary and important details have been included.

Explain Any Anomalies 

It is possible that anomalies occur do occur in tax returns, either by accident or on purpose, either for an explainable reason or not. Where you believe you have anomalies that can be described, it is extremely important to do this and, if possible, provide any evidence that justifies this.

Don’t Operate Cash Only 

It isn’t uncommon for businesses to be ‘cash only’, but to HMRC this can be seen as a red flag and have the potential to cause a HMRC tax investigation. There are some businesses which are more likely to receive cash over card payments, such as small construction, etc. These are likely looked at more regularly to ensure everything is accurate and no illegal activity is happening.

For more advice on how to prevent your business being under HMRC scrutiny, see contractorcalculator.co.uk

Make The Effort to Avoid a HMRC Investigation 

What we can conclude is that, if you have been untruthful on your tax return and are flagged for an investigation, it could have a lot of implications. You could receive a large penalty or, depending on the severity you might be criminally prosecuted, including prison time.

There might be times where, if HMRC found an error on your return, it was not done intentionally. Where this applies, they will inform you of the error, explain how the return needs to be amended so it’s done currently, and you will then have 30 days to implement those changes.

What does your business do to avoid a HMRC investigation? Leave a comment below.