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What you need to know about Tax Investigations
What you need to know about Tax Investigations

Tax investigations in the UK can be stressful for any business regardless of whether they are routine or tax audits or investigations because the HMRC suspects inaccurate information. By hiring professional help right from the onset, you can ensure that you sail through your tax investigation with relative ease.

Tax audits and investigations check a company’s records and information. This is more likely to happen if you are registered for VAT, or your staff are paid through PAYE. A tax investigation or tax audit will cover areas where mistakes are often made or where HMRC believes that income is being concealed, or costs are being inflated to avoid paying the correct tax.


How often do tax audits or investigations happen?

On average, you can expect a tax audit every five years. However, you may be audited or investigated more frequently if you file your tax returns late, pay late, or make regular errors. You may also be investigated if your costs are considered abnormally high, or if your income has fallen dramatically. The HMRC also acts on tip offs from time to time. If you have offshore bank accounts then this can also result in a tax investigation.


How do I know I am being investigated?

The HMRC will first contact you asking for more information. The letter will clearly inform you that the HMRC is investigating a particular area of your tax return, or carrying out a thorough investigation. It is important to consult your accountant at the soonest opportunity so that they can advise you on how to best proceed through the process. A tax investigation must start within a year of the due date of the tax return it relates to.


What type of investigation will I be subject to?

You may be subjected to a Full Enquiry, which means HMRC will be investigating all aspects of your tax and tax history. Alternatively, you may be subject to an Aspect Enquiry where HMRC will look at one specific aspect of your tax. In a Random Enquiry HMRC will do a range of random checks to ensure everything is in order.


How long does a tax investigation last?

Once the tax investigation has begun, it can last a number of months. It can also extend to other aspects of finance if there appears to be related discrepancies in other areas such as director salaries or offshore accounts. You should keep your correspondence method to writing where possible, so that you have a record of the exchange with HMRC. Lone meetings with the tax inspector or having long telephone conversations should be avoided.

In addition, you should take specialist advice on how to deal with different requests from the tax inspector. Your accountant will be able to advise on what is reasonable in terms of HMRC requests and what may need renegotiating. It is important to take advice from someone who has been through the process before.


Summary

Tax audits and investigations can be difficult for any business to navigate, large or small. While tax audits can be routine, tax investigations can be more in depth and require detailed documentation from your finance records. It can be difficult to manage, therefore enlisting professional help is vital. By having experienced accountants by your side you can ensure to get through your investigations with the least possible cost and damage to your business.