An HMRC Audit, or tax compliance check, is a check into a company’s tax returns by HMRC. More serious checks will become investigations.
Many companies will experience routine checks from time to time, however, more serious investigations will be conducted if HMRC have reason to believe that your tax returns are inaccurate.
If you have been warned that HMRC are performing an audit or investigation into your company, this can seem complicated and very stressful. This is why we recommend seeking professional advice from Ryans as soon as they begin.
Is My Business Likely to be Investigated by HMRC?
If you are registered for VAT or have employees being paid through PAYE, you should expect routine tax checks. The audit involves checking your records and systems, and they focus on areas where mistakes are commonly made, to ensure everything is being accurately reported.
The more likely you are to have made mistakes or deliberately sealed income, the more likely you are to be investigated. HMRC picks up on suspicious behaviour including:
- Late tax returns, late tax payments and underpaid tax
- Inconsistencies or noticeable variations between different returns e.g. a large fall in income or a great increase in costs
- Abnormally high costs compared to other businesses in the same industry
- Inconsistent tax returns compared with how busy the business is
- Offshore bank accounts
- Property income
- Operating in high-risk industries that frequently takes cash payments e.g. takeaway service, hairdressers, motor garages
- Or if HMRC receives a tip-off
Which Business Taxes Does HMRC Investigate?
Investigations aren’t limited to income tax. Other areas that can be investigated include:
- VAT
- Corporation tax
- Capital gains tax
- Climate change levy
- Landfill tax
- Insurance premium tax
How Will I Know if I’m Being Investigated?
HMRC will contact you to make you aware, whether it’s regarding an audit or investigation. For an audit, they will usually want to visit you to check your tax records. You will receive a letter asking for information on your business if HMRC wishes to conduct an investigation.
This letter will inform you of whether they are investigating a particular part of your tax return or if they’re carrying out a full tax investigation. Your accountant should also be able to tell you why you are being investigated.
Usually, a tax enquiry must begin within a year of the due date for the tax return it relates to. If you missed the due date, it must start within 12 months after the date you actually filed it.
What Should I Do if I am Being Investigated?
To begin with, you should get professional advice from an accountant such as Ryans as soon as you are informed of the audit or investigation.
If you’re facing a tax audit, your accountant should check through your records and systems. This will allow you to provide accurate, up-to-date information when the inspector visits, making the audit quicker and less likely to lead to penalties.
When faced with an investigation, it is best to handle any communications with the tax inspector through your accountant, who can deal with it professionally and work in your best interest.
Don’t destroy evidence or try to lie. This will most likely lead to more severe penalties. It is worth making savings to go towards any likely tax bills to reduce the amount of interest payable and try to negotiate an agreement for a lower cost.
A tax investigation can last over several months and can expand from one section of your tax return to another. If HMRC are asking for too much information or are behaving unreasonably, your accountant can advise you on what to do.
What’s the outcome?
The outcome of the investigation depends on what HMRC finds. Common outcomes and solutions include:
- Overpaid tax
In this case, you’re lucky! You will receive a tax rebate with interest.
- Underpaid tax
You will be formally required to pay any tax you owe within 20 days plus interest
- Deliberate wrongdoing
This case may be escalated to criminal status and you may have to pay a penalty. The outcome of this depends on a range of factors such as why you underpaid or over-claimed tax, if you told HMRC as soon as you found out and if you were co-operative during the investigation.
Have you received notification regarding a tax audit or investigation? Let’s talk.