How to avoid HMRC investigation

Knowledge base from Boox

By Jonathan London on 23rd January 2015

How to avoid HMRC investigation

Nobody wants the attention of a suspicious tax inspector, yet HMRC knows exactly how to spot anomalies in declarations and any abuse of tax reliefs.

Below are five pitfalls that could get you selected for an audit as a result of what you put (or don’t declare!) on your self-assessment tax return.

How to avoid an HMRC audit

1 – Lateness in submitting your tax returns

HMRC staff have your tax history and return dates at their fingertips, from your self-assessment and corporation tax returns to your PAYE and VAT returns if applicable. If there’s a pattern of late submission, inspectors will want to know what’s behind it. Keep to HMRC deadlines and make sure you file your return before the 31st January each year.

2 – Big year on year changes in your income or outgoings

Increased expenditure and falling income reduce your tax liability. For this reason, substantial changes – both in comparison to your previous returns and against your industry sector averages – will raise eyebrows at HMRC. Pre-empt this by explaining fluctuations in your tax return. Losing a key client, being unwell for extended periods or purchasing new equipment are perfectly legitimate reasons for reduced profitability.

3 – Not declaring all your income

HMRC wants to know about all sources of your income, not just the value of your invoices. If inspectors suspect you are concealing funds generated by capital gains, sale or rental of property, returns on investments etc. they will come knocking. Make sure your tax return tells the full story of your finances.

4 – Spurious employment of your spouse

There’s no law against employing your partner and paying them a salary (you can even do this with our accounting servicespeak to our team to find out more) – many contractors and small business owners do this perfectly legitimately. The practice is, however, sometimes abused by directors shifting parts of their income into another person’s tax allowance. The tax legislation covering income shifting is known as S660A. To keep on the right side of it, show that the duties carried out by your spouse -or any other family member you employ – are consistent with the salary you pay them.

5 – Inaccurate or unjustified expense claims

Your tax deductible expenses will vary depending on whether you’re a sole proprietor, a director of your own limited company, an IR35 contractor or part of an umbrella company. Always declare your expenses clearly on your tax return. Also, keep receipts and be able to prove that you incurred the costs wholly and exclusively for business purposes if asked.

If have questions about IR35, go to the IR35 Helpline website at

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