The Practical Guide to Limited Company Tax
If you have chosen to operate your business as a limited com...
By Jonathan London on 25th August 2015
HMRC Investigation. Seventeen characters that spark fear into business owners, freelancers and contractors the length and breadth of the country.
For fraudsters, tax evaders or people just plain careless with their tax returns, that fear is well founded, as HMRC has extensive powers to pursue anyone it suspects of wrongdoing.
The honest taxpayer with well-organised financial records has much less to fear from an HMRC investigation. However, the experience – or prospect of it – can still be traumatic.
So, here are our 5 tips for handling an HMRC investigation.
If HMRC decides to investigate you, it could be for something specific about your tax return, such as a VAT technicality or the accuracy of an expense claim. This is known as an aspect inquiry. The investigation will focus solely on that one aspect. Unless you receive prior warning, your other tax affairs will fall outside the scope of an aspect inquiry. A full review, on the other hand, covers all your personal and financial affairs. HMRC will write to you to tell you what type of investigation it plans to conduct. This will enable you to pull together all the necessary paperwork.
Ideally, you’ll have an accountant on your side during an HMRC investigation. However, if you’re going it alone, don’t be afraid to pick up the phone to HMRC and ask them any questions you have about the process. Tax inspectors are obliged to work with you on a cooperative, non-adversarial basis.
If HMRC asks you for information, it will usually set a deadline for you to submit it by. If you feel the deadline is too short and you need more time to collate the information, speak to HMRC, explain why and let them know when you will get it to them. This is a much safer option than missing a deadline, which can lead to penalties.
If you think you’ve made a mistake, be open and upfront about it. If you try to hide an error and a tax inspector uncovers it, you could incur a higher penalty than necessary. In very serious cases, this could even lead to a criminal investigation.
Likewise, with documents. Be ready to back up your tax returns with receipts, invoices and all other relevant evidence. If you can’t produce supporting documentation during an HMRC investigation, the inspector may suspect you of hiding something.
If HMRC requests a meeting with you, be ready.
Get the agenda and prepare for every item as thoroughly as you can. Stay calm during the meeting itself and focus only on facts. If your tax inspector issues any minutes or follow up materials from the meeting, check that they accurately reflect what was said and agreed at the meeting. This is vital as these documents may form the basis of HMRC’s evidence if things escalate and your case goes to court.
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