0800 140 4644
We all breathe a sigh of relief once our tax returns are filed on time, but what if that’s not the end of it? What if we are about to be targeted for Tax Enquiries!
If you haven’t already been targeted by HMRC for a tax enquiry you may dread the idea, but it need not be as bad as you imagine.
Tax Enquiries: Why me?
Don’t worry, HMRC isn’t picking on you because they think you’ve done something wrong. Since 2009, businesses have been selected by an automated system which analyses returns.
A proportion of enquiries are purely random, possibly to make sure that no-one feels too secure, but HMRC may also be using ratio analysis software to target companies that have filed figures that are significantly difference from historic records
This may trigger an aspect enquiry, rather than a full inspection, to look at a particular aspect of your figures, for example unusually large expenses.
Whatever the reason, there has been a significant increase in VAT, self-assessment tax returns and corporation tax enquiries since the system was brought in, after the coalition government pledged to clamp down on tax cheats to reduce the black hole in its public spending.
Unfortunately, this has resulted in an increase in costs and inconvenience for business.
Tax Enquiries: What happens during an investigation?
HMRC has powers to enter and search premises. A team will take away all your records for examination and may then come back with questions, so you will need your accountant on hand to answer any detailed queries.
Since self-assessment and online returns have been brought in, HMRC has an increased amount of information at its fingertips, which means the number of issues the taxman can raise is increasing.
Tax Enquiries: What if there’s a problem?
Hopefully, HMRC won’t fine anything wrong, because you’ve kept careful accounts and you have a diligent and professional accountant helping you. However, even in this best case scenario, you will put up with weeks of worry, waiting for the enquiry to be completed.
If the enquiry does find a problem, a company can be fined up to 100% of the tax they should have paid. However, if HMRC judges that you’ve made a genuinely honest mistake, this can be reduced.
Although only the latest year’s accounts are normally inspected, if the taxman finds evidence of deliberate deceit or fraud, inspectors may go back another five years into your records, with all the inconvenience, lost time and expense that incurs. That’s why yo need to keep accounting records for at least five years and VAT records for six years.
What are VAT inspections?
VAT officers can also visit your business to inspect VAT records to make sure you’re paying or reclaiming the right amount.
Although the taxman can visit without making an appointment, or ring up with a query, they usually gives you seven days’ notice before a visit and will confirm what information they want to see and whether they need to inspect your premises. You do have the right to request they delay a visit.
During the visit, if inspectors find a problem they will work with you to correct it as well as inform you of any additional tax you owe or penalty you have to pay.
After the visit, HMRC will write to you to confirm measures to take to improve your VAT record keeping; any corrections you must make to your VAT account; if you’re overpaying or underpaying your VAT and any penalty you have to pay. You have the right to appeal an HMRC decision within 30 days.
What can I do to avoid Tax Enquiries?
While there are no guarantees you can avoid a tax query, there are measures you can take to reduce the odds:
- Keep good accounts. An accountant can only work with what you give them.
- Don’t be late filing returns
- Make sure you highlight any problems or significant differences in your figures on the tax return form.
- Never keep anything from your accountant; treat them like a business partner and they will be able to help you make tax filing as painless as possible.
Your first and most important step to reducing the chances of a tax enquiry is to get on board with a professional and diligent accountant who has a good track record with HMRC.
To minimise the risk of tax enquiries, maintaining meticulous records and timely filing are crucial. Having a professional and diligent self-assessment accountant, like those at Black and White Accounting, can significantly reduce the likelihood of issues. By treating your accountant as a trusted business partner and keeping open communication, you enhance the efficiency of tax filing and decrease the chances of complications during an HMRC enquiry.
If you would like to learn more about how Black and White Accounting can keep you in HMRC’s good books, contact us or ring 0800 140 4644.
