In this article, I’m going to talk about some of the things that can actually cause a Tax Enquiry to be triggered by HMRC as well as some of the simple steps you can take as a business owner to ensure you are minimising the chances of being investigated by HMRC.
WATCH THE VIDEO TUTORIAL : HMRC Tax Enquiries: Simple Steps to Avoid Tax Investigations
Most people are first alerted to a Tax Enquiry by HMRC when they receive a letter informing them about the Tax Enquiry. When you receive this letter, you would usually have anywhere between 30-35 days to respond in writing to HMRC.
There are different reasons that might trigger a Tax Investigation including;
- Mistakes on Tax Returns – there are significant inconsistencies or mistakes that have been found on the Tax Returns which have been filed over several years.
- Information from Banks/ Building Societies – these organisations can often provide information to HMRC where they suspect fraudulent activity.
- High Volume of Cash Payments – where you operate a business in a high risk industry which accepts a high volume of cash payments.
It is important to understand that HMRC are not obliged to inform you on why they have opened a Tax enquiry into your business.
If you are looking to avoid Tax investigations from HMRC, then here are some simple tips to follow;
Avoid making assumptions about the Tax Law – many business owners make assumptions about the Tax laws. The Tax laws are subject to change at anytime.
As a non-tax professional, it can be very difficult to understand what the Tax laws mean and what their implications are.
Instead, you should work with a Tax professional who can assist you with the interpretation of the UK Tax laws for your business.
Keep proper records – whilst this sounds simplistic, there are many Entrepreneurs who fail to keep proper records for their business.
Running a business without proper record keeping will make it significantly more difficult to provide accurate figures to HMRC when submitting your tax returns.
This makes it more likely for HMRC to investigate your business where there are inconsistent figures.
Transparency on Foreign Income – it’s important that you ensure transparency across all parts of your business finances including foreign income.
As a UK business owner, you have a duty to disclose any foreign income sources to HMRC.
Clarity on Tax Avoidance/Tax Evasion – this is an area where many Entrepreneurs struggle with and that is not having clarity between Tax Avoidance and Tax evasion.
Tax Avoidance involves using loop holes in the Tax laws that can help you minimise the amount of Taxes you pay to HMRC. On the other hand, Tax evasion includes activities that are carried out for the purposes of avoiding Tax, which is illegal.
It is very important that you understand the implications of any business decisions taken and ensure they are legal.
Make Tax Payments on Time – when running a business, it’s crucial to pay any Tax payments, penalties or fines on time. Failing to do on a timely basis makes it more likely that HMRC may open a Tax enquiry on your business.
Seek Professional Tax Advice – many business owners fail to seek professional Tax advice. It is important to obtain professional tax advice early on in your business to ensure you remain compliant with the UK Tax laws and reduce the probability of a Tax Investigation.
Ready to speak to us about professional Tax advice for your business? Schedule a Tax consultation today and let us help you navigate the complexities of the UK Tax System.
