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HM Revenue & Customs has told the Treasury committee that nearly one in ten small businesses are under investigation as it attempts to recoup the £34 billion tax it failed to collect in 2015-2016 – and that small businesses are to blame for nearly half (46%) of the uncollected tax.

How can you ensure that your business isn’t to blame for uncollected tax, either this this year or in future?

Paying your dues

HMRC do carry out random investigations to discourage tax evasion and ensure the fairness of the system, so any business can potentially be investigated. However, aside from this, the Institute of Chartered Accountants in England and Wales (ICAEW) has reminded small businesses that they’re most likely to come under investigation if figures on their self-assessment, corporation tax or VAT returns appear wrong, or if their records are judged insufficient for them to submit a proper tax return.

The ICAEW has urged small businesses to ensure they keep all invoices for sales and purchases, receipts for business expenses and bank records.

As for accurate accounting and tax returns, the best solution for this will always be to hire an accountant and hand bookkeeping and tax returns over to them. They then shoulder the responsibility of ensuring your accounts are kept correctly and your tax returns are error-free and filed on time. Not only that, but they’ll also ensure you keep as much of your hard-earned cash as possible and become your tax representative, dealing with any HMRC queries.

Clive Lewis, ICAEW head of enterprise, said: “Legally businesses have to keep records for income, VAT and employees. If HMRC announces that they are looking more closely at a company it can be both daunting and frightening for the business owner.”

Undergoing an HMRC investigation

If HMRC has reason to investigate your business, they will contact you to tell you they’re investigating, but won’t tell you why.

They may phone you or send a letter, which may contain a list of records they want to see. There will be a deadline, usually around a month away, by which you must respond. What they want to see will depend on if they’re undertaking an Aspect Enquiry (on just one aspect of your tax return) or a Full Enquiry, but it may include:

If your records are stored digitally, they can ask for details of the software package and a copy of your records.

HMRC may request a face-to-face meeting, either at a tax office, your business or your premises. If you have an accountant or tax adviser, they can be there too to represent you.

After the meeting or checking records, HMRC will write to tell you the results of the check.

If you’ve paid too much tax, you’ll be repaid, sometime with interest. If you haven’t paid enough, you’ll have to pay the excess in 30 days and usually interest from the date the tax was due too.

To decide whether to charge you a penalty fee, HMRC will look at:

You can appeal if you disagree with the decision that HMRC come to. A HMRC investigation can be daunting, so to ensure you’re complying with HMRC’s rules, hire an accountant.

Not only does this ensure that all your financial records and returns are in order, it also means that should HMRC chose your business for a random compliance check, your accountant can deal with any HMRC and represent you.


Interested in hiring an accountant? At TAP we offer low-cost accountancy services along with access to your own personal accountant. Get a quote here.


About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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