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An investigation from HMRC is not on anyone’s list of favourite things to experience. Ideally, you’ll never have to go through one, but sometimes businesses are surprised by an audit announcement, and can be left wondering where they went wrong.

HMRC could audit anyone, at any time. It’s one of the reasons why businesses should retain financial records for seven years. That way, if HMRC want to investigate your previous tax returns, you’ve got the information ready. But why would they want to audit you?

Regular mistakes on tax returns

If you’ve consistently filed your tax returns incorrectly, then this is a red flag for HMRC. If these are genuine mistakes, then a good first step might be to hire an accountant. Tax returns can be complex, and an accountant can help you, reducing the risk of potential fines and audits.

Number fluctuations

Though there will naturally be fluctuations in your profit, hopefully increases. If your margins fluctuate drastically on a regular basis, this could be a cause for concern and HMRC may investigate further.


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Your financial figures don’t match industry standards

HMRC keep an eye on all businesses and generally know about industry standards. If your business sticks out like a sore thumb and is under or over performing, HMRC might want to learn more. It could be perfectly innocent, but it’s something to be aware of.

Omission of income

You need to declare all of your income to HMRC, no matter how irrelevant or small you think it is. If they suspect you of omitting certain things from your tax return, they might come knocking.

Years without profit

If you’ve been in business for a number of years and still aren’t making a profit, this is going to look odd because you’re consistently telling HMRC that you don’t owe them any money.

Turning in a tax return that says you don’t owe tax every year will only get HMRC asking how you could possibly be keeping the business afloat for so long.

You don’t have an accountant

HMRC are more likely to look favourably on you if have a dedicated accountant. If you don’t have one, you’re more likely to end up making mistakes. If you keep making mistakes on your tax return but aren’t seeking professional help for it, it may look suspicious to HMRC.


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A tipoff

One of the simplest reasons why you might be investigated is that someone has tipped them off that you’re doing something illegal. Whether this ends up being true or not, HMRC has to take these claims seriously.

Unjustified expense claims

Of course, you want to claim as much in expenses as possible in order to reduce your tax bill. However, if you’re regularly trying to claim for things you’re not supposed to, or twisting the truth somewhat, then you could be investigated.

What to do if you’re going to be audited

Your accountant will be the best place to get much-needed advice. Some accountants even offer HMRC representation for events like these – we actually include this service in our fees.

The sooner you come up with a plan of action and have an accountant check through all your records, the better position you’ll be in. The audit will be quicker and you might be less likely to be hit with a penalty.

Under no circumstances must you lie or destroy any evidence. If you do this you’ll face serious penalties. If you are able to make any payments towards your tax bill to reduce the amount of interest you’ll be charged, then this is a good move.

Talk to us about how our online accounting services will help you stay compliant with HMRC and other legal requirements. Call 020 3355 4047, or ask for an instant quote.

About The Author

Kara Copple

An experienced business and finance writer, sometimes moonlighting as a fiction writer and blogger.

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