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An investigation from HMRC is on no one’s list of favourite things to experience. Ideally, you’ll never have to go through this if you’ve done everything correctly. But sometimes, businesses are surprised by an audit announcement and can be left wondering where they went wrong.

HMRC could audit you at any time. This is why it’s recommended that you have around six years of financial records stored so that if HMRC wants to investigate your previous tax returns, you’ve got the information ready.

So here are a few reasons why HMRC might launch an investigation into your company:

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 are not something you should take lightly because of the potential fines and audits.


Number fluctuations

Though there will naturally be fluctuations in your profit, hopefully increases, if your margins fluctuate drastically, then this could be a cause for concern.


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, then HMRC might want to investigate.


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.


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

First of all, you should ask your accountant for advice and if you don’t have one, then get one. They will be best to give you much-needed advice here.

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.

A tax investigation can last for months so you’re best having an accountant who can guide you through the process and act as a buffer between you and HMRC.


Are you worried about an upcoming audit? Please share your thoughts or experiences in the comments section.

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