Since the coalition government invested £900m to tackle the problem of tax avoidance and evasion, there has been a much higher chance that a business or individual will be the subject of an investigation by HM Revenue and Customs (HMRC).
As the tax gap widened, HMRC was placed under increasing pressure to collect all monies due to public finances, which meant investigating any anomalies or perceived risks closely.
Who is at risk of an inspection?
Anyone could be subjected to an enquiry by HMRC at any time. Although large businesses have been placed in the media spotlight recently, any company or individual could be notified of an impending enquiry.
According to experts, around seven per cent of all investigations are carried out randomly. However, most enquiries will occur if HMRC has reason to believe that something is wrong.
Common triggers for an enquiry
Errors on a tax return or business records could trigger an inspection, so it’s important that you check all figures and entries on your self-assessment tax return, while maintaining accurate and timely business records.
Although outsourcing to an accountant will ensure that documents are completed and submitted in a timely manner, they will be using the data provided by you, so accuracy is crucial. Prior to submitting a tax return, check every entry carefully and make sure that the figures you have used are accurate.
If an aspect of your business changes significantly during one year, explain the reasons why so that HMRC don’t launch an enquiry. Common changes that will draw attention include turnover suddenly falling, figures not being compatible, a sudden increase in expenses or other deduction. There may be a legitimate reason for your expenses to increase one year, like extensive repairs carried out on your business premises, but retain the receipts to prove it.
Submit your tax returns on time every year to help avoid an investigation. If you always submit your tax returns after the deadline, you risk an enquiry being launched as HMRC will estimate the amount of tax that it believes you owe.
In addition to dealing with the inspection, you will also be faced with penalty charges and interest that will soon mount up to a significant amount. This could lead to further estimated tax bills and more charges, possibly affecting the health of your business.
Always double check entries on your tax return and keep accurate business records. Outsourcing to an accountant will help you to submit accurate records in a timely manner.
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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!