The number of HMRC tax investigations has increased dramatically, and small businesses are being targeted as often as large corporations. It’s no longer enough to file your taxes on time and hope for the best. You must have everything in order if your file is pulled for an audit. Here are some helpful tips for fully cooperating with an HMRC investigation and avoiding fines during a tax investigation.
Why do tax investigations occur?
HMRC are aiming to narrow the tax gap between what they may theoretically reclaim, and what they are already recouping. Part of that process is to make sure that all uk companies are paying the proper amount of tax.
Is there anything that may flag an investigation?
There are a few indicators that suggest you could ignite the curiosity of the tax office. It is vital that if you don’t understand how to complete your taxes, you talk to a tax professional and have them do this for you.
Here are some of the ways you may be flagged for investigation:
- You have a history of filing tax returns with errors
- The difference in profit margins between years has shrunk dramatically.
- A mismatch between industry salary norms and actual pay
- Director’s salary is up for debate.
- Failure to pay taxes
- Omission of income
Not to mention you can be flagged at random too.
A tax accountant must be contacted if you are being investigated. They should not only understand business, but they should also have a track record of avoiding penalties during a tax investigation.
Part of managing your tax records entails having all of the invoices and receipts for income and expenditure. Including fuel costs, travelling mileage, overnight stays, equipment, utilities, mobile phone and more.
Understand your obligations
Even if you engage a tax professional, you must know your rights and obligations. Tax relief and credits must also be understood, as well as the correct taxation. If you discover a problem on your tax return, you must inform the investigating officer or your accountant immediately. A delay may seem to be an attempt to evade taxes. As a company owner, you must know everything about your income and expenditure, even if you don’t do books and accounting personally. You are responsible for the accuracy of your accounting records.
Keep in mind that most tax investigations will show that you have not been paying enough tax, and that is far more likely when you don’t have a tax accountant working on your behalf. Tax investigations can be a long process, but if you have been underpaying – you typically only have 30 days to pay the balance.
Keep yourself out of trouble and hire a tax accountant from the moment you start your business – and if you are ever investigated – it will be smooth sailing.