HMRC Tax Investigations are on the rise. With new Government targets to hit, HMRC is under pressure to audit more businesses than ever – including small companies, micro-businesses and sole traders. In fact, in the last financial year, over £3.5 billion was recovered by HMRC from small-business owners who earn less than £150,000 a year.
The process can be time-consuming, expensive and just plain scary.
So, to calm your fears, here’s PKB’s guide to reducing your chances of getting investigated, and how we can soften the sting if you do.
1. Don’t accidentally trigger an investigation
There are several ways that HMRC selects businesses to investigate. The first is random – each year, a selection of businesses are selected for no reason at all, other than to keep the rest of us on our toes. There’s nothing you can do to avoid being selected randomly, so try not to worry. You might also happen to be running a business in a sector that HMRC has chosen to target – again, that’s simply bad luck. However, you can control all of the other factors that might cause HMRC to come knocking.
Tip-Offs – if HMRC receives word that you are operating fraudulently, they may choose to look into it. Over 80,000 tip-offs were made to the Tax Evasion Hotline last year alone. The most common tipsters are disgruntled employees, envious competitors and ex-spouses chasing higher maintenance payments. Your best protection is to maintain squeaky-clean accounts. We can help you by looking over your accounts and clarifying any mistakes well in advance, so you are always prepared.
Cash payments – If you’re in a business that traditionally takes cash payments, HMRC might occasionally choose to check you’re declaring everything. In order to check your records tally up, HMRC can now access all credit and debit card payments to find out the number and value of transactions completed by a specific trader. For example, if a cash based business has declared a turnover of £80,000, with card transactions amounting to £75,000, HMRC will want to know whether £5,000 of cash is an accurate record.
At PKB, we can help you manage your cash transactions. We have experience helping many small-business owners who regularly handle cash, and have many established practises which will help you.
A Messy Tax history – If you consistently file late tax returns with major inconsistencies, you might spark a closer investigation. That’s why we recommend that you use an accountant to file your tax returns, or at least to take a regular look over your records. We can also help you to budget for your annual tax payments; HMRC is also known to investigate chronic late-payers.
2. Keep HMRC updated of changes or mistakes
If your circumstances change during your financial year, don’t wait for your Tax Return to break the news. Keep HMRC informed, and you are much less likely to spark an investigation.
For example, if you’re a self-employed landscape gardener who breaks his leg and can’t work for three months, let HMRC know as soon as you’re back from hospital. Otherwise, a sudden drop in your income could cause them to take a closer look. Similarly, if you take on some PAYE work, or lose a huge client unexpectedly, it might be worth letting HMRC know. If you work with an accountant, discuss it with them to see if they feel any changes are worth disclosing; we know specifically the types of changes that can attract HMRC’s attention.
If you realise halfway through the year that you’ve made a mistake on your tax return, or have accidentally underpaid tax or national insurance, declare it straight away. Not only will it reduce your chances of an audit, but it will probably reduce your bill by reducing the amount of interest that you owe.
3. Take out our Tax Investigation Service Package
If you really don’t want to have to worry about the stress, expense and inconvenience of an investigation, you’ll be relieved to hear about our Tax Investigation Service. It’s an insurance policy we run, in association with Abbey Tax, the UK’s leading Tax Investigations Service, to protect you in the event you’re chosen for an Investigation.
This simple, cost-effective service takes over if you’re chosen to be one of the small businesses picked for an investigation. It handles every step of the process on your behalf. Instead of losing business hours liaising with HMRC or chasing up lost documents, you can continue with running your business while your Investigation is handled by an experienced Tax Advisor.
With our Tax Investigation Service package, we will:
- Handle all meetings and correspondence with the Tax Inspector.
- Negotiate on your behalf to make certain that you pay the right amount of tax.
- Give you complete peace of mind that the professional costs of your defence are covered.
- Dedicate an experienced professional from our team to be on your side when you need them.
- Give you access to round-the-clock legal advice, with a plain-English hotline that’s open 24 hours a day, 365 days a year.
Unfortunately, we are all more likely to be Investigated by HMRC in the future. We know that HMRC is determined to deliver more money from compliance activity. It is under intense pressure from both the government and MPs of all parties to pursue all tax which is due under law. We can’t protect you from being investigated, but we can take away most of the stress from the process.
If you’d like to find out more about the Tax Investigations Service, or any of the other ways we can help you with your tax, just contact us.