No contractor or small business owner wants to be under the watchful eye of HM Revenue & Customs (HMRC). There are many triggers associated with HMRC tax investigation, resulting in an enduring and rather unpleasant experience for the organisation or individual at its centre. In addition to being stressful, HMRC investigations are time consuming and costly. In fact, recent research revealed that the average tax investigation lasts 16 months and costs an organisation £5,000 in accountancy fees.
If you find yourself the subject of a HMRC investigation, don’t panic. It is important to note that whilst some are responses from tip-offs and industry-specific targeting, most enquiries are the result of computer generated ‘risk profiling’, meaning most subjects are selected at random. There are however a number of top tips that you can call upon to survive a HMRC investigation, no matter the reason for the enquiry and regardless of the taxman’s persistence in trying to uncover errors.
Know what to expect
There are three levels of HMRC enquiry. Depending on the reason for the enquiry, you will either be subjected to a full, aspect or random enquiry. As the name suggests, a random enquiry is when you are investigated completely at random.
An aspect enquiry means that HMRC is concerned about a specific part of your accounts. This type of enquiry’s aim is to uncover more information on whether said errors were the result of a genuine misunderstanding or a deliberate attempt to evade tax. A full enquiry is only triggered by a serious case of error, and will probe not only the business accounts but the personal finances of a company’s directors or owners. Every HMRC enquiry should be taken seriously, as any discrepancies found will result in further action, including the enforcement of penalties and even prosecution.
Get advice – straightaway
It’s important to keep calm in the face of any HMRC enquiry, seeking professional advice – even if you have nothing to hide. Having someone on your side to provide clarity on all pieces of HMRC correspondence and lines of enquiry can be invaluable. Your chosen accountant or advisor will also help you organise the documentation you need to evidence your case, prepare thoroughly for any meetings requested by HMRC and ultimately stay one step ahead.
Be honest but don’t be afraid to ask questions
Being cooperative and honest at every stage will keep you on track to getting yourself and your company in the clear in the face of a HMRC investigation. Don’t be afraid to ask your own questions, however. “Why?” is the most common and this query can be put forward at any stage by either you or your advisor if you feel that HMRC has requested something that they are not entitled to.
Take a proactive approach at every stage
Every HMRC investigation is a series of deadlines you have to meet or meetings you have to attend, which makes taking a proactive approach at every stage vital. Ask for an agenda before every meeting, and submit paperwork on time and in full to keep HMRC satisfied. It’s recommended that you make notes. This will help make sure nothing is overlooked and allow you to retrace your steps if need be, as detailed in this blog post from AccountingWEB:
“Don’t try to remember everything that is said; write notes so that you can check what you were asked and what you agreed to. Following the meeting, ask the officer to provide a copy of his notes of the meeting for you to review. Check them carefully to ensure that nothing you said was misunderstood. Use your notes as an aide memoire. If you want to tape the meeting, you will need to check with the officer that he agrees. You may need to get any recording transcribed to use as evidence.”
Don’t tackle your HMRC investigation alone. Let our team assist you with a long list of dedicated accounting services. We provide support for startups and established contract businesses. Contact us today to discuss your requirements.