What Triggers a Visit and How Can You Reduce the Likelihood?
An HMRC audit is the last thing any company needs. But every business can reduce the chances of being selected for examination.
It is the sort of letter nobody wants to receive. A brown envelope bearing the stamp of HMRC and telling you that your business is under HM Revenue & Customs tax investigation.
To use the more informal phrase, a visit from the tax man is not something any business wants to go through. Even if all your books are perfect and there is nothing to hide, you can’t help feeling like a criminal, and will go through days or weeks of stress, cost and business interruption.
We all know the small print – when you submit your tax return, HMRC reserves the right to investigate anything and anyone they choose. However, according to one experienced firm of accountants in Peterborough who work with many local businesses, there is invariably something to trigger an investigation. They have run through some of the most common causes, along with what you can do to prevent them from happening.
1) A tip-off
People provide tip offs to HMRC every day, alleging tax evasion against traders and businesses. Sometimes this is through a genuine sense of civic duty if they see something that looks suspicious – for example, a propensity for cash transactions or someone who is clearly living a lifestyle that does not equate to their purported income.
There are also some tip offs that are purely malicious in nature, perhaps from a disgruntled former employee or someone else with an axe to grind.
The simplest way of avoiding this is to keep all transactions transparent and above board. Avoiding upsetting people is not always so easy, but at least if there is nothing amiss, you only have the inconvenience of the audit to deal with and can be confident there will be no unpleasant consequences.
2) Errors on your tax returns
We are all human – even tax inspectors – and mistakes happen, so the odd error is nothing to worry about. However, if the mistakes become commonplace, it will ring alarm bells and draw unwanted attention to your business.
The solution is simple – get a reliable accountant to submit your tax returns. After all, they do this for a living.
Your business does not operate in a vacuum. If you received a payment from another company, it will appear on their tax returns. If it is missing from yours, HMRC will take a dim view and wonder what else you have forgotten to mention. Check and double check that you declare absolutely everything.
4) Inconsistent or fluctuating numbers
HMRC will assess your tax returns armed with two pieces of information: your figures from the previous year and the industry standard. If you report numbers that fluctuate wildly from one, or differ dramatically from the other, it will draw a spotlight onto your business.
There could be perfectly sound explanations for unusual numbers in a given year, but if so, provide them as part of your self assessment. A business that provides plenty of information looks less like one that has something to hide.