HMRC Tax investigations into small businesses

It has been reported that HMRC believe 22 percent of tax returns filed incorrectly and their intention is to take action to collect this unpaid tax. HMRC tax investigations into small businesses can involve you with lots of paperwork and accounts checking, even if your accounts were perfect. The time and cost of involving your accountant can be significant.

Why are HMRC targeting small businesses?

HMRC have stated that they think about a fifth of tax returns are filed incorrectly and and looking to get the tax back. Some say they believe it is easier to reclaim tax from small business than to get involved in larger and more complex cases, some say it is what they should be doing.

HMRC’s Connect System is is an £80 million investment programme, and they claim that any information received by them concerning any taxpayer can be linked to the tax payers file in minutes.

What happens in a tax investigation?

HMRC may ask to visit your home, business or an adviser’s office, or ask you to visit them. You can have an accountant or legal adviser with you during a visit.

Tax investigations can be targeted, or random, and can happen to any business owner. According to the FSB a full tax investigation can last for 16 months! This can be a stressful time for you, as the business owner, while HMRC go through all your accounts, check receipts and all related paperwork, so they can double check your tax. Thats why it often takes a long time and can involve a lot of stress.

You don’t have to use your Accountant to help, but lets be honest you are likely to want our help to guide you. Average accountancy fees (not our average, but a commonly cited number) to cover this representation are around £4,000-£5,000. THe fees ofr a self employed caterer cam to £10,000

Should HMRC decide any errors you made were deliberate they can also impose fines, which can be equal to the amount of tax.

But my Accountant did my Accounts, so I don’t need to worry.

Wrong! Tax investigations can be random, regardless of the quality and accuracy of your accounting, or they can be targeted.

In other words even if your paperwork is meticulous, you could be involved in a tax investigation.

It isn’t “your Accountant’s fault”, as HMRC chooses many businesses at random. Of course using an Accountant that isn’t chartered may increase the likelihood of errors; an Accountant who pursues unethical tax schemes, or is known to produce faulty accounts, may make your inspection more likely. By the way, Alan Patient & Co are Chartered Accountants we have a very simple statement in our core values, hung on the walls in our office.

“We are not interested in the easiest option if it is morally wrong”

That’s one reason why we don’t get involved in unethical tax schemes.

7 tips to minimise tax inspection issues

You can’t avoid a randomly chosen inspection, but you minimise the issue.

Submit your tax returns on time.
Ensure your returns are accurate and complete.
Keep all of your relevant paperwork, in a way that makes it easy to find. Depending on the amount of receipts you may want to file them into weekly files, or monthly files.
Use a well known cloud based Accounting system. A system like Xero allows you to store electronic copes of all your paperwork in the accounting system, making it very easy to find everything.
Code your transactions correctly. For example, money spent on business entertainment may not be tax deductible. Ask a qualified Accountant for advice.
Join our Fee Protection scheme. We offer a tax investigation package meaning your Accountancy fees are paid if your tax affairs come under scrutiny. For one low annual fee and its easy to arrange, just call us.
Explain any changes from one year to the next. Big changes in turnover or gross profit rates will ring alarm bells, especially when drawings taken from the business or remuneration paid seem to be insufficient

How can Alan Patient help me with a tax investigation?

No one can prevent an investigation, but out tax investigation package:

Will remove your concerns about the cost of an enquiry
Ensure you receive the best defence, so your tax position is defended7 t
Enable us to challenge HMRC’s assertions and assumptions head on
Ensure that basis of any inquiry is correct and that your case is handled fairly
Handle all communications with HMRC, including letters, phone calls or notices issued
Ensure the tax inspector is only asking for relevant information and documents and provide all supporting information from our files that relate to your accounts
Prepare for and attend any face to face meetings with the tax inspector
Argue any complex of technical tax cases that are raised during the enquiry

All of one low annual fee. Call us today for more information and to reduce your stress.