There are many reasons why HMRC can decide to investigate your business. HMRC tax investigations are very frequent, and even though they usually cover one year of tax activity, they can go back several more years. The maximum is 20, and they usually go back six years.
If your business is registered for VAT and PAYE, you’re more likely to make a mistake in these areas, which would result in a tax investigation. Usually, HMRC doesn’t investigate income tax or corporation tax. To be as cautious as possible and eliminate errors, here’s what you can expect during an HMRC tax investigation.
To find the best tax advisors in London or Walsall, visit us at IBISS & CO.
Why Are You Being Investigated?
HMRC has its systems to detect errors or fraud. Along with that, here are some other reasons why you’re being investigated.
- HMRC received an anonymous tip-off
- Your business is in a high-risk industry with routine cash payments
- Your income or costs are falling or rising dramatically
- You’re filing late tax returns consistently
- Your business costs are above the industry’s average.
- The business sector you operate in is HMRC’s target for investigations.
How Far Back Can an HMRC Tax Investigation Go?
Usually, an HMRC tax investigation will start with inquiring about your most recent returns. After investigating that, they can also dive a little deeper into your business’s history and previous tax affairs.
This is usually done if evidence suggests that your company received excessive tax relief, has underpaid tax, made incomplete tax disclosure, or has negligent behaviour.
Depending on what the HMRC finds, here are some common outcomes and their solutions.
- In case you’ve overpaid the tax, you will be receiving a tax rebate from HMRC with interest.
- If you’ve underpaid the tax, you will be required to be the amount you owe in the next 30 days with an interest amount added.
- If HMRC concludes that your business has been deliberate in wrongdoing, they will take your case as a criminal investigation. You would have to pay the penalty. If you accept your mistakes, HMRC might reduce the penalty amount.
End of the HMRC Tax Investigation
Once the investigation ends, you’ll be sent a decision notice or a contract settlement/ agreement. The notice is like a letter describing the entire investigation in detail. This notice will also include the penalty amount, if any.
The contract settlement is a legally binding document. This is an agreement between your and HMRC where you will be paying them money, and they agree not to use their authority to recover said money.
Once a particular tax return has been investigated, there will be no further investigations for it again.
Need Advice? IBISS & CO. Can Help!
For business and tax advice, visit IBISS & CO. today. If you find yourself in an HMRC tax investigation or dispute, you can consult our tax advisors. We have some of the best tax accountants in London and Walsall on our team who can guide you better about tax returns.
Contact us today for a consultation.