By Chris Weston, Director of Aston Black Accountants

Occasionally businesses may face a tax investigation from Her Majesty’s Revenue & Customs (HMRC). This is usually a very stressful time for business owners and it is always advisable to seek professional help. Sometimes tax investigations are carried out at random, so it isn’t always a sign of mismanagement.

Routine tax audits generally occur when the business is registered for VAT, or if your employees are paid through PAYE. In this case, the tax audits focus mainly on areas where mistakes in the records are more common. A tax investigation should be expected every five years or so. However, this all depends on whether or not the HMRC has reason to suspect that you are deliberately making errors in your bookkeeping in order to conceal income. If this is the case, tax investigation may occur more frequently.

First Notification

HMRC will send an initial letter asking for your tax records. This is the first sign that your business is under investigation. The letter should state that they are seeking more information on your tax records. It will also outline whether they want to audit a specific area of your tax records or carry out a full investigation. If you receive a letter, don’t ignore it. Seek out a professional who can clarify what HMRC are auditing and how you should approach the situation.

Proceeding With The Investigation

Once you have sought out professional advice, ask the accountant to read through your tax records. This will mean that the investigation will be quicker, smoother and with less risk of any penalties.

You must not destroy any paperwork or lie to the investigator as this only gives HMRC more reason to believe that you are hiding something you shouldn’t be. Be as honest and transparent as possible. If for instance, you are aware that you might have made a mistake with your paperwork, present the query to them. From there, you will be able to reduce the investigation time and negotiate a lower penalty fee.

Thoroughly prepare for any upcoming meeting with HMRC by finding the correct paperwork they might want to look into. That way, you are prepared for any questions they would want answered and remember to answer them to the best of your ability. Prior to the meeting, write down any questions or queries you might have for them.

A tax investigation can last several months. Once it has started, it can possibly expand further with enquiries. If this is the case, your financial advisor can offer help on what to do if HMRC are taking too long with the investigation.