What Are Tax Investigations?

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What Are Tax Investigations?

At a glance tax can be confusing, but with a bit of how to knowledge it can be easy (we promise)!

When you hear "tax investigations" you might be filled with dread, but in reality, there are many reasons why HMRC may be investigating you or your business's tax activity.

Keep reading to find out what a tax investigation is, and how they might impact your business. 

Why Does HMRC Carry Out Tax Investigations? 

HMRC carry out Tax Investigations for many reasons. 

Here are a few examples:

  • Following the submission of your tax return
  • Your tax return has some inaccuracies
  • There has been a mistake or misunderstanding
  • Information presented by you is inconsistent with other records
  • A third party has reported you
  • You've been chosen at random for an inspection 

If you've been notified that a tax investigation is to be carried out, you can ask HMRC for more info as to why. They might not be immediately forthcoming with reasons why, but when you know more it will help you to prepare your documents accordingly.

What Happens During a Tax Investigation?

HMRC have three different levels of enquiry; full, aspect and random.

A full enquiry tends to involve cases where HMRC believes there is a significant risk of error in the tax return. In this type of enquiry, they will undertake a review of all of your records - including personal financial records of Directors/Business owners as well as business records.

If your business is subject to an aspect enquiry, this means that HMRC are concerned about a particular part (or parts) of your accounts. Most of the time the outcome points to a genuine mistake or misunderstanding, rather than deliberate attempts to evade tax. However, this type of enquiry shouldn’t be taken lightly and should be treated just as seriously as a full investigation.

The third type of enquiry is a random one. HMRC simply picks a selection of businesses at random to investigate.

You can argue against the decision to investigate your business if you believe HMRC’s reasoning to be incorrect.

Once HMRC have decided to conduct a tax investigation, you'll have to provide any of the information they request. The rest is up to them. They'll look into the anomaly raised – often they find nothing more than a minor discrepancy and the case is closed.

However, occasionally HMRC may need to carry out a more detailed investigation and may request further information.

What if I Haven't Paid Enough Tax?

If HMRC discovers that you haven't paid enough tax, you will need to make up the shortfall. If the irregularities found are significant, or the investigation reveals that you have been deliberately deceitful, you might be given a fine. 

If HMRC believes a crime has been committed, you might have to attend an interview under caution. If this does happen, you should seek legal advice and representation from a suitably qualified tax specialist.

A tax investigation could have some implications for your business. Your customers might be wary if they believe you've been a part of something untoward, and your competitors might find a way to exploit the situation for their own benefit. In a worst-case scenario, if you're found guilty of a tax offence you might have to go to prison. 

But remember! If you're doing the right thing, it's likely you've nothing to worry about in the first place. 

So there you have it, a quick run down all about tax investigations. If you're concerned about whether you're paying the right amount of tax, why not speak with a professional - such as an accountant. 

And remember, just because you’re being investigated doesn’t mean you’ve done something wrong – investigations can be random!

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