What to expect from a tax inquiry by HMRC
As kids, we're naturally wary of the dark and whatever evil might be hiding in the shadows.It's a fundamental dread of the unknown. This fear does not go away as an adult, but it takes on a somewhat different form. One such'monster under the bed' is the threat of an HMRC tax inquiry, which is especially concerning if you have never had one before.
I dare to say that most business owners don't lose sleep over it on a regular basis, but it's not precisely what you want for. A HMRC tax inquiry is costly, time-consuming, and incredibly unpleasant.
However, tax enquires have been on the rise in recent years and generate a cool £20 billion for HMRC, so they're unlikely to go away very soon. With that in mind, here's a rundown of what you should know if you're the focus of an HMRC tax inquiry.
Procedure for HMRC tax investigations
So, how do you know if you're under investigation?
First, you'll receive an official notice letter alerting you that the check has begun and requesting information or supporting proof. HMRC will not always notify you why they've opened an investigation, but common explanations include:
Tax return mistakes are common.
Figures that do not conform to industry norms
Years of losing money
A heads-up
Being in an HMRC target industry
The information they request will vary depending on the subject of their investigation, therefore the letter will specify exactly what they require.
However, it is critical to recognise that HMRC frequently requests papers that you are not legally compelled to furnish. In fact, HMRC has been known to request documents or records in addition to those required for retention.
That is one of the many reasons why you should never attempt to manage a tax inquiry on your own.
Any information or supporting proof requested by HMRC that the law requires you to disclose must be provided by the deadline. This is normally within 30-35 days after the letter's date. If you do not comply, you may face severe fines. A phone call and/or a meeting may also be requested to clarify specific topics, however you should not agree to meet with HMRC without first seeking professional counsel.
If the HMRC investigation reveals what they believe to be inaccuracies in your claim, you will receive a letter informing you of the decision and what they believe must be refunded. This may not be factual or fair, and it's never a good idea to take something at face value without having it checked out by a professional.
What records might HMRC request?
As previously stated, it depends on the nature of the investigation, but HMRC may require one or more of the following:
Account statements
Statements from credit cards
Invoices for sales
VAT documentation
Payroll documents
Third-party quotations
Receipts for expenses
Emails and communication copies
When it comes to taxes, how long does an audit take?
Unfortunately for business owners, HMRC does not have a time restriction in which to finish a tax investigation. A fresh ruling on your claim for that tax year signifies the end of the investigation. This could take a week or two, or it could take years of inquiry.
An Aspect Investigation, in which only a portion of the return is investigated, usually takes 3-6 months. Expect a Full Enquiry to span at least a year, and possibly much longer in complex circumstances.
The longer a tax investigation lasts, the more expensive it becomes, which is why most prudent business owners subscribe to a tax investigation fee protection programme to mitigate prospective expenditures.
THP's Tax Investigation Fee Protection Service, which we offer to our own clients, is detailed below.
Kommentare