If you run your own business then you might have heard of fellow business owners being inspected by HMRC. The government is always on the lookout for potential tax avoiders but sometimes they just want to check everything is in order. After all they do have a rather large budget deficit that needs to be paid back somehow.
Back in 2011 the HMRC set up their own ‘task forces’ to investigate potential tax evasion and tax fraud within certain industries and sectors.
Since 2011 the HMRC has launched more than 140 task forces targeting sectors that have the highest risk of tax fraud such as the tobacco industry and retail sectors.
HMRC taskforces have raised over £500 million for the treasury since they were launched five years ago with more than £250 million coming from 2015-16 alone. As you can see they seem to be working!
If you have a business in the retail sector you are much more likely to be investigated by the HMRC. When a lot of business is done via cash in hand this obviously increases the chances of tax fraud.
Sometimes they can be genuine mistakes such as forgetting to record the money in the appropriate ledgers, while sometimes they are done on purpose. When HMRC investigate you they will be checking for any inconsistencies.
The Two Types of Tax Investigation
There are two main types of tax investigation that you might encounter when running your business. The first one is called a tax audit and is a normal routine check, especially when your business is VAT registered or runs a PAYE scheme. HMRC will just look through your accounts for the last year to ensure everything is in order.
The second type of tax investigation is full in depth investigation that only occurs when HMRC believes it has found something peculiar relating to your business. This can often be some type of discrepancy, inaccuracy or inconsistency in your accounts. They will start with the first year of accounts and if they find any evidence to suggest tax fraud or evasion they will look at previous years records too.
There are a few things HMRC will examine before they trigger a full tax investigation on your business. The first thing is your expenses and how much you claim on them.
Excessive expenses can raise suspicions from the taxman as spending more on your business than you make can look like your claiming things on expenses and using them for personal use.
As mentioned before specific industries especially the retail and fast food sectors are more likely to be investigated as the risk of tax evasion in those industries is higher. This is mainly due to the cash in hand nature of those industries and HMRC want to make sure everything is being accounted for correctly.
If you want to reduce your chances of being investigated by HMRC then there are a few things you can do. The most important is to make sure tax returns are filed before the deadline. Consistency filing them after the deadline will cause suspicion. If your tax returns are always late what else could be wrong with them?
Making your accounts as accurate as possible is also another good way to avoid inspection. By making your accounts very clear it will stop any confusion when looking through them and reduce the chances of any further inspection.
Getting a chartered accountancy firm to do your taxes will also help reduces the chances of being investigated. If a large credible accountancy firm has done your taxes HMRC are more likely to trust the accuracy of them compared to if you did them yourself.
Here at CRBH we offer a wide range of accounting services to our clients. If you’re going to be inspected by HMRC then it’s important all your accounts are audited and up to date. We can help guide you through the process and go through your accounts to make sure there are no mistakes.
We also offer a range of payroll, bookkeeping and accounting services to ensure your business has the most efficient tax solutions. For more information on our services and how we can help you be sure to contact us below.