UK Tax Investigations: What Are They and What Do I Do If I Get One?
Tax investigations are never good to hear about—once notified about an HMRC representative taking a look around, you may end up feeling rather panicked, stressed about what could have potentially caused alarm surrounding your accounts. While becoming overwhelmed with the news can be incredibly normal, dealing with a tax investigation by the HMRC can be a tumultuous experience.
As you prepare for the investigation, however, keep in mind that most tax investigations are straightforward. You could have made mistakes on the filings, but at the most, you’ll be held liable for bigger fines. Lengthy processes are all you may need to go through, and thankfully not much else.
Regardless of whether or not you’ve committed bookkeeping mistakes or are facing hefty fines, here are some tips to help you survive an HMRC tax investigation:
What does a tax investigation constitute?
In essence, a tax investigation pertains to an official inquiry into your tax payment account. As you know, a tax investigation will be conducted by the UK’s HM Revenue and Customs (HMRC). The severity of investigations will depend entirely on your case, but the following are the most common reasons for investigations:
- Tax returns
- Misunderstandings or mistakes
- Information from whistle-blowers and other sources
- Random inspections
- Incorrect information
What should you do?
1 - Do not panic
You’ll likely be panicking after receiving the request, and as a business owner, your first instinct is to simply do this: resolution. You’ll reach for your phone and dial up the HMRC, but before speaking to them directly, you must equip yourself with the right procedure of dealing with the circumstance.
The HMRC will want to clarify the wrong amount of taxes paid and why it happened—if you’ve made such an error, you’ll likely be asked to pay a penalty of up to 70% of the tax due. If you merely made an honest mistake or acted out of bad advice, however, you will be given 15% in fines and penalties—at times none at all.
The accountancy practice is quite difficult after all, and mistakes are a common occurrence, especially since you’re dealing with numbers. If possible, collect evidence of your honest mistake before calling them up. Doing so will help you from worsening the situation.
2 - Talk to a professional
You’re probably working with an accountant, or a third party specialising in such instances. If not, you’ll need to exhaust all means to consult a proper accountant, especially when it comes to dealing with the HMRC. You’ll need to learn about the right forms and procedures and if anything, having someone knowledgeable about the proceedings will help you focus on what’s important—your business.
Any tax issue will be resolved by these experts, as their deep knowledge will ensure that your rights are protected. Hiring the right accountant is crucial here, especially when it comes to correcting mistakes about claims, taxes, and issues, like payroll misgivings.
Don’t Evade—Face The Issue
As tempting it may be to ignore the problem, burying your head underground will do more harm than good. A tax investigation is hardly the end of the world—the only way to go about it is to resolve the problem. Cooperate with the HMRC, your hired professional accountant, and then work with them until a solution comes up.
Remember: the more compliant and reliable you are, the more likely you are to reduce the type of penalty that awaits. Dealing with a tax investigation is never easy, but at times, they’re simply an inevitable part of the business landscape. Keep your head up and work through it accordingly.
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