- 0191 447 9119
- office@lscaccounting.co.uk
15 May 2019
It often seems to be the case that no one likes, or wants, to deal with HMRC. But when it comes to a tax investigation, peoples enthusiasm drops even further. An HMRC tax investigation could be completed with a simple reply to a letter, then that’s it, done and dusted. On the other hand, it could take months to complete and end up costing you thousands of pounds in time and accountancy fees!
If you’re being investigated, then it could be you’re simply one of the lucky companies that have been chosen at random for a more in-depth look. But there may also have been a trigger that’s caused them to come knocking at your door. There are a few issues that can pull that trigger, here are some of the most common ones.
Have you annoyed an ex-worker or partner and they’re aware of some less than above board practices in your business? It’s easy for a whistle-blower to alert HMRC to what’s going on. It’s also an easy one to avoid. Follow best accounting practice and keep full traceability of your transactions.
A tip-off may also come from people observing your lifestyle. If you appear to be living a lifestyle way beyond what your income realistically allows, this can get the alarm bells ringing. There might be a perfectly legitimate reason why you can afford the luxuries you have, but at least be prepared to answer some probing questions.
Everyone makes mistakes on forms now and again. Or you forget to file your return on time. It happens, and HMRC is generally understanding. But, if you’re making the same kind of mistakes regularly or you’re consistently late in filing your returns, then it will be seen as suspicious activity, and HMRC will want to know why. If this seems familiar to you then maybe you need to employ the services of an accountant, or need to look at getting a better one!
There could be a temptation not to record all your business dealings. A little bit left out here and there could soon add up to a large amount of undeclared earnings. And this unreported amount may be missed in an audit of your accounts. But every company you deal with has the potential to be investigated as well. What are the chances of the transactions you’ve had with them being left out of their accounts as well? If the dealings you’ve reported don’t match with the other companies, this will be flagged up as suspicious.
You might be a particularly generous company owner looking to support your workers and ensure they get a decent salary. If it turns out your salary is less than your employees though, in the eyes of HMRC this could be a sign of undeclared benefits being claimed in another way. In business, there’s an expectation that the higher up you are in the company, the more you should earn. Unless you have a good explanation as to why this isn’t the case, then an investigation is likely.
Every year is different, some are good, some are bad. If you’re reporting substantially different profits from the previous year(s), then it’s probably best if you explain why. On your tax return form is a section where you can provide details of anything that might appear a little, well, odd. Like why last year you made £500,000 and this year only £50,000. It’s also worth remembering if you have a cash-only policy, you’re more likely to get the attention of the HMRC Inspectors.
Unless you have a very generous soul backing your business and you’re able to do it for fun, you’re not likely to last long if you don’t make a profit. It’s simply not sustainable. If your reporting no profit, or a loss, year on year, it isn’t going to make much sense to HMRC.
HMRC have been collecting taxes from businesses for quite a long time now. And with those taxes, they also collect a lot of information about the businesses they’re collecting taxes from. This means they have a pretty good idea what a company of your size, in your industry, should be earning. So if you’re reporting numbers significantly different, then you’re going to have to be able to explain why.
Coupled with this is making sure your business type is correct for its size. If, for example, you’re only turning over £10,000 a year, setting up as a Limited company is likely to flag up something odd.
Your accountant can do many things for you. Apart from keeping your finances in order, paying your staff on time, keeping your creditors happy, chasing your debtors and providing cash flow forecasts (to name a few), they also add a certain level of creditability to your business. Quite simply, it looks good to have one. And why wouldn’t you want one? Well, there’s a couple of immediately obvious reasons. One, your business is so small you don’t need one. Two, you don’t want a qualified, professional person looking at your books. In the eyes of HMRC, this is more than a little suspicious.
As ever when it comes to your business accounts and running your business effectively if in doubt seek the help of a professional accountant. By doing things the proper way, and keeping your business practices above board, you’re far less likely to attract the attention of HMRC’s Tax Inspectors. If you do happen to be one of the lucky ones chosen at random, then at least by having your taxes looked after by an accountant you should have nothing to worry about when the inspection happens.
With many years of experience and hundreds of happy customers, LSC Accounting Ltd. can help with all your accountancy needs. We provide a friendly, efficient and cost-effective approach to accountancy. To discuss your requirements, you can either contact us through our website or call 0191 447 9119.
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