A Short Guide to: Tax Investigation – Part 1

If HMRC believes that you or your business has reported tax incorrectly, or attempted to deceive them, they may start a tax investigation. Rarely, they may start an investigation at random.  More commonly, given their focus on getting the best return for their time, it is more likely if you have a business in a sector where they see widespread non-compliance or they hold specific information.

Resolving tax Investigations is always:

  • Expensive
  • Stressful
  • Time-consuming

Even if you’ve done nothing wrong, the time spent finding the necessary historic financial data and information to satisfy HMRC is not something that many small businesses can afford.

In this blog, we’ve laid out why you could be selected for an investigation, what differences you need to know between an investigation and an enquiry and what steps you can take to avoid an investigation.

Why do tax investigations happen?

The four main types of errors which will be identified in a tax investigation are:

  1. Simple recurring errors for business transactions e.g. applying an incorrect VAT rate.
  2. One-off errors on routine expenses e.g. mistakenly claiming a deduction for a disallowable expense
  3. One-off errors on unusual transactions e.g. failing to apply PAYE on a share transaction
  4. Deliberate tax evasion e.g. on-purposely failing to pay the correct VAT rate on all transactions

Wilson Partners are happy to work with all individuals and businesses that are being investigated for the first three types of error.  Where deliberate tax evasion is suspected, criminal sanctions may be applied and accordingly legal advice may be necessary and therefore we do not advise in this area.

Enquiry or Investigation?

Most of the time, these phrases are used interchangeably although the term “enquiry” is specifically referred to in the legislation in relation to tax returns.

Generally, “investigation” denotes a more serious review by HMRC, and is particularly used when dishonesty is suspected.

How can I avoid a tax investigation?

We always recommend keeping your financial data up to date and employing a qualified accountancy service to help manage your business finances. We also suggest that ‘health checks’ are undertaken for PAYE and VAT to see that your systems and processes are operating correctly.  We also recommend taking specific advice in respect of any unusual transactions, ideally before they occur.

Wilson Partners offer PAYE health-checks based on HMRC’s own checklists and we can provide insight into benefits, expenses, non-employee workers and share schemes, which is usually where troubles begin.

Wilson Partners’ VAT health check considers all supplies made by your business to check output tax is accounted for correctly and then reviews input tax to consider whether you are recovering the correct amount of input tax.

If you are selected for investigation, Wilson Partners will assess your needs and guide you through the process as painlessly as possible. Visit our tax investigation section here for more information, or get in touch with one of our specialist tax investigation advisers today.


Visit our tax enquiries and investigation information pages

Read our blog A Short Guide to: Tax Investigation – Part 2


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