Everything You Need to Know About UK Tax Investigations

“Tax investigation” are two words that no business owner ever wants to hear. While you may have nothing to hide, that’s not much comfort when you know HMRC is scrutinising every inch of your financial records.

The good thing is that as long as you have nothing to hide, a tax investigation should be nothing to worry about. Most people worry because they don’t know what to expect. To set your mind at ease, we’ll talk a little about how tax investigations work and the different types HMRC conducts.

This article contains:

  • How does a tax investigation work?
  • Different types of HMRC enquiries
  • How should you prepare for a tax investigation?
    • Collect your evidence
    • Get help from an expert
    • Audit your own accounts
  • How long do tax investigations last?

How does a tax investigation work?

A tax investigation is essentially a full audit into all your business’ finances. HMRC audits your records to ensure you have paid the correct amount of tax.

If HMRC decides to investigate you, you will receive a letter, phone call and/or email. They will let you know what type of investigation it will be and what they need from you.

They may ask for things like payroll records, details of income tax or VAT. As HMRC has a legal right to investigate, you will need to hand over whatever information they ask for.

Different types of HMRC enquiries

What HMRC will ask for will depend on what type of investigation they do. Different types will require different pieces of information and some may take longer than others.

The three main types of investigation are:

  • Full enquiry: A full enquiry means HMRC will investigate all your financial records and tax filing history.
  • Aspect enquiry: Rather than looking at everything, HMRC will make a targeted investigation on one aspect of your tax. For example, they may take an interest in your payroll.
  • Random enquiry: Sometimes HMRC will conduct a random enquiry into a business. This could be an aspect investigation or a full enquiry.

How should you prepare for a tax investigation?

HMRC requires full cooperation from you and the more cooperative you are, the sooner the investigation will be complete. If you have nothing to hide, all you will need to do is hand over records for HMRC to comb through.

For those who have avoided tax or made mistakes, getting legal advice is the first step. It’s also in your best interest to admit any wrongdoing as soon as possible because HMRC will find it anyway.

To prepare for a tax investigation, follow these steps:

Collect your evidence

If you are notified by HMRC of a tax investigation, it’s best to start collecting all your records and evidence as soon as possible. This could include invoices, receipts, bookkeeping records or tax returns.

Get help from an expert

It’s always advisable to have an accountant on board to take care of all your tax affairs. This ensures everything is done correctly and it’s also helpful in the event of an investigation. Accountants can liaise with HMRC on your behalf and support you through any investigation.

Audit your own accounts

Another good habit to get into is to regularly audit your own accounts. An accountant can help you with this. A self-audit helps you identify any possible problems before HMRC comes across them. You can then report any issues to HMRC as soon as you’re aware. HMRC is much more lenient to businesses who own up to mistakes or wrongdoing.

How long does a tax investigation last?

A tax investigation into a small business with no history of wrongdoing and good accounting records could last up to three months. However, if HMRC suspects tax fraud or your company is large, an investigation can last up to two years. Having an accountant on hand to help through an investigation is one way to make it all go a little smoother.

Don’t have an accountant or are looking to switch? Get in touch today to arrange a free consultation with one of our team.

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