HM Revenue and Customs (HMRC) may initiate a tax inquiry into your firm, whether you are a sole proprietor or a limited company. HMRC has the legal authority to investigate your tax affairs and ensure that you are paying the proper amount of tax. These payments are only expected to increase in the coming years.
HMRC has spent £100 million in HMRC Connect, a new’supercomputer’ intended to monitor the digital footprint of sole traders and enterprises with possible inconsistencies between their revenue and the tax they pay.
A HMRC tax inquiry may be both time consuming and frustrating, especially if you are unprepared for it. Normally, HMRC will look at the most recent return; however, if insufficient tax is discovered to have been paid, or if the loss of tax is attributable to negligent or purposeful behavior, HMRC may look at company data and returns from prior periods. HMRC may look back up to 20 years in extreme instances of suspected fraud and tax evasion.
How long does it take HMRC to complete a tax investigation?
The duration of an HMRC tax investigation is determined by the number of aspects of a firm that are being investigated. If the examination is limited to a single region – known as an Aspect Enquiry – these inquiries typically span six months. If HMRC is required to undertake a Full Enquiry into numerous sections of a firm, the process may take up to 18 months or more.
What to anticipate during a tax probe by HMRC?
The first hint that HMRC intends to examine your company’s tax affairs will come in the form of a ‘Information Notice.’ This will be sent to you or your accountant. This notification will often describe the sort of investigation that is necessary as well as the sections of the company that are being investigated, such as:
Tax returns for self-assessment
PAYE statements (employers only)
Returns on VAT
Accounting and tax computations
Tax returns for businesses
HMRC’s tax investigators are allowed to communicate with other parties about your company’s activities, as well as personnel. They will also most likely want to see your accounting records and check through any pertinent information saved on your company’s systems.
The tax investigators will thoroughly examine your company’s finances and records, and they may have concerns about your revenue and expenses. These may be asked in person, over the phone, or by email. You are not legally required to meet face-to-face, but it may sometimes assist the inquiry go forward.
HMRC will contact you when the tax inquiry is complete and will advise you of the result. Any differences will be noticed, and you may be assessed fines and interest if you underdeclare any taxes. Fines may be as high as 100% for individuals found to have engaged in careless or fraudulent behavior, although in less serious situations, penalties can be reduced.
HMRC is also looking into any exploitation of the government’s Covid assistance programmes.
HMRC was also focusing heavily on investigations into alleged exploitation of the UK government’s coronavirus business assistance initiatives as of June 2021. Up to the end of March 2021, around 12,828 inquiries were undertaken, with over 7,500 determining if the furlough program had been exploited improperly by certain firms.
Up to the end of March 2021, a total of 5,020 HMRC inquiries regarding the usage of the self-employed income assistance program were begun (SEISS). Chancellor Rishi Sunak announced an extra £100 million in the March 2021 Budget to develop a dedicated fraud team for the government’s Covid-19 assistance packages.
As part of this financing, HMRC has hired an extra 1,100 new employees to join the Covid-19 support program fraud squad.
What exactly is a Tax Investigation Service, and how can it assist you?
An HMRC inquiry into your tax affairs may be time-consuming and frustrating, so you should consider hiring expert advice from your accountant to achieve a prompt settlement. Fees for such counsel might go into the hundreds, if not thousands, of pounds, depending on how thoroughly HMRC investigates and what they discover.
We may provide you with a Tax Investigation Service (also known as Cost Protection) for a nominal yearly fee. This will shield you from the extra professional fees, worry, and uncertainty that an HMRC investigation may cause. Your Accountant will also have access to a tax investigation specialist if the inquiry is more sophisticated and seems to be a lengthy and drawn-out probe.
This gives you piece of mind that the investigation will be handled on your behalf, reducing the worry and stress of escalating extra expenses.