What Happens in a Tax Investigation?

Tax investigations. Just hearing the phrase can put you on edge. In reality, though, the fear of an investigation can stem from the unknown. Understanding when and why you may go through one can alleviate some of those concerns.

It’s important to preface this information with one fact: HMRC isn’t your enemy. It isn’t there to catch you out. So, to make sure you can prepare for a potential investigation, carry on reading.

How HMRC decides who to investigate

You may not know this, but HMRC sometimes investigates a person or business at random. This means you don’t even have to show any form of wrongdoing. That said, there are a few triggering factors which could act as a catalyst:

  • mistakes on a previous tax return
  • if you work in a certain sector of interest
  • you pose a risk (high levels of cash trades etc.)
  • there’s evidence of fraud or wrongdoing.

Even if you’ve done everything by the book, it’s your legal obligation to undergo the process. But at least it’s just time-consuming rather than scary. And with proper planning, it doesn’t have to be either.

You’ll know if HMRC opens an investigation into your taxes when a brown letter comes through the post.

From there, the planning phase begins.

What you need for your investigation

Once you know what area of your taxes is under scrutiny, you’ll need to gather all the relevant information. This could include:

  • bank and credit card statements
  • VAT records
  • payroll records
  • invoices and receipts
  • chequebooks and pay-in slips.

If you manage all of your accounting procedures through cloud-based software, HMRC will ask for access.

Typically, HMRC will investigate up to four years’ worth of your accounts and tax returns. This can increase to 20 years if HMRC believes you’re making deliberate mistakes or being careless with your reporting.

A tax investigation has no specific timeframe. For smaller checks, it could be anywhere between three to six months. A full-scale investigation, though, can take up to 16 months to complete.

What are the outcomes?

The severity of the situation will shape the outcome of any tax investigation.

HMRC will issue you with a fine if:

  • you’ve made a mistake (even if you’ve taken reasonable care during your filing)
  • you’ve been careless, which led to mistakes
  • you’ve made omissions in your return and haven’t tried to hide it
  • you’ve made deliberate omissions.

Should any of these be the case, you’ll need to pay fines immediately. If you disagree with the outcome, you’ll have 30 days to file an appeal with HMRC.

You could be criminally convicted, but this is usually for people who commit larger-scale fraud rather than misdemeanours.

How to prepare

As we say, tax investigations can be scary and time-consuming, but, as with everything, preparation can ease both of these pressures.

Even if you haven’t had a brown envelope in your letterbox, you can still prepare.

By having your tax returns organised and filed by your accountant, you’re less likely to have any glaring errors in your paperwork. So, if HMRC does come knocking, you won’t have to panic over the numbers.

Mitigate the stress and hassle of a tax investigation by getting in touch with our team today.



What happens during a tax investigation?

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