HMRC enquiries & investigations.. considerations for best practice

Tax compliance – file and pay on time

One of the most common reasons for tax enquiries being opened is continual failure to fulfil HMRC tax filing and payment deadlines. From our experience, there is a correlation between companies not filing tax returns and paying tax on time, and the incidence of a tax investigation being opened.

If a taxpayer is not filing returns and making payments on time, naturally HMRC may question the reason for this, and even whether the self-assessment returns eventually submitted were accurate.

Be mindful of inconsistencies

Even in the event of filing and paying on time, HMRC could potentially wish to enquire into your tax affairs if there are significant inconsistencies year-on-year.

Naturally, a business will have fluctuations in results each year with income, expenses and reported profits. However, if there are major differences each year, this could prompt HMRC to look closer at the return. Of course, it is important to report everything correctly and honestly, but major inconsistencies can be a trigger for enquiry.

Make additional disclosures where necessary

There are bound to be occasional anomalies in business activities. Before an enquiry is formally opened, HMRC staff may review the return manually to check for any obvious reasons for investigation.

Providing HMRC with full disclosure of fluctuations and simple explanations for these, could potentially pre-empt enquiries and prevent these pro-actively. Suitable disclosure can go a long way to providing HMRC all the information they may require and give faith to HMRC that the submission is correct.

Ensure your information and submissions are correct and complete

It is vital to submit accurate, correct, and complete information to HMRC. The information you provide to your accountant/tax adviser and HMRC needs to be reviewed in its entirety. Whilst an accountant or tax adviser should review the information provided, this will not amount to an audit of that information. It is likely to be limited based on the transparency of the client and the quality of their records. HMRC consider that the responsibility for the HMRC submission being correct and complete is that of the taxpayer.

Be reasonable

The UK has a self-assessment tax system, and naturally, this can have its flaws, with some taxpayers trying to push the boundaries by submitting incorrect information, thinking this will hold no consequences. This has an adverse effect on other taxpayers, as it means that HMRC have to take a more ‘hands on’ approach to investigations in the tax system.

Inevitably, there are times when estimates and best judgements must be made. It is important that these are of a logical and reasonable nature and properly disclosed.

Use an accountant

Using an accountant or tax adviser to file a tax return can mean a lower probability of an HMRC enquiry arising. An experienced accountant or tax adviser is more likely to file a high-quality tax return, with a reduced likelihood of errors and omissions.

How we can help

We have an experienced and valuable tax compliance offering. We pride ourselves on the quality of the tax work we carry out, and provide clients with a personalised, tailored service.

Where an investigation does occur, we have Tax Investigation specialists with vast experience of the process, who can help every step of the way.

Contact us