Tax Accountants From Leeds Discuss the Chances of Getting a Tax Investigation from HMRC
Author: Russell SmithJuly 16, 2017
Ever wondered what the chances are of your business being investigated by HMRC? Our tax accountants from Leeds talk audits.
A tax investigation by HMRC is something every small business dreads.
Not only are they lengthy and stressful experiences, but they are also costly, with larger businesses racking up thousands in extra accounting expenses.
Tax investigations, though, are still a bit of an enigma. HMRC has never officially divulged the secrets of what triggers such an audit, which means knowing exactly what the chances of having a HMRC investigation are is nearly impossible.
However, as a chartered accountancy firm which has worked with numerous businesses during a government audit, we know a thing or two about why these audits happen and what you should do about them.
How Likely Am I to Be Investigated by HMRC? A Tax Accountant’s View
At Russell Smith Chartered Accountants, we are often asked what the likelihood is that a client will get investigated by HMRC.
In order to answer this, Director Russell Smith once read a very long tax manual that went through all the supposed criteria of how HMRC chooses who to investigate. Alongside his experience working with businesses, he came to a conclusion.
Unfortunately, it’s not good news.
For the majority of investigations, the process of being picked appears to be totally random. For businesses concerned about being investigated, our honest advice would be that no matter how you behave, you are never completely safe from the watchful eye of HMRC.
We’ve worked with businesses pulling in hundreds of thousands, or even millions that have been investigated. We’ve also worked with those operating just above the tax allowance threshold that have experienced an HMRC tax investigation.
Anyone who operates as a self-employed person or business is a potential target for a government audit. The chances are almost completely even and there is no way of knowing if you’ll be picked.
Because the system is almost completely random, telling you what your chances of having an HMRC tax investigation would be impossible. However, given our lengthy experience, we can say with some certainty that if you are in business for the next 30 years, you are bound to be investigated at least once.
Tax Accountants from Leeds Offer Tips for Avoiding an HMRC Tax Investigation
The process is randomised in such a way that it cannot be cheated. While nobody wants to be investigated by HMRC, nobody doing genuine business likes the idea of crooked companies being able to beat the system either.
Still, while you cannot stop your business from being selected, you can at least reduce the chance of it happening. Here are some tips for staying off the HMRC radar.
- Don’t make regular mistakes: Regularly filing incorrect amounts and having to amend them, paying tax late and other little problems might seem innocuous. But, if done regularly, HMRC will start to suspect you don’t have proper control of your financial situation and may start to wonder what other mistakes you might be making.
- Make sure you turn a profit: Sometimes, it is necessary for a person to bankroll their business in order to ensure it survives. However, if this happening year after year, HMRC will likely want to delve into your finances to find out how your business is still running, despite never turning a profit. Simple solution: make sure your business is profitable — our tax accountants in Leeds can help with that.
- Pay directors more than employees: Some people aren’t in it for the money. Some people like to give back to their team. There is nothing wrong with that, but you must also be careful. Paying employees more or the same as directors looks suspicious. It looks like you the big bosses are syphoning money out of the business through tax avoidance schemes. Pay directors appropriate salaries or risk the attention of HMRC.
- Never omit income: There is a temptation that perhaps you won’t get caught, so instead of recording cash in hand or a business transaction, you omit it from your records to avoid higher tax. However, while this might be illegal, it is also very likely to trigger an investigation of tax. Why? Because if this money is taken from another business, and they record it on their return as an expense, HMRC have evidence that shows you did not record your income properly and will inevitably start looking into your accounts to see what else you’ve “missed”.
- Get representation from an accountant: As accountants, we might sound a bit biased here, but having representation really can make a difference when it comes to tax investigations. Here us out: As a business owner, you are unlikely to be an expert in finance, which means you are more likely to make mistakes on your returns, leading to improper tax payments. An accountant, however, is a trained professional and therefore much more likely to be supplying HMRC with accurate information.