Tax Investigations Explained

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Tax Investigations Explained

Tax can be confusing, but with our helpful guides, we want to make it simple.

This guide explores tax investigations.

This might sound scary but in reality, there are many reasons why HMRC may be investigating you or your business's tax activity.

For other tax-related information, check out our guide on Corporation Tax or our guide to Expenses.

Reasons for Tax Investigation

HMRC may carry out a Tax Investigation for a number of reasons and circumstances. 

For example:

  • Following the submission of your tax return
  • Your tax return includes inaccuracies
  • As a result of a mistake or misunderstanding
  • Information that you have presented is inconsistent with other records
  • A third party has reported a concern regarding your activities
  • You are subject to a random inspection

First, do your best to understand the nature of the investigation.

HMRC may not be immediately forthcoming with this information but it will help if you can ascertain what they are looking for and to prepare your documents accordingly.

What Happens?

In the majority of cases, it is advisable to take advice from a tax specialist or advisor. Your accountant will be a good source of advice; they may be able to assist or direct you to a suitably qualified and experienced individual.

It is likely that the investigation will be conducted in stages. If an initial review suggests that HMRC need to investigate further, you will be notified and may receive a request for additional information.

In the first instance, this requirement may be limited but depending on the reason for the investigation and the findings of the initial investigation more detail may be needed.

It is not uncommon for investigations to go back a number of years.

A tax investigation is something you should seek to avoid and through timely and accurate reporting, this can generally be the case. If you don’t understand what information you need to provide you should always seek professional advice.

Not Paid Enough Tax?

Well, if this is the case, you will be required to make up the shortfall. You may also be subject to a fine that can be substantial if you have significant irregularities, underpayments or have been found to be deliberately deceitful.

If it appears that a crime has been committed, you may be invited for an interview under caution. In these circumstances, you should seek legal advice and representation from a suitably qualified tax specialist.

A tax investigation may have reputational implications: clients and customers will be put off by a whiff of impropriety and your competitors may seek to exploit the situation.

In the worst cases, being found guilty of a tax offence may result in a custodial sentence.

In short… do the right thing and avoid the unnecessary scrutiny of HMRC. 

We hope we haven’t made you fear taxes – but it is important you pay your taxes correctly. Getting advice from a professional such as an accountant will set you on the right track.

And remember, just because you’re being investigated doesn’t mean you’ve done something wrong – investigations can be random!

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