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  • Writer's pictureMatt James

HMRC Tax Investigation

Updated: Dec 8, 2022

Man investigating tax

Even if you’ve done nothing wrong, the fear of a tax investigation can be overwhelming. Knowing what could be coming your way is a very good place to start to get over the anxiety of an HMRC investigation.

Why you could be investigated

· They receive a tip off that you may be intentionally avoiding paying tax

· Your returns show you haven’t been making a profit for a few years

· Your returns regularly include mistakes

· There are large fluctuations in your reported figures (for example income or business expenses)

· You report that company directors are earning less than employees

· Your figures look dramatically different to the normal positions for a business in your industry

· They suspect you ae not including all your income

· You don’t have an accountant (It’s highly suggested that the HMRC are less likely to investigate you if you’ve got an accountant that prepares your returns)

Maybe it takes so long to get through to the HMRC on the phone because they’re spending all their time investigating everyone that doesn’t have an accountant…

There’s a range of documents that the HMRC can check if they decide to investigate you. They will always contact either you or your accountant well in advance to tell you what pieces of evidence they want to see. This will generally include;

· Information on the taxes you’ve paid

· Your books, and details of the tax calculations you’ve made

· Annual returns (If the investigation is into a limited company)

· Your self-assessment (If the investigation is into a sole trader) HMRC may want to see the self assessments of company directors if its investigating a limited company

· PAYE records when applicable

Different types of investigation

No two HMRC investigations are the same, everything will depend on the concern raised by them. An Aspect enquiry happens when HMRC are concerned about one or more specific elements of your finances. These enquiries are more common in the case of genuine error as opposed to purposeful tax evasion!

Then there are Full enquiries- these may take place when HMRC believes there’s a high risk of error on your returns. If you are subject to a full enquiry the tax authority will look through all of your businesses records, and possibly even the personal records of any or all company directors.

How far back will they look?

In most cases HMRC will go back through 4 years of tax returns of whoever they are investigating. If many mistakes found then they have the power to go through 6 years of tax returns for further investigations.

If it appears you have deliberately avoided paying tax then they will go back through 20 years’ worth of tax returns on the individual they are investigating.

What happens when the HMRC come knocking?

HMRC must stick to a strict procedure when visiting you for investigation. You may be asked to meet at your business premises, your accountants’ offices or at their office. They must inform you in advance of what questions they plan on asking when you arrive, and they must stick to those questions and nothing more.

They don’t have the power to legally force you to attend your meeting with them, however it is seen as a sign of cooperation if you do attend, and it could possibly benefit your case when it comes to the review stage of investigation.

After the investigation

After the HMRC have been through every stage of their investigation they will write to you explaining in detail the findings of their investigation. If they find only genuine errors in your tax returns, they will explain how you can go about fixing the problems. If you choose to ignore their advice, they will correct it themselves after 30 days. If their investigation finds that you have unlawfully avoided paying tax or are acting negligently, you’ll be made to pay penalties, extra tax and interest on top of it all. You will be required to sign a contract pledging that you will willingly pay the extra tax and penalties (if it gets to this stage its best to find yourself some legal representation before signing anything)

Tax investigation insurance.

HMRC tax investigations are stressful, expensive and time consuming. Because of how long the process can take you may lose out on time that would be spent working. All of this can lead to loss of earnings on top of the penalties you could possibly face.

To leave you with peace of mind you can take out tax investigation insurance that will help cover your loss of earning in the event of an investigation.

Strive is partnered with a fantastic independent insurance broker who will ensure you get the perfect level of cover for the right price, giving you some much needed peace of mind when it comes to tax investigations. See details…

If you are in any way concerned about your bookkeeping or accounting practices, we can help you to review everything, and put in processes that ensure that you are entirely compliant to the HMRC rules. Call us on 0333 335 5137 or send us an email on

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