Here’s a quick question: How secure do you feel about your tax filings? Could you handle an HMRC tax investigation starting tomorrow? If you feel a sense of dread right now and maybe a tinge of anxiety, keep reading—this blog post is for you.

HMRC tax investigations are in-depth examinations conducted by the taxman to ensure that tax returns and business operations comply with tax laws and regulations.

These investigations are designed to identify discrepancies or irregularities in tax filings, ranging from honest mistakes to intentional fraud.

Whether triggered by random selection or due to suspicious activities, HMRC tax investigations can be daunting, requiring taxpayers to provide extensive documentation and detailed explanations of their financial records.

While our expert staff at Lyel Accountants is always there to give you HMRC investigation advice, it’s a good idea to brush up your knowledge about this topic. In the following section, we’ve listed some commonly asked questions. Have a look:

HMRC tax investigations: Your top 13 questions answered
1. What are the types of HMRC tax investigations?

There are several types of tax investigations conducted by HMRC, including:

  • Randomly-selected routine checks without any specific triggers
  • Aspect enquiries focusing on a particular part or aspect of a tax return
  • Full enquiries involving a comprehensive review of all records and returns
  • Specialist investigations for complex cases, often involving large sums or intricate tax planning schemes

 

2. What are HMRC tax enquiries?

HMRC tax enquiries are reviews or audits conducted to clarify or verify details provided in tax returns. These can range from simple requests for additional information to more detailed examinations of a taxpayer’s accounts and financial activities.

3. When does HMRC perform a tax investigation?

If they find something odd in your tax return, like mistakes or numbers that don’t look right compared to others in your industry, they might investigate further. They also take notice of tips from others that might suggest someone isn’t being fully honest about their taxes.

Investigations can start at different times. If something immediately seems off, they might begin soon after you file your taxes. But, HMRC can also start an investigation years later, especially if they think you haven’t paid enough due to a mistake.

In serious cases, like if they think you’re intentionally evading taxes, there’s no limit to when they can start looking into your taxes. Contact us if you’re being investigated and need help.

4. What taxes can be included in a tax investigation?

When HMRC investigates taxes, they’re looking into several types of taxes to make sure everyone’s paying what they should, such as:

  • VAT
  • Income Tax
  • Corporation Tax
  • Capital Gains Tax
  • PAYE (Pay As You Earn)
  • Stamp Duty Land Tax

 

5. What is the HMRC tax investigation time limit?

The length of time HMRC can go back in a tax investigation depends on the situation, mainly whether there’s a suspicion of an honest mistake, carelessness, or deliberate tax evasion.

  • If HMRC believes you made a genuine error on your tax return, they can investigate up to four years after the end of the tax year in which you submitted the return.
  • If HMRC thinks you were careless with your tax affairs (meaning you didn’t take reasonable care but didn’t deliberately try to evade tax), they can go back up to 6 years.
  • For cases where HMRC suspects you intentionally avoided paying taxes, they can investigate up to 20 years from the end of the tax year.

 

6. What is an HMRC personal tax investigation?

A personal tax investigation focuses on individuals’ tax returns and financial affairs. This can include inquiries into income tax, such as interest, dividends, rental income, or Capital Gains Tax (CGT). Many of these investigations will be into the tax returns of the self-employed.

7. What happens in an HMRC Self Assessment investigation?

During a Self Assessment investigation, HMRC reviews the accuracy of returns filed under the Self Assessment system. This may involve checking the details against the evidence provided and requiring the taxpayer to produce additional documents.

8. How are Self Assessment tax return investigations conducted?

These investigations typically begin with HMRC notifying you that your return is under review. You may then need to provide further information or documentation to support the entries made in the return. It’s vital to comply promptly and ensure your Self Assessment tax return information is accurate and complete.

9. What is a Corporation Tax investigation?

Corporation Tax investigations are conducted to ensure companies accurately and completely file their tax returns in compliance with Corporation Tax obligations. This involves reviewing financial statements, transaction records, and other important documents, such as invoices, contracts and agreements, and expense reports.

10. How does an HMRC tax fraud investigation work?

In cases of suspected tax fraud, HMRC conducts a rigorous investigation that may involve a detailed examination of your financial history, interviews, and gathering information from third parties. These investigations are handled by the Fraud Investigation Service (FIS) and can lead to prosecution if fraud is established.

11. What advice is there for dealing with an HMRC tax investigation?

Advice for handling an HMRC tax investigation includes:

  • Keeping calm and cooperative
  • Gathering and organizing all relevant documentation
  • Responding promptly and accurately to HMRC’s requests
  • Considering professional advice from a tax advisor or accountant (We’re there to help you.)

 

12. How can I prepare for the tax investigation?

If HMRC has contacted you for a tax investigation, it’s best to revisit your accounts ASAP. Here are some things you need to do for a stress-free investigation:

  • Ensure your records are accurate, up-to-date, and accessible
  • Maintain documents going back at least six years, if not more
  • Conduct internal audits to highlight discrepancies, errors, and irregularities before HMRC does

 

13. What happens after the investigation?

If HMRC finds any obvious mistakes, you’ll be told to straighten your accounts and pay what you owe to HMRC. For any corrections, HMRC will give you 30 days, but if you fail, HMRC will correct the return itself.

If HMRC has any reason to believe that you fraudulently filed your tax return to lower your tax, you’ll be liable to pay extra tax and interest on the tax you didn’t pay.

You can also face imprisonment if serious frauds are found in your tax statements. It’s best to get legal help if any such thing happens to you.

Over to you

Think of an HMRC tax investigation as an opportunity to review your tax affairs and gain knowledge about tax compliance intricacies.

Armed with the insights from this FAQ blog, you’re better prepared to handle the investigation process and navigate future tax matters confidently.

Each query you resolve and every piece of documentation you provide builds a stronger foundation for your financial integrity. Good luck!

Author

Ishfaq Shah

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