A tax investigation can be a stressful experience for any UK business. Whether you’re currently facing one or want to prepare in case of a future investigation, there are steps you can take to mitigate the risk and minimise the impact.
Here are some tips to help you prepare for a tax investigation:
Understand the process of a tax investigation
It’s important to understand how a tax investigation works and what triggers one. HMRC can initiate an investigation for various reasons, including random checks, suspected fraud, or errors in tax returns. Once an investigation has been initiated, HMRC will request information, which may include financial records, bank statements, and invoices. HMRC may also request an interview with the taxpayer or their representative. It’s crucial to respond to HMRC requests promptly and honestly.
Keep accurate and detailed records
Maintaining detailed and accurate records is essential. Keeping track of all financial transactions, including income, expenses, and investments, is crucial. Keep all receipts, invoices, and bank statements for at least six years, as HMRC can go back this far when conducting an investigation. Regularly update financial records and correct any errors or omissions as soon as they’re identified.
Seek professional advice
It’s always best to seek professional advice from a qualified accountant or tax advisor when dealing with a tax investigation. A professional can help guide you through the process, ensure you’re meeting your obligations under UK tax law, and respond to HMRC requests for information. They can also negotiate with HMRC on your behalf, which can significantly reduce the impact of an investigation.
Cooperate with HMRC
Cooperating with HMRC is essential. Provide them with the information they request and respond to their queries honestly and promptly. Failing to do so can result in penalties and interest being imposed on any unpaid taxes, which may lead to further investigation or legal action. Be transparent and honest with HMRC as this can help to build trust and lead to a better outcome.
Consider making a voluntary disclosure
If you’ve made an error or omission on your tax returns, it’s essential to consider making a voluntary disclosure to HMRC. This means admitting any mistakes and correcting them before HMRC initiates an investigation. Making a voluntary disclosure can result in reduced penalties and interest being imposed on any unpaid taxes. It can also help to demonstrate that you’re acting in good faith and make it easier to negotiate with HMRC if an investigation is initiated.
Remember, dealing with a tax investigation can be a stressful experience, but by following these tips and seeking professional advice, you can help mitigate the risk and minimise the impact of an investigation.