What exactly is a tax Investigation?

HM Revenue and Customs Tax Investigation is very serious. Tax Investigation enquiry can seriously disrupt your business. A tax investigation is triggered when HMRC uses their power to look at your tax return and/or business accounts. They check the tax return and accounts to satisfy them self that they are correct.

A tax investigation by a local office  can take several forms

1: Compliance Check

In this check HMRC visit to your business premises with/without consent and check your book-keeping, PAYE, VAT record and being operated properly.

2: Aspect Enquiry

In this enquiry, inspector will ask two or three question to satisfy himself.

3: Full Enquiry

In this enquiry HMRC check everything.

Why HMRC start Investigation 

First of all HMRC has got power to start investigation but There are three main reasons

1: Randomly selected

2: HMRC has specific information via informer

3: Your accounts look odd similar to other businesses

And also it is very important to keep the proper record. HMRC can visit you any time and fine you up to £3000 for poorly kept records and can open a full enquiry as well.

A typical test HMRC use for Tax Drivers to look at the fuel claimed and look at the fuel they had taken.

Another typical test to compare the cost of purchase and sale, they look at your gross profit margin.

Different Types of Full Investigation 

1: Local Investigation

These are where local office open an investigation

2: SCI Investigation

These are opened by  Special civil investigate unit which is HMRC head office. These are more serious.

How HMRC notify you that you are going to be investigated

HMRC are going to notify you in writing and gave you a notice of the enquiry and send you a leaflet to explain how this investigation works.

Once you have received the enquiry, don’t panic and don’t ignore this enquiry. Contact your Accountant.

How long a typical Investigation last

Once you provide all the business records and you have answered all the questions. After a month or so Inspector will send you a reply and ask you to arrange a meeting.

HMRC Inspector can’t force you to come to a meeting. It’s up to you if you want  to attend a meeting to declare some information.

In this meeting it is advisable to take your Accountant with you. Under the stress of this meeting, people making up answers when the truth was they didn’t know the answer.

Here are few examples of their hidden traps

1: How much cash do you have in your possession or what is the largest amount you have had and when.

Don’t get this wrong. You may be later confronted with a cash test.

2: Who take the kids to school. Do you use a business Van

3: What do you  do in your spare time?

Don’t say that you don’t go out because if they find cheque/payment was paid to Flying lesson, restaurant or club.


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