What Triggers HMRC Investigation
HMRC investigations can be an overwhelming process for any household or business, impacting your finances, time, and peace of mind. That’s why expert guidance is crucial. At Hartley Fowler, we provide professional advice, thoroughly explaining every step of the process.
What is an HMRC Investigation?
An HMRC tax investigation can be initiated when there are suspicions of underpaid tax or late submissions. They reserve the right to open and conduct an investigation of your tax affairs. During the HMRC tax investigation procedure, they will typically assess a range of aspects, which may include:
- The specific types of tax you or your business pays
- Your financial accounts
- Your Self Assessment Tax Return for the relevant year
- Your Company Tax Return
- Your PAYE (Pay As You Earn) records and returns, if you are an employer
- Your VAT (Value Added Tax) returns and records, if you are VAT-registered
The types of HMRC Investigations
Full enquiry
A full HMRC tax enquiry involves a comprehensive review of all your business documentation. This in-depth investigation is usually triggered by HMRC’s belief that there’s a likelihood of inaccuracies in your tax filings. If your business is a limited company, investigators may also examine the directors’ personal tax affairs, alongside the company’s own records.
Aspect Enquiry
An aspect enquiry focuses on a specific area of your accounts or a particular section of a recent tax return. This type of investigation is typically initiated when HMRC identifies an inconsistency in that isolated aspect, rather than investigating your entire affairs.
Random Checks
As the name suggests, random checks can be initiated at any time, without the need of a specific trigger from your tax affairs or the presence of any accounting irregularities.
What causes an HMRC Investigation?
Common triggers of HMRC investigations are:
- Late or missed tax submissions – this is especially alarming if it occurs repeatedly
- Use of estimates
- Large unexplained fluctuations in reported income and expenses or significant changes in your business’s financial activity
- Very low reported earnings with a lifestyle which indicates otherwise
- Businesses operating at a loss for an extended period of time.
Possible Consequences:
HMRC will assess several factors, including the nature of any error, its impact on your tax liability, whether your actions were deliberate or unintentional, and your cooperation throughout the investigation. Following the HMRC tax or fraud investigation, they will then decide whether or not a penalty is necessary, as well as the nature of such penalty.
How to Stay Safe Against HMRC Investigations
While entirely eliminating the risk of an HMRC tax investigation is impossible due to random checks, you can significantly reduce the likelihood of raising concerns. This includes maintaining accurate records, submitting all payments fully and on time, meticulously double-checking your figures, and having valid explanations for any potential anomalies.
What Happens After a HMRC Visit?
Following a tax investigation visit, HMRC will typically maintain communication with your accountant or tax advisor, often requesting further information via letters or emails. All provided information will be carefully analysed by HMRC, and they will then assess their findings and propose an outcome. This proposed resolution will be sent to your advisor for review and agreement.
Once the HMRC investigation procedure is complete, should you or your advisor dispute the outcome, or if a settlement cannot be reached, the decision can be appealed. This is a process that requires both time and careful navigation. Our expertise includes handling such appeals and challenging HMRC’s conclusions when necessary.
Seeking Advice?
Navigating an HMRC investigation process can undoubtedly be a complex and stressful experience. However, with the right professional guidance, it doesn’t have to be. At Hartley Fowler, we are committed to providing the expert advice and clear explanations you need to face any enquiry with confidence.
If you’re looking for expert HMRC tax investigation advice for your personal or business affairs, we cater to all. If you are facing an HMRC investigation or have concerns about your tax affairs, please do not hesitate to contact us for a confidential discussion.
FAQ’s
What is the HMRC tax enquiries process?
The HMRC tax enquiry process typically begins with notification via letter, followed by information requests for your records. HMRC then analyses this data and proposes an outcome regarding tax due, interest, and penalties. This stage often involves negotiation before a final agreement and closure or, if unresolved, an appeal process.
How far back can HMRC investigate?
HMRC’s investigation period varies based on circumstances. They can generally go back:
- 4 years for innocent errors or mistakes where reasonable care was taken.
- 6 years if the error was due to carelessness.
- 20 years in cases of deliberate tax evasion, fraud, or failure to notify.
These periods run from the end of the relevant tax year.
What is an HMRC Fraud Investigation?
An HMRC Fraud Investigation specifically targets cases where HMRC suspects deliberate tax evasion or dishonesty, rather than innocent mistakes. These are highly serious enquiries, often led by HMRC’s specialist Fraud Investigation Service (FIS), and can result in severe penalties, significant financial charges, or even criminal prosecution.