What is an HMRC Investigation? Did you know that VAT officers can visit your business to inspect your VAT records? They do this to ensure you’re paying the right amount of VAT and reclaiming the right amount of VAT too.
Each year HMRC sends out thousands of letters to businesses to inform them of an upcoming Corporation Tax, Income Tax or VAT investigation. For business owners, this can cause a lot of significant worry and stress.
How many tax investigations are there?
Here at Direct Peak, we expect to see a greater increase in the number of tax enquiries as we enter 2021. This is because they will be looking to recover the massive £350bm spend by the government through the pandemic and lockdowns.
While HMRC will usually give you notice of their visit, this will only be around 7 days’ notice.
In the notice given by HMRC for the VAT investigation, they will confirm what information they need you to have ready for them to see. The notice of the VAT investigation from HMRC will also give you a rough idea of how long the inspection will take and if want to inspect your business premises as well as paperwork. It is possible to request for this visit to be delayed.
To prepare for your tax inspection you need to ask your accountant to prepare and review your accounts before an HMRC inspection. This can be an extremely time-intensive and costly expense to you and your business. Tax inspections can last months or even years. Therefore, the cost of dealing with an enquiry can cost thousands of pounds, even if no extra tax is due to be paid.
How long does an HMRC investigation take?
According to CompanyDebt.com for larger businesses, a tax or VAT investigation can take up to 16 months to complete. Without the correct insurance in place, this can cost around £5,000 in fees to the accountant for them to deal with HMRC on your behalf.
There are a few common outcomes found in VAT investigations by HMRC. These could be overpaid VAT, underpaid VAT or deliberate wrongdoing. If you found overpaying VAT, you will receive a tax rebate with interest. However, if you are found of underpaying VAT you will be formally required to pay any tax owed within 30 days. Interest could be added to this. Finally, if HMRC conducts a tax investigation and concludes that there was wrongdoing on the part of the taxpayer, this could be escalated to the case of criminal status.
Our team of friendly VAT accountants here at Direct Peak wants to help our clients through the worry of HMRC inspections. While our normal annual fees do not cover the additional professional costs of handling tax enquiries and compliance checks, we now offer something that will help.
How to protect my business if I get an HMRC Investigation?
As an add-on service, we are placed to offer Investigation Protection Service for just £10 + VAT per month. This will cover all your professional fees if HMRC were to complete an investigation on your business.
If you would like to know more about how we can support you with VAT investigations from HMRC or our Tax Fee Protection Service, contact one of our accountants now.
Looking for business accountancy services
Direct Peak provides a dedicated business tax accountant, who will prepare your annual accounts and tax returns. They will be on hand to answer any tax queries you have.
Your business tax accountant will ensure that the company is set up in the most tax-efficient way and that you are claiming for all the correct expenses to maximise your earnings.
Summary of HMRC Investigations
An HMRC investigation refers to an inquiry or examination carried out by Her Majesty’s Revenue and Customs (HMRC), the tax authority in the United Kingdom responsible for collecting taxes and enforcing tax laws. These investigations are conducted to ensure that individuals, businesses, and organizations are complying with the country’s tax regulations and paying the correct amount of taxes owed.
There are several types of HMRC investigations, each initiated for different reasons and with varying levels of complexity. The most common types include:
- Routine Compliance Checks: HMRC may conduct routine checks to verify that taxpayers are meeting their tax obligations accurately. These checks are typically less intensive and are aimed at ensuring basic tax compliance.
- Aspect or Full-Enquiry: When HMRC has reason to believe that a taxpayer’s tax return contains inaccuracies or discrepancies, they may launch an aspect or full-enquiry. An aspect enquiry targets specific aspects of the tax return, while a full enquiry examines the entire return in detail.
- Criminal Investigations: In cases of suspected tax evasion or serious tax fraud, HMRC may initiate a criminal investigation. These investigations can result in criminal charges, fines, or even imprisonment if tax evasion is proven.
- VAT and Customs Duty Investigations: HMRC also investigates businesses to ensure compliance with Value Added Tax (VAT) and customs duty regulations. This includes examining records, transactions, and import/export activities.
- PAYE and Employment Tax Investigations: HMRC may investigate employers to ensure they are correctly calculating and reporting Pay As You Earn (PAYE) and other employment-related taxes. This helps prevent tax avoidance and the misuse of tax relief schemes.
- Tax Credits and Benefits Investigations: Individuals claiming tax credits or benefits may be subject to investigation to confirm their eligibility and the accuracy of their claims.
It’s essential to cooperate fully with HMRC during any investigation, as non-compliance or hindrance can lead to penalties or legal action. While the vast majority of HMRC investigations are resolved without legal action, individuals or businesses found guilty of tax evasion or fraud can face severe consequences, including fines, imprisonment, and reputational damage.
To navigate an HMRC investigation effectively, it’s advisable to seek professional advice from tax experts or legal counsel, as the tax code can be complex, and the outcome of an investigation can have significant financial and legal implications.