How should my business prepare for a tax investigation? Top tips from ICAEW

Gillian Bardin, regional spokesperson for the Institute of Chartered Accountants in England and Wales (ICAEW), offers advice for businesses in preparing for and dealing with a tax investigation.  

Legally businesses have to keep records for income, VAT and employees. If HMRC announces they are looking more closely at a company it can be both daunting and frightening for the business owner. Following HMRC’s disclosure that one in ten small businesses is under investigation, in an attempt to get back the tax it failed to collect in 2015-2016, ICAEW has issued some advice to businesses who may be under scrutiny.

There are a number of practical steps that business owners can take. Here’s some tips from ICAEW along with some further information about what happens during a tax investigation:

• Keep invoices for sales and purchases; receipts for business expenses and bank records. Good records will also save you time and help you run your business more efficiently.
• HMRC will carry out a compliance check on a self-assessment, corporation tax return or VAT return if they think that something is incorrect. For example, when figures appear incorrect, a business makes a large claim for VAT or one with a large turnover declares a small amount of tax.
• Most cases are settled by reaching an agreement with HMRC, or businesses can ask for a review or appeal against most of HMRC’s decisions.
• If HMRC decides to look at your business records they will usually contact businesses by telephone. The call should take between 10-15 minutes and HMRC will ask questions to make sure companies are meeting their legal responsibilities.
• From the replies, HMRC will assess whether a business can submit an accurate tax return from its records; if further action will be taken; if a business needs some additional help and support and whether the case needs a face-to-face visit.
• HMRC will contact you to agree a date and time if they think a business requires a face-to-face visit. The visit will take around two hours.
• Depending on the outcome of a compliance check or business records check, a business may have to pay additional tax as well as facing penalties.

If you are worried please contact an ICAEW Chartered Accountant for a free consultation using the Business Advice Service.

Further information on what to do if your business is under investigation from HMRC is available from the ICAEW's Business Advice Service.