HMRC has a legal right to conduct a tax investigation into your tax affairs ensuring that the correct amount of tax is being paid. Due to HMRC investing £100m in a new piece of technology ‘super computer’ known as HMRC Connect, the amount of these investigations are likely to increase. This new ‘super computer’ is used to monitor and discover potential errors between businesses and sole traders income and the amount of tax they pay. 

When faced with a tax investigation from HMRC it can be very stressful and time consuming, this is because it may only be one return that has a potential error but it may prompt HMRC to ask for previous returns. This can be caused by there being insufficient tax paid or if tax has been deliberately not paid. In cases more serious where tax avoidance or fraud is suspected, HMRC can ask for returns and business record as far back as 20 years. 

How long does it take to complete a HMRC Tax Investigation? 

The duration of a tax investigation is dependent on the amount of areas of the business are being investigated. If it’s an Aspect Enquiry (one area) the investigation will last approximately 6 months. However, if HMRC is conducting a Full Enquiry into many areas of the business, it can last over 18 months. 

What should you expect during a HMRC tax investigation?

You will be alerted if your business is under a tax investigation via an ‘Information Notice’ from HMRC which will be sent directly to either yourself or your accountant. This notice will outline which areas of the business are being investigated, the different areas which can be under investigation are as follows:

• Self assessment tax returns

• VAT returns 

• Company tax returns 

• Accounts and tax calculations 

• PAYE records

With the tax investigation, HMRC will be reviewing your business accounts and records and asking questions about your income and expenditure. These questions may be via email, telephone or face to face.

When the investigation has finished HMRC will inform you of the outcome, any discrepancies that they’ve found will be noted, and there may be penalties that have been incurred. And if the tax is undeclared, there may be added interest.

Get in touch with Cheylesmore Chartered Accountants today! At Cheylesmore we have dealt with many tax investigations and taken the stress away from the client.