Does the sheer thought of an HMRC enquiry or investigation into your business send shivers down your spine? I’m assuming yes, like all small business owners it’s a million miles away from what you want: the stress, the huge amount of time it will take and if they find something you’ll have a fine on top of it all.
HMRC has the power to initiate either, but an enquiry is more common!
Protect your time and money
Blu Sky Fee Protection covers all potential Blu Sky fees incurred in such an enquiry or investigation. Saving you a lot of time, stress and money.
What are Blu Sky responsible for?
We can represent you and help you through the process of a tax enquiry or investigation. We will make sure the process is conducted in a fair and timely manner and if we disagree with any conclusion that HMRC has arrived at, we will argue the case on your behalf.
What are you responsible for?
Making sure you provide us with records and information that HMRC has requested to check on time. If these are available in full, this means questions can be answered faster and the process closed quickly.
Also any relevant return under enquiry must have been submitted in good faith and on time. (Not a problem if you’re an existing client).
Why is HMRC checking me?
There are numerous ways an enquiry or inspection can be triggered:
- You have not been checked before – sometimes it is as simple that, HMRC may simply want to check the general credibility of your business since you are an unknown. This is fairly standard for VAT.
- You have submitted a return with a large repayment or which is out of trend – if you have a consistent pattern of trading and suddenly submit a return which stands out, this may trigger risk algorithms and flag your return to be checked.
- You have made an error in your return – you may not be aware of an error but if HMRC picks one up this can trigger an enquiry. Alternatively, you may have submitted an amendment or correction and the validity of this may also trigger a check
- Your trade sector is being targeted – HMRC often sets up taskforces which target a specific trade sector or geographical area
- You carry out trade with the EU, and a tax authority of another Member State has requested information up or down the supply line to check the validity of the business operating in their country
Will HMRC visit me in person?
Tax investigations can take numerous forms – some involve a simple phone call with a request for information, and others can include face to face meetings and inspections of your business premises if they are reasonably required. It is more common for VAT inspections to be carried out in face to face meetings than other taxes. Typically, a business premises visit is pre-arranged with a minimum of 7 days’ notice – however in general an inspection of records can take place at your accountant’s premises.
How long will a tax investigation take?
This depends on the specific circumstances of each investigation – some may be over with a phone call or letter, others can last several months. 25 minutes is our record!
What powers do HMRC have?
HMRC has extensive civil investigation powers – these include requests for information where failure to comply can attract large penalties. HMRC can also apply to the Tribunal for a warrant to inspect your business premises. Their criminal investigation powers is more extensive still – and can even include using data from foreign banks via their Connect system.
How long after filing my Self-Assessed or Corporation Tax return can HMRC start an enquiry?
HMRC will typically have 12 months from the date they receive your tax return to start an enquiry. However, this might change if they discover a past under assessment that results in a loss of tax. HMRC have the power to re-open a past year and raise a ‘Discovery Assessment’.
How far back can HMRC check my VAT returns?
HMRC can check 4 years prior, however if you are issued a penalty for carelessness this is extended to 6 years. Finally, if you are alleged to have deliberately avoided tax, they can go back 20 years.
What sort of penalties are there for incorrect returns?
If reasonable care has been taken to fill in your return correctly, you’ll have no penalty to pay.
HMRC can issue penalties if they believe any of the following points to be true.
- Tax is incorrect due to carelessness; the penalty will be between 0% and 30% of the extra tax owing.
- Tax was deliberately underestimated; the penalty is between 20% and 70%.
- Tax was deliberately underestimated and there was an attempt to conceal the fact, the penalty will be between 30% and 100%.
- If 3 years or more is taken to disclose an inaccuracy, the minimum penalty is 10%.