HMRC has a large number of tax returns to deal with, and investigating each one would be near impossible (and time-consuming). However, there is still a chance that they decide to begin a tax investigation on you.
One of the main reasons HMRC might investigate your business is if you haven’t declared all of your earnings – but there are other reasons, too. We understand how daunting it can be when HMRC reach out for investigation, but it’s not always something you need to worry about.
Whether you’re a small business, a big company, or self-employed, HMRC could run an investigation at any given time, sometimes even at random. To learn more about HMRC tax investigations and why your business might be chosen for one, read on.
What Triggers an HMRC Investigation?
So, what triggers an HMRC investigation? There are several reasons why HMRC might decide to investigate your business, including:
- Missed tax payments
- Having a business in a high-risk industry
- Not providing truthful information (lying about your income)
- Irregularities in your tax returns
- Receiving third-party information
- Mistakes on your self-assessment tax return
Mistakes are easy to make – so don’t worry too much. You could be subject to investigation for simply forgetting to tick a certain box or skipping an important section without realising it. HMRC aren’t here to scare you or punish your business, they just want to get to the bottom of things.
How to Avoid an HMRC Investigation
Can you avoid being subject to an investigation? Avoiding an investigation isn’t entirely possible, as HMRC even do audits at random. However, there are some simple steps to take to try and avoid being investigated, such as:
- Providing truthful information
- Proof checking your return once it’s complete
- Declaring your income
- Staying up to date with your business tax payments
- Filing your tax returns on time
Additionally, working with a reliable and dedicated accountant can help ensure no mistakes are made on your tax return. Accountants are not only there to help save you valuable time by handling your tax returns, but they can support, advise, and guide you if any issues arise with HMRC.
At LJS Accounting Services, we have a team of professional accountants who can handle your financial affairs accordingly, helping prevent problems with HMRC from occurring.
Can HMRC Run an Investigation at Random?
Yes, as mentioned, HMRC can run an investigation at random. There are three main types of investigations that can take place, including:
- Aspect – HMRC will look at one or more areas of information about your tax
- Full – every detail of your tax return is reviewed by HMRC, whether it be a personal return or business-related
- Random – typically aimed at higher-risk industries, HMRC can investigate at random
Undoubtedly, HMRC have a lot to deal with, but that doesn’t stop them from investigating – they recently revealed:
- More than 12.1 million tax returns were expected between 2022-2023
- As of January 2024, more than 8.3 million online returns have been received
So, we understand why you might have thought the chances of HMRC choosing you to investigate is slim – but the truth is, it can happen to any of us. HMRC have the right to conduct an investigation whenever they want, sometimes at random.
As discussed, some potential triggers cause HMRC to investigate, but if you’re chosen at random, you might have done nothing wrong at all.
If you truly believe that you’ve done nothing wrong, made no mistakes on your tax return, or lied about important information, you might likely have been selected by HMRC randomly.
What Happens During an HMRC Tax Investigation?
A tax investigation conducted by HMRC starts with a letter from them requesting further information. They could ask for a small amount of information, or request details about your whole tax return.
Within the letter, it’ll state which area of tax law the investigation falls under. Once you’ve received your letter, HMRC might ask to visit either your home or business address or ask you to visit them. During your visit, you’re able to have your accountant present if you have one.
What Information Does HMRC Request During an Investigation?
You might be wondering what type of information is required during a tax investigation. Typically, HMRC will ask for:
- Tax records
- Bank accounts
- Legal documents
- Accounting records
- Payroll records
However, we know that HMRC conducts different types of investigations, some of which are more in-depth. If HMRC holds a small investigation on you, they might not need so much information.
Your HMRC Investigation is Complete – Now What?
Once your investigation is over, HMRC will usually write to you with the results of their investigation. There are usually two outcomes from the investigation – being repaid or having to pay owed tax.
Genuine mistakes typically result in having to pay extra tax, but if it’s found that you’ve been careless during your tax return or tried to avoid paying tax, you’ll likely be given a penalty. Penalties can differ, usually depending on the severity of the outcome of your investigation.
If you believe that you shouldn’t have been investigated, you’re in your right to argue against HMRC – in most cases, the case will close as soon as they’ve checked over a few discrepancies.
If you pay taxes correctly, and stay on top of financial affairs regarding what money you need to pay as a taxpayer, you probably won’t be flagged up by HMRC.
Keli Evans, Director at LJS Accounting Services, excels in taxation and statutory accounts. With a focus on strong client relationships, she leads a diverse portfolio, overseeing vital financial aspects like VAT, payroll, pensions, and taxation with a holistic and committed approach.
