How To Reduce The Chance Of a Tax Investigation

Forewarned is forearmed. By preparing in advance, you can vastly reduce the stress and impact if/when you are picked for a tax investigation.

Tips To Help Reduce The Chance of a Tax Investigation

  • Keep good records, and keep them for at least five years after the filing deadline. VAT records should be kept for six years. Having good records will make it easier for you to file accurate returns and will also provide backup evidence if you are ever audited by the HMRC.
  • Make sure that you file accurate tax, VAT and payroll returns on time, and pay tax owing within the specified time frame. This shows the HMRC that you are serious about your tax obligations and not trying to avoid paying taxes. Flaunting the rules and the suggestion of haphazard accounting records will attract the attention of the Revenue.
  • Be honest and transparent with the HMRC. If you make a mistake on your tax return or forget to report some income, it is better to disclose it voluntarily than to have it discovered during an audit.
  • Consider getting tax investigation insurance. Depending on the size of your business, accountancy fees for a full investigation can run into the hundreds or even thousands of pounds.
  • Use the white box note on your tax return. If your figures have changed a lot since last year, your profits are different from the industry average or your living expenses are funded by other means (e.g. spouse’s earnings or an inheritance), disclosing this in the white box note may give the Revenue all the information they need and so prevent a tax investigation.
  • Use a good accountant. Innocently claiming expenses you’re not entitled to can still result in receiving a penalty. We can advise you on what can and can’t be claimed against your tax bill, so if doubt, just ask.

Taking Tax Seriously

The best way to reduce the chance of an HMRC tax investigation is to take your tax obligations seriously and be proactive in ensuring that you are complying with the current tax laws.

If in doubt, consult a professional.