What triggers an HMRC investigation?

Jul 8, 2022 | HMRC

As well as all the freedoms (and hopefully rewards) that come with running a business, there are many stresses too – from meeting your sales targets to managing staff. One that lurks in the background is getting in trouble with the taxman.

We are not talking about a statutory fine for missing a deadline. This may be annoying, but things start to get more serious if HMRC opens an investigation into your tax affairs.

Unfortunately, investigations can take months, and if (as would be advised) you enlist your accountant to help, they can cost you thousands of pounds.

While you may simply be unlucky and selected for an investigation at random, you are more likely to trigger a specific behaviour. As you will see, the good news is that these are relatively easy to avoid. So here’s a look at what NOT to do to trigger an HMRC investigation.


Making regular mistakes on your tax return

To err is human. HMRC gets that, and one honest mistake is unlikely to draw too much attention as long as it’s rectified. If, however, you are regularly being picked up on errors, it signals to HMRC that you do not know what you are doing or are taking a lax attitude toward your finances.

As well as factual errors, this could include repeated late filings or relying on provisional figures.

With suspicions raised, they may wonder what else they’ll uncover if they look more closely, and so multiple mistakes provide a cue for them to open an investigation.


Filing incongruous figures

Years of unprofitability, figures which fluctuate wildly from one accounting period to the next, or financial results which are way out of kilter with your industry standards are all red flags which could trigger an investigation.

Of course, there may be a good reason for any of the above to happen; none is cast-iron proof of wrongdoing.

When filing tax returns, there is an option to write notes commenting on performance. It is advisable to detail the reasons for your inconsistent figures so that HMRC can understand them and not feel compelled to investigate the matter themselves.


Tip-offs and other intelligence

It’s accepted that HMRC does work on intelligence from people tipping them off about wrongdoing. Needless to say, we would never advise cutting corners or not declaring income or gains.

Even if you think you are getting away with it, someone you have fallen out with, say a former partner or employee, could spill the beans landing you in much trouble with an HMRC investigation.

Even if no one were to report you to HMRC proactively, the world is so connected nowadays that tax inspectors may uncover omissions or inaccuracies through business transactions recorded at your suppliers or customers.


We can help you get your finances in order

If any of the above issues are causing you concern, we can help.

Even having an accountant act on your behalf reduces the chances of having an HMRC investigation opened on your finances.

It signals that your accounts are being handled professionally and that you are comfortable with a third party looking through your books.

To find out how we can help, please get in touch.

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