If there is one thing we all know, it is that submitting tax returns is time-consuming and complicated. If you have a business, this is something that can be even trickier if you are VAT registered. This means there is often plenty of paperwork, detailed record-keeping and a lot more work.
You are always advised to be meticulous and careful when you are submitting VAT tax returns. The smallest mistakes, no matter how innocent they are, can lead to penalties, which can be costly. If you receive a letter from HMRC after you have submitted your VAT tax returns, this is not going to be a good sign.
When you read that you are going to be subject to a tax investigation, this can fill you with dread. But, the first step is educating yourself on what this means and ways you can make the process easier. So, here is a guide to help you.
What is a Tax Investigation?
HMRC can call on any business and declare that they are carrying out a tax investigation. Essentially, this is going to be a check on your business’s finances with the purpose of making sure you are paying the right tax amounts. The process will mean that HMRC can see more records than you have submitted on a VAT tax return. In other words, they are going to see in more detail what is going in and out of your business.
One thing you need to be aware of is that there is going to be a lot of preparation necessary for a tax investigation. You want to make sure that you do everything right and have all of the required documentation. This is why a lot of businesses are choosing to use VAT return services. You can have experts in your corner that are going to help you prepare for a tax investigation.
For example, Ross & Partners has professionals that can help you get ready for an investigation and offer you advice. Most importantly, they can help your business reach an effective resolution. With years of experience and training, the team can offer guidance and representation through a stressful time for your business. This is particularly true if your business has never experienced an investigation before and you do not know where to start.
Why Am I Being Investigated by HMRC?
There is no doubt that being investigated by HMRC can be a scary and stressful experience. But, it is important to understand why this is happening so that you can avoid this investigation from happening again in the future. So, here are some of the reasons HMRC might be contacting you.
You Have Made a Mistake
One of the reasons why you might be hearing from HMRC sooner than you want to is because you have made a mistake with your VAT tax returns. For example, when you have been completing the returns, you might have forgotten to enter some information or provide the right details they are looking for. Hopefully, you have these records and it is an honest mistake. In this case, you may be able to resolve the problem quickly.
You are in a High-Risk Industry
There is a chance you are being investigated simply because you have a business in an industry deemed as high-risk. For instance, if you are a business that takes a lot of cash payments, this is something that HMRC will look at. They need to know that you are being honest and entering the right details in your tax returns.
Your Tax Returns Differ Greatly
HMRC is going to wonder what is going on if you have a high income one year and a very low one the next. This can be an inconsistency that raises a red flag. In addition, you might suddenly have a lot of expenses that you do not normally have. Again, HMRC can be suspicious of this and look to conduct an investigation to see why this has happened. Of course, there may be a legitimate reason for high expenses, such as investing in expensive equipment. But, HMRC still needs to check what is going on.
You Have Been Picked Randomly
It is important to point out that tax investigations by HMRC can be at random. In other words, you may not have done anything wrong and you have simply been chosen. This does happen and this is why it is important to not jump to conclusions when you receive the brown envelope from HMRC.