Unexpected contact from HMRC generally doesn’t bring good news, and if you’re being informed that your business is going to have a Tax Compliance Check, this can bring about a lot of stress, and time-consuming activities that take you away from the day-to-day running of your business.
If HMRC contact you about a Tax Compliance issue – this could be done by post or phone, to you directly, or to your accountant or representative tax agent – they can look at:
and if appropriate:
The inspection will take a close look at the business finances (and possibly your own personal finances, if applicable), and check that you’ve been paying the correct amount of tax. This may relate to a current year, or a previous year – if deliberate tax evasion is suspected, the investigators can look back as far as 20 years, for careless tax returns they can examine up to 6 years, and in ‘innocent errors’ they can request 4 years of data.
Sometimes it’s just, unfortunately, random (an estimated 7% of the time), but for the majority of cases, there has been some sort of activity that has prompted the Tax Office to want to take a closer look.
Some of the issues that may prompt a Compliance Check include:
Anyone, private individual or business owner, can be contacted for a random enquiry and Compliance Check. The important thing to do, if you find yourself on the receiving end of one, is to not panic- and get your information in order.
Once the notification of the investigation arrives, the correspondence will explain what you can and cannot appeal, and they will request specific information from you – generally you have up to 40 days (from the date of issue of the notice) to get this data to them.
Failure to provide the information in time will see HMRC issuing a formal information notice which could result in a fine of up to £300, and further fines of up to £60 per day until they have received your response with the requested accounts.
It’s essential that you contact HMRC immediately if there is a deadline that you cannot meet, so you can arrange and agree a new date with them, in order to avoid any of these penalties.
Compliance Checks are considered to be short, focused reviews that proved a high-level of investigation, which may see a Tax Officer visit your home or business premises (if you have a Business Advisor they may visit their office instead) – or you may be asked to attend a meeting at a local tax office and meet with the Tax Officer there.
You will be informed ahead of time what information, accounts, and details you will need to bring or have available for the meeting, and it could include:
Not all of this data will apply to all businesses, and if the information is being stored digitally, HMRC may request access to the software system that you’re using, as well as a copy of the records.
The amount of time an investigation takes to complete will depend on what the Tax Officer is looking at, and whether it’s a small issue or a larger one – generally, smaller investigations can take between 3 to 6 months, whereas larger ones can be upward of 16 months.
Once the investigation or check is finished, HMRC will generally write to you with their findings and the results.
If you’ve paid too much tax, you may receive interest on the amount that you’re owed. If you’ve not paid enough tax, you’ll have 30 days to pay the balance, and will normally be required to pay the interest (calculated from the date on which the tax was due).
You may also be charged a penalty, but HMRC will look at the circumstances – including whether there were genuine reasons why you over or underpaid the tax, whether you informed HMRC as soon as you could, and how helpful you were during the proceedings.
If stronger action (such as criminal convictions) are raised during the process, you will be informed.
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