Part 2: HMRC Tax Investigations – How to minimise your chances of being investigated

Covered in this article:

  • How to minimise the risk of an investigation
  • Insurance cover
  • What to do in the event of an investigation

By reading Part 1, you should be better informed about who is at risk of an investigation (i.e. anyone!) and the how the selection process works.

As no one is completely bullet proof when it comes to being investigated by HMRC, it is essential to minimise risk wherever possible.

How do I minimise the risk of being subject to a HMRC investigation?

These points will help minimise the risk of a tax investigation:

  • Always file tax returns on time and preferably not at the last minute consistently – this keeps you off the radar
  • Make tax payments promptly, including the necessary payments on account
  • Always keep good and tidy records so any aspect enquiries can be nipped in the bud and not escalate.
  • Consider how you would answer tricky questions like those put forward in Part 1, this will help you seek advice from your accountant and provide HMRC with information upfront
  • Provide explanations in the Notes section on the tax return for anything unusual – this shows you are being up front and honest about anything that has changed significantly from the previous year
  • If you don’t have an accountant, it would be advisable to instruct one to assist with your tax return each year and work with them to ensure you are providing all the information they request to be able to do their job well and keep you compliant

Insure yourself!

It is highly recommended that you take insurance against the professional costs of an investigation. Whilst this unfortunately doesn’t cover any additional tax, penalties or interest, the work involved with a HMRC investigation can itself be costly when recruiting an accountant by the hour, outside of pre-arranged contract.

All Figurit clients are offered this insurance cover, and more than 90% choose to take it up as a valuable addition instilling peace of mind that their costs are kept to a minimum but they still benefit from the assistance of a professional.

What to do in the event of an investigation

If you are unfortunate enough to be subject to a HMRC inspection, there are some tips that can help to speed the process along and show your co-operation.

  • Meet the deadlines for replying to any questions or submission of information
  • Make a payment on account – if you know that further tax will be uncovered then make a payment on account to stop interest accruing and show you are playing ball
  • Don’t lie to HMRC – simple but the best way to remain on side
  • Work with your accountant from the start as they have the expertise to advise how to deal with these matters in the correct way, rather than them trying to pick up your pieces further down the line.
  • Don’t assume that HMRC are ignorant of anything – they have access to many sources of information and have significant authority to continue to ask questions until they are satisfied
  • Never make partial disclosure – this will result in lack of trust and only encourage HMRC to continue their research even further
  • Once settlement has been reached – do not re-offend!

So all in all this is a bit of a gloomy subject but one that should not be buried with your head in the sand. It isn’t until you have an investigation that you feel first-hand the anxiety of being under enquiry and having to allocate the additional time out of your already busy schedule to deal with any requirements demanded of you.