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Tax Investigations: What You Should Expect


A brief definition of tax investigations

As its very name suggests, a tax investigation can be defined in terms of an HMRC enquiry in your business’ taxes. These investigations are usually extremely complex and stressful procedures.

Tax investigations are a serious matter and should not be taken lightly. If HMRC has notified you of a tax investigation for the business you are running and you haven’t previously hired an accountant to handle your taxes, it is highly advisable for you to hire a professional accounting firm and notify HMRC – by filling a specific form – that the respective accounting firm will act on your behalf throughout the investigation.

What triggers tax investigations

The probability of tax investigations increases if HMRC suspects that your tax returns are not accurate. These are some of the reasons that usually raise suspicion:

–          You file and pay your tax returns late

–          There are errors in your tax returns that haven’t been notified

–          You hold offshore bank accounts

–          Your business is operating in an industry that HMRC targets

–          Your business operates in a high-risk industry

–          Your costs are too high for the industry you are operating in

–          Your tax returns are inconsistent with your business’ activity

–          You have property income

–          HMRC receives a hint from someone

How to deal with a tax investigation

Tax investigations can last for months and usually start with a letter in which you will be asked to provide certain documentation and information. The first and the most important step is to keep as calm as possible and ask for professional advice and guidance immediately.

It is highly advisable for you to communicate with the tax inspector through your accountant, as much as possible in writing, avoiding unaccompanied meetings or phone conversations with the tax inspector. Destroying evidence or lying can worsen the situation and increase penalties. You should also avoid talking about your tax affairs with people that are not part of your circle of tax advisers.

Sometimes, corporation tax investigations can lead to enquires into the personal taxes of the directors or other executives. A professional accountant can offer you valuable guidance through the whole process and help you negotiate and reach an agreement with the tax inspector. However, if an agreement is reached, make sure you don’t offend again.

How to always be prepared for tax investigations

Tax investigations imply a thorough check of the accuracy of all the documents that have previously been submitted to HMRC. This is the reason why it is highly important to always keep up-to-date, accurate records and have them available for potential enquiries. Relying on the expertise of qualified accountants at all times might save you from undesired future complications.

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