THE TAX YIELD derived from HM Revenue & Customs investigations into the affairs of small- and medium-sized companies rose by 31% over the last 12 months, according to UHY Hacker Young.
Compliance investigations into SMEs generated £565m for HMRC in 2012/13, up from £434m in 2011/12, with the year ending March 31. Accountancy Age
Some investigations are random and some as a result of HMRC task forces, but many are triggered by risk profiling.
What can you do to reduce your chances of being selected:
1. File your tax returns on time and pay what you owe – If you file late or at the last minute HMRC will think you are disorganised and as such there are more likely to be errors in the return
2. Declare all your income – HMRC get details of bank interest and other sources of income, sometimes they test them and match them to returns
3. Use an accountant – Unrepresented taxpayers are more likely to be looked at, mainly because many of them don’t know what they are doing
4. Trends – if your business doesn’t match the profile of similar business in the same sector or your results suddenly fluctuate it could raise concerns at HMRC, for example, if you suddenly request a VAT refund
5. Tax Avoidance Schemes – if you are using a tax avoidance scheme I am sure HMRC will be looking closely, if they can find a way to challenge the scheme then at some point they will
steve@bicknells.net
I agree with Tina. It is prudent to have tax investigation insurance just in case. We sell a great policy from £53 to £159 depending on the size of business that also includes lots of other commercial legal issues as well.