According to recent reports HMRC has increased the number of small business investigations and they continue to be seen as soft targets.
About 7% of tax inspections are random, the majority are triggered because HMRC believes that something is wrong.
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
You might also consider tax investigation insurance, FSB include tax investigation insurance as a member benefit, they also have some great advice if you do get selected