23rd Mar 2021

HMRC Tax Compliance Checks: What you need to know

HRMC has the power to make a tax enquiry or investigation into you and your business, at any given time. Scary? Well, it shouldn’t be if you’re doing everything right. Here’s everything you need to know.

If you’ve been notified that your business is under investigation, you can rest assured that 9 times out of 10, the selection process for an investigation is completely random.

When isn’t it random?

You may trigger a tax enquiry or an investigation or an enquiry if:

  • You’re consistently late with your tax returns
  • You have an inconsistent cash flow
  • There’s something missing from previous tax returns
  • Your figures are wrong on your tax return
  • There’s been a significant change in cash flow

What is a tax investigation or an enquiry?

It’s simple really, HMRC use enquiries/investigations to make sure that you’re paying the right amount of tax. They might send you a letter asking you for further clarification or information on a recent tax return, or specific change within your company.

If and when HMRC does contact you about an investigation, you should try to answer the questions they ask and provide the information they ask for. They should only ask for information or documents that are reasonably required to allow them to check your tax position.

Say for example your business suddenly triples its turn-over or as an individual you inherited a significant amount of money, HMRC can see the increase on paper, but they don’t know where it came from. It makes sense that they would want to know more – hence their enquiry.

Like we said above, it’s normally random so it may not be for any particular reason.

When can HMRC investigate me?

HMRC will typically have 12 months from the date they receive your tax return to start an enquiry. However, this might change if they discover a past under assessment that results in a loss of tax. 

HMRC has the power to re-open a past year and raise a ‘Discovery Assessment’. 

What’s new in 2021?

Nothing is new as such, however it’s worth noting that From March-July 2020, HMRC completed 61,000 compliance checks, half the amount they completed in 2019.

We may see an increase in investigations this year because of this.

What can Blu Sky help with?

By protecting your time and money with our fee protection service! What’s that, we hear you cry? Watch the below video for further clarification!

As a Blu Sky client, we can represent you and help you through the process of a tax enquiry or investigation. We will make sure the process is conducted in a fair and timely manner and if we disagree with any conclusion that HMRC has arrived at, we will argue the case on your behalf.  

Want to know more? Drop us an email for a chat about how we can help.