Sorting out your taxes is one of the trickier aspects of running your own business. It’s so much more complicated than being on PAYE, or even filing returns as a sole trader because you’ve got to sort out all of your employee’s contributions as well. That means it’s fairly easy to make mistakes and find yourself in trouble with HMRC. They’re not going to be sympathetic to the fact that you’re new to the business world and if they think something is wrong with your tax returns, they could launch an investigation. This doesn’t always mean that you’re in trouble and they might find that nothing is wrong, but you should know how to deal with it just in case.
How Likely Is It?
You’re probably worrying at this point and trying to think over any tiny mistakes that you might have made on the returns, but how likely is it that you’ll be investigated. Well, if everything is above board, you should be left alone most of the time. The HMRC will do routine audits of your tax affairs every five years or so, maybe even less. They’ll just check the basic figures to make sure everything looks right. However, if they suspect that you’ve been underpaying, then they’ll start to investigate more frequently. They’ll also take an interest if there is a significant drop in your income because, if it isn’t a genuine decline in business, it could be the result of some fiddling with the books. Equally, if your running costs are a lot higher than the average for a company in your industry, that smells fishy to them as well. If your business takes a lot of cash payments, don’t worry if you’re being audited more regularly. They tend to keep a closer eye on businesses of this kind because it makes it easier for you to be dishonest about your tax affairs.
Being late is another big cause of investigations so make sure that you’re getting your returns in on time every year without fail, and make sure there aren’t any mistakes.
What Should You Do?
When the HMRC is launching an investigation, you’ll receive a letter within 12 months of filing the returns in question. It will tell you whether they are investigating one small aspect of the returns or whether they want to see everything. They’ll usually ask you to start gathering some paperwork at this point. The first thing you need to do is show the letter to your accountant, they’ll be able to tell you what the reason for the audit is, based on the information that has been requested.
The second thing you need to do is find somebody to represent you, especially if you don’t think that you’ve made an error and you want to challenge HMRC’s claim. Get in touch with an alternative dispute resolution that specializes in tax disputes. They will be the mediator in any arguments about why HMRC want to see certain documents or disputes about the findings of the audit.
The most important thing to remember is that you should cooperate with HMRC and supply all of the paperwork they ask for, as long as your legal team believe it necessary. If you haven’t done anything wrong then you’ve got nothing to worry about.