Tax investigations: What you need to know
In recent years, HMRC has launched various checks on specific industries. It is not uncommon for a business to receive a letter from HMRC advising that they want to carry out a routine VAT or PAYE check. This sounds fairly innocent but can often lead to a more in-depth enquiry because they are entitled to review all transactions across the business.
Investigations can be costly, disruptive and stressful for businesses, and may result in long-term reputational damage. Consequently, business owners need to be aware that even simple errors on a tax return can be a red flag to HMRC and could lead to an investigation.
What could an enquiry or full investigation involve for a taxpayer?
In the 2022/23 tax year, HMRC opened up 320,000 compliance checks into taxpayers – up from 265,000 the previous year.
Enquiries often involve a detailed examination of a specific item on a tax return whilst others may extend to a full review of a business or an individual’s personal affairs.
HMRC has the power to inspect business documents and assets at your premises, can ask for documents and information, make unannounced inspections, and go back up to twenty years to investigate matters. It is likely HMRC will be looking a lot more closely at compliance history, tax returns and payments. Tax and VAT payments may also be checked more rigorously alongside the usual full tax investigations. IR35 and employment status disputes are likely to be more prevalent.
Even if you have done nothing wrong, you are still at risk of an investigation, which can take many months and costs thousands of pounds in professional fees. The average professional fee associated with a tax enquiry is £3,800.
Tax Enquiry Protection Service
Carpenter Box offers a Tax Enquiry Protection Service for clients which takes away all of the stress, leaving you with nothing but the important things to worry about. The arrangement enables us to make a claim against our insurance policy held with Bspoke Fee Protection in respect of any fees that would otherwise be incurred (up to £100,000 per claim unless otherwise indicated).
We defend a client who is subject to events including:
- A full enquiry
- A business inspection notice
- VAT/PAYE disputes
- Employment status disputes
- IR35 checks
- Gift Aid inspections
To find out more about the service or any concerns you may have about HMRC tax investigations, please get in touch with a member of our tax team on 01903 234094.
