We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA
Anybody running a business needs to be concerned about the possibility of facing a tax inspection
New powers such as getting information from third parties and tighter penalty regulations – as well as increased powers to search premises – mean that businesses are under more scrutiny than ever from HMRC.
What happens when your business faces a compliance check?
In a full inspection, HMRC will request all the records and come back with numerous questions relating to the whole return. If tax is found to be underpaid, HMRC can raise penalties of up to 100% of the tax that should have been paid. However, if it’s an honest mistake, there’s scope for a reduction. Usually only one year’s accounts are investigated, but if they find inaccuracies in that year, HMRC may then go back up to five more years or even further.
To reduce your chances of being inspected:
- always submit your tax returns on time
- make sure your returns are accurate and complete
- explain any changes from one year to the next. Big changes in turnover or gross profit rates will ring alarm bells, especially when drawings taken from the business or remuneration paid seem to be insufficient.
HMRC has recently released a suite of YouTube videos which explain compliance checks, compliance check penalties and compliance check appeals.