Tax Enquiries

This Content Was Last Updated on March 10, 2024 by Jessica Garbett


HMRCs Right of Audit

HMRC have a wide right to audit tax returns – principally Self Assessment.  These audits are known as “Tax Enquiries”, sometimes “Tax Investigations”.  Generally an enquiry can be opened for up to a year after the return is submitted, but in some circumstances 4 years, and in the cases of fraud 20 years.

If you’ve been diligent with your taxes, then its more of an annoyance and intrusion than anything else.  Typically an enquiry can take from six months to two years to resolve, and will start with a request from HMRC for sight of your business records, followed by a list of queries or a request for a meeting (which can be refused).

If you use an accountant, you may be offered Professional Fee Protection Insurance (sometimes known as Tax Enquiry Insurance) –  its worth thinking about as Tax Enquiries can be expensive fee wise and aren’t generally covered by accountants agreed annual fees.

Generally the risk of a Tax Enquiry is low for most businesses, although some are done at random.

Typical “hot spots” in an enquiry in respect of a Yoga Teacher may be:

  • Adequacy of records, especially income records
  • Unrecorded cash income
  • Validity of expenses
  • Apportionments of mixed private / business items
  • Validity of loss offsets

Enquires by HMRC may also focus on claims such as Tax Credits, eg whether you are working enough hours to claim them, or running your business on a commercial basis.


And What If You are Not Investigated?

One thing to note is that if HMRC don’t enquire into your return then entries go through unexamined.

This can lead to the erroneous assumption that your claim for something has been “approved” – it has not as there is no approval by default – it simply has not come to HMRCs attention.  In an enquiry you may be asked to justify expenses claimed, and their relevance to your business, so always have that in mind when you prepare your expenses.