Tax investigations are something that many business owners may have to go through. A tax investigation is often perceived as something bad but it can also be undergone at random or if your particular industry is being targeted by HM Revenue and Customs (HMRC).
Who can be tax investigated?
A tax investigation on your business may be brought up by HMRC if you are under suspect of hiding your income or fraudulent activities. There are certain red flags that HMRC can pick up on to suspect you of omission (leaving out information about your taxes). Some of these red flags include:
- Filing your tax returns late
- Filing your taxes incorrectly
- Income has dramatically increased in a short amount of time
- Income goes up and down substantially
- You are claiming high expenses in proportion to your income
Sometimes the tax investigations are random or can be done if you are in a HMRC target area. Target areas are industries that are known for being high-risk for tax fraud. This can be industries that regularly take cash payments or in a specific geographical area. Property income is seen as a common area for tax fraud and can often be a targeted sector.
What to do if you get investigated
HMRC will contact you by post to let you know that you are being put under investigation. When you get the letter, you should read it very carefully and if you feel that you are unsure about some of the information in the letter you should hire a professional accountant in Essex to give you support and advice.
How long will a tax investigation last?
Tax investigations are different so the length of one will vary. For aspect tax investigation, which only focus on a certain aspect of your taxes, can last from 3 months to 6 months. Full tax investigation can last from anything up to 16 months.
Can i opt out of an investigation?
You cannot opt out of an investigation. Once a tax investigation by HMRC is opened, you cannot appeal against it.
How far can HMRC investigate?
HMRC can go back as far as 20 years into your tax returns. However, they do not typically do this and will usually only go back as far as 6 years.
Penalties involved with tax investigations
In cases where they discover deliberate fraud, you will be prosecuted. This is especially true for cases where large amounts of VAT and PAYE are concerned.
In order to get through an investigation get in touch with a professional. Your Essex accountant can help you get through the tax investigation and help you get the right documents together. Tax investigations are made easier with C&C Accountancy in Hornchurch. HMRC can ask for invoices, bank statements, credit card statements, VAT records, payroll records and job quotes.