The thought of an HMRC inspection puts the wind up many small business owners. How do you survive one, and what advice do the experts give?
12 steps to survive an inspection by HMRC
If your business raises any of a number of alarms with HMRC, they might want to inspect your accounts. It’s slightly more likely if you’re a cash business simply because your paperwork trail isn’t as clear. And uncertainties about your filings, tax return entries could raise the alarm at their end. If you’re scheduled for inspection, what can you do to make certain it goes smoothly? Here are our top tips.
- Bear in mind which kind of inspection you’re undergoing. There are two:
* Aspect enquiries focus on your tax return,
* Pure enquiries focus on a broader landscape. But beware,
* An Aspect enquiry can turn into an Enquiry if the inspector’s questions reveal the need for more exploration. Be prepared….
2. The enquiry starts when HMRC gives you written notice telling you what they need to know and which information they want to check. You reply in writing, then you’ll need to wait 30-60 days for a response
3. Take professional advice even if the enquiry is routine and you’re confident everything’s OK. They’ll help you word replies to HMRC properly so things go as smoothly as possible, with fewer delays and less wasted time
4. Check your rights as laid down in the Taxpayers’ Charter
5. Familiarise yourself with the HMRC Litigation and Settlement Strategy, about how HMRC are expected to conduct themselves, then you’ll know if you start being treated unfairly
6. You’re usually given around 30 days’ notice from the date of the enquiry notification letter. Prepare for the inspection carefully in advance, making sure your accounting records are clear, complete and ready for inspection
7. If you need to actually meet an inspector in person, ask for an agenda beforehand to help you prepare, and make sure everyone concerned sticks to it
8. Prepare for the long haul – the simplest enquiry can drag on for 3-6 months when there’s more than one round of correspondence. If things are complicated, it can take years
9. If HMRC recommends changes, pull out all the stops to meet the deadline. If you have to adjust your tax return, timely co-operation and response means you’re less likely to be fined. If you are fined despite doing everything in time and properly, it should be less than if you’d dragged your heels
10. When you and HMRC have finally agreed your tax position, they’ll either send you a closure notice or list the enquiry to appear at a tax tribunal. Be mentally and emotionally prepared for a tribunal just in case it happens
11. Throughout the entire process, bear in mind that HMRC is becoming more aggressive with penalties on additional tax, and they don’t just look at the numbers. They will also make moral judgements, like deciding you’ve been deliberate rather than careless, or haven’t made an innocent mistake but failed to take reasonable care. Judgements like these drive the penalties HMRC hands out, and you should challenge anything that seems unfair or heavy-handed
12. Buy tax investigations insurance to cover professional fees, but remember you have to buy it before submitting your tax return. If you buy a policy when the enquiry has been opened by HMRC, you won’t be able to claim
The threat of an HMRC inspection needn’t be a nightmare, especially with an expert on board. Give us a call.