Reasons Why HMRC Might Start a Tax Compliance Check on Your Business

  • The triggers that might set off an audit
  • Avoid ringing any alarm bells
  • But sometimes it’s just down to luck

Michael Godsmark,

July 16, 2018

 

It’s the thud of the brown envelope on the doormat that we all dread. A letter from the tax office to say they want to investigate your accounts.

The thought of an audit by the tax office (or a compliance check, if we’re going to use the right terminology) is enough to strike fear into any small business owner. Recent research commissioned by HMRC themselves found that over half of all small businesses felt the investigations were too intensive, and that HMRC did nothing to help minimise disruption while they occur.

HMRC famously keep mum about what might trigger a compliance check, but there are a sure-fire number of reasons (and some well-educated guesses) as to what might raise red some red flags.
There’s a huge difference in your numbers

Profits fluctuate naturally from year to year, but if, you bagged £500,000 in profit one year and next year it fell dramatically to £50,000, questions will be asked. There may be a perfectly good reason for this – maybe you became ill, started a family, or your industry took an unprecedented hit. Whatever the reason, it’s wise to tell HMRC when you’re filing your tax return that year – there’s a specific box that lets you input anything of note that happened over the year, so use it!

 

You’re always late with your tax returns

If you see the end of January as merely a guideline and not a deadline (that applies to almost three quarters of a million of you!), then not only are you liable for a fine, but a pattern of consistently late returns or payment of tax bills could trigger an audit. The solution to this one is simple – don’t be late!

 

You’re not very careful with your numbers

Honest mistakes can be made, but if these are repeated each year, it’s going to start flagging you up in HMRC’s systems. To combat this, take a bit of care over your books. Or (and we’re kind of biased here) hire a great accountant to do them!

 

Dodgy employment of your spouse

While employing your spouse and paying them a salary can be a great way to save some money in a business, they have to actually work for you, and the salary they earn must be commensurate to the work they do! If you’re paying a partner a handsome wage but PAYE records also show your partner is slogging away doing 60-hour weeks elsewhere, HMRC are going to wonder (with good reason!) where they’ve got the time to be working for you too.

 

Someone shops you

Spurious claim or not, if someone dobs you in to the tax office for potential fraud, they’re likely to come knocking at your door to check things out. Vengeful ex-partners, former business associates and wronged customers are the most likely culprits. It pays to be nice in business!

 

It can be totally down to chance

HMRC have always said that audits can be done on an entirely random basis (though this is often questioned!). They claim that a certain percentage of businesses are plucked out of the computers to undertake a compliance check each year. Kind of like winning the lottery, but in reverse… and you never really wanted to buy a ticket in the first place.

 

Tax compliance checks are a nuisance, but as long as things are all above board, you’ve nothing to worry about. And if you do get that dreaded letter, we can help make things easier. Call us today to have a chat.

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About The Author

Michael is an enthusiastic and cheerful individual who, when not hard at work, enjoys mountain biking, cooking curry and travelling to new places.

   @MichaelWDVLL

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