Being self-employed does not exclude you from the possibility of investigation if HMRC feel that you have not been conducting your tax affairs compliantly.
In fact, since 2014 HMRC have been putting a greater focus on ‘ordinary taxpayers’, further indicating an increasingly aggressive approach to combatting tax evasion, avoidance and fraud. In addition to a number of random checks carried each year, HMRC will look more deeply into any case which sparks their interest.
What triggers HMRC Investigations?
HMRC do not relate the exact conditions which trigger investigations, but ultimately anything which arouses their suspicion of anything but perfect tax compliance can trigger an investigation. They operate on a risk-assessment basis which means there are certain situations which catalyse their internal compliance teams into a closer analysis of someone’s tax affairs.
In the case of self-employed individuals, this might include:
- Discrepancies within your accounts – For example, very low cash declarations in a business which commonly uses cash payments.
- Where your records differ from others in your line of work –
- Information offered by a third party – HMRC’s Tax Evasion hotline is one of several measures the government have taken for facilitating informants to offer them information.
- Data gathered by its powerful computer system ‘Connect’ – HMRC’s computer system was designed by a defence contractor and has access to an almost unparalleled spectrum of public records.
- When someone has been late with their tax returns – Some people suspect that HMRC take late filing of tax returns as a sign of an overall disorganisation, with the implication being that such individuals are more likely to try and cut corners with their tax compliance.
- Where any kind of deliberate concealment, deception, conspiracy or corruption is suspected
- Where individuals have a record of prior unlawful conduct
- Omission of Income – Since all the banks have a legal duty to report their data to the government, any discrepancies will be quickly picked up on.