HMRC Tax Compliance Checks: What do They Mean for your Business?
HMRC Compliance Checks are a formal investigation into your tax affairs, that begin with a letter called an ‘Information Notice’. Receiving one of these will inform you that HMRC is looking deeper into one or several aspects of your tax, and the letter will request more information from you.
Are Compliance Checks Random?
The vast majority of HMRC compliance checks take place because there are some concerns about the integrity of a company’s tax return. There simply aren’t the resources to conduct routine tax inspections anymore.
So, if you receive notice from HMRC that it wants to verify your tax position, it is safe to assume HMRC has grounds for believing your business has underpaid its tax as a result of negligence or fraud.
HMRC Compliance Checks are normally by conducted by 3 departments:
- HMRC Specialist Investigations
- HMRC Local Compliance Fraud
- HMRC Local Compliance
When you receive notice of an investigation into your company, it is possible to get an idea of the severity of the investigation from the name on the letter. The HMRC Compliance team conducts routine tax investigations into income tax, corporation tax, PAYE investigations, VAT investigations and hidden economy tax investigations, while HMRC Specialist Investigations deals with suspected cases of serious tax evasion.
Any threats of legal action should be noted and you must seek professional insolvency advice immediately. Have awareness that a sole trader with substantial tax debts can be made bankrupt and a company tax debt can mean HMRC winding up petition.
Why has Your Company Received a Compliance Check Letter?
If your business has received notification of a tax investigation, HMRC’s Local Compliance team will have taken various factors into account, such as risk, means, industry knowledge and even the results achieved by similar businesses in your area. It’s also likely the inspector will have compiled information about your business from third parties. This can include banks, local authorities and even informants.
PAYE and VAT Compliance Investigations
This type of investigation is fairly common and something most businesses should expect at some point in their lifecycle. Routine investigations used to be commonplace, but nowadays, the likelihood is HMRC will have some suspicion before the visit is arranged.
Corporation tax Compliance Investigations
Corporate tax investigations fall into two groups: aspect tax investigations and full tax investigations. Aspect tax investigations are conducted by HMRC Local Compliance, and only usually look at specific areas of the tax return submitted, such as travel or subsidence expenses.
A full tax investigation is a much more serious matter and involves a thorough investigation of the company, usually by looking at the books and accounting records for one particular year. If HMRC launches a full tax investigation, it clearly believes something is wrong with the tax affairs of your business.
Income tax Compliance Investigations
Income tax investigations are split into the same two categories as corporation tax investigations above. An aspect investigation will involve a detailed look at specific aspects of the tax return, while a full investigation is much more serious. If it is established that income tax evasion has taken place in one year, HMRC will assume the same has occurred in other years.
Compliance Check Time Limits
HMRC has an official time limit of 5 years and 10 months after the end of any tax year, after which they can’t investigate for compliance. This can be extended to 20 years where they suspect fraudulence or negligence of some kind.
Are You Being Investigated? We’re here to help?
If your business has been notified of a forthcoming tax investigation, HMRC will have suspicions something is wrong and will conduct an investigation with the aim of increasing the amount of tax due. At Company Debt, we have extensive experience working with HMRC tax problems and helping our clients negotiate tax payment plan settlements. Sadly in some cases the tax owed may mean the business needs rescuing via a pre-pack or even liquidating. This needs to be completed in a manner which the director is protected but HMRC can achieve their aims too.
Through the proper management of any tax investigation, the potential tax, interest and penalties applied can be reduced. Contact our team today to discuss your circumstances confidentially.