As a self-employed individual with no employees and who is not registered to pay VAT, the most likely compliance checks you will be subject to are income tax and corporation tax investigations.

Those who are self-employed but have incorporated their businesses, i.e. registered it as a limited company, could be investigated for corporation tax and income tax, while a self-employed individual with an unincorporated business could only be investigated for income tax improprieties.

Income Tax Compliance Checks

Income tax compliance checks fall into two groups: aspect investigations and full investigations.

  • An aspect investigation will be conducted by HMRC’s local compliance team and will only usually look at one or two aspects of the tax return you have submitted, such as capital gains relief or your expenses.
  • Full tax investigations are far more serious and involve a thorough investigation into your self-assessment tax return. HMRC will look at all of the business records for a whole year and check all other entries on the tax return.

As part of the compliance check, HMRC may wish to meet the individual under investigation. If this is the case, it is a good indication that HMRC believes there is something wrong with their tax affairs. When conducting their investigation, HMRC is entitled to look at records supporting the tax returns and nothing else. It can be the case that the information requests from HMRC go well beyond their legal limits, such as requests to see private bank statements and credit card statements, so it’s essential you understand your rights.

It is possible for an aspect income tax compliance to check to turn into a full investigation if HMRC believes there are serious issues with an individual’s tax affairs. If errors are found during the income tax compliance check, HMRC will often assume that similar errors have occurred in previous years and may wish to make adjustments for those years as well. If there are no errors found in the compliance check, HMRC should close down the investigation.

Corporation Tax Investigations

If you are a contractor or a small business owner who operates through a limited company, you could also be subject to a corporation tax compliance check. Like income tax investigations, corporate tax compliance checks come in the shape of both aspect and full investigations.

HMRC will only conduct compliance checks into a business where it has identified a risk and believes further tax may be due. Generally, as is the case with income tax compliance checks, corporation tax investigations are conducted into the last tax return that has been filed and businesses will be notified within 12 months.

To inform an individual of a corporation tax compliance check, notice will be sent in writing to the company’s registered office. The investigation will only relate to the tax affairs of the company and not its director. To investigate the director’s tax affairs, HMRC will have to open a separate income tax compliance check.

Need Help?

If you have tax arrears, penalties or surcharges and you cannot pay them when HMRC want, this can have serious consequences. Equally, if you have a compliance visit and you are concerned, we are happy to advise or negotiate a settlement. For help call: 08000 746 757.