Every year HMRC investigates thousands of business and personal tax returns, checking their compliance against the UK tax regulations. While this compliance activity raises a significant amount of revenue for the government, the costs associated with defending against these enquiries can be high. As such, many accountants have started to offer a service called ‘tax investigation protection’ or ‘fee protection’ which, for a small annual fee, protects against the additional professional fees that can arise as a result of an HMRC enquiry.
There are several triggers that can lead to an HMRC investigation, but the most common is submitting an inaccurate return or account. This may be the result of a simple mistake, or even fraud and money laundering. If any issues are found during the course of the investigation, penalties can be imposed depending on how serious the error or omission was and whether it was intentional or not. This can quickly escalate into an unexpected bill, potentially causing a significant amount of stress and disruption for the business.
Forensic Tax investigation accountants are trained to spot the signs of criminal actions that appear in accounting records, such as fraud and embezzlement. They are often used by the police to help catch criminals and prevent them from getting away with their crimes. In some cases, they can also provide expert evidence for a defence at court.
A tax investigation can take a great deal of time and resources to resolve, especially if the case goes to court. This is why a good relationship with your accountant is important, as they will be able to support you throughout the entire process. They will ensure that your returns and accounts are always up to date and comply with the laws of the land, and will also be able to give you advice if anything seems unusual or wrong.
HMRC investigations can take two forms – full or aspect enquiries. A full investigation is when they have specific concerns about your tax affairs and can go back as far as six years. They are usually triggered by suspicious activity or when they think that you have made serious errors in your filings. They can also focus on VAT, corporation tax or capital gains tax.
Aspect investigations are less serious. They are triggered by a particular area of your account, for example, if they notice inconsistencies within part of your last tax return. This could be a result of a change in your trading structure, or it could be due to a query over a specific item on the accounts. Aspect enquiries are more likely to be a result of HMRC’s automated checks than full investigations. They are more common for VAT-registered businesses and those who pay employees through PAYE.