What can you expect in a HMRC tax inspection?

Updated: 5th February 2021

Limited companies have come under increased scrutiny by HMRC in recent years, as the government strives to recover lost tax revenue and deter companies from tax evasion. A small number of businesses are chosen at random for routine checks, but others may be targeted by HMRC for a variety of reasons.

Ambiguous figures on a tax return, persistent late filing, or a series of errors, can all result in a tax inspection being commenced. The fact that HMRC has wide powers to obtain information when making a case, sometimes from third parties, can also be intimidating for directors.

What else can trigger a tax inspection?

If HMRC suspects you are deliberately delaying tax payments, you have made serious errors, or a return is submitted after the deadline, the business is likely to be targeted.

Other factors can also trigger a tax inspection:

A significant change in your figures from one year to the next – for example, a large increase in business expenses
A vast difference in your figures when compared with other businesses in the same sector
Running a cash-based business, or operating within other high risk industries such as construction and property development

If you feel your tax return might attract attention from HMRC, you should be proactive and explain any obvious changes or fluctuations in the space provided on the form. As a company director you remain responsible for your tax affairs and for any information submitted to HMRC even if you have employed a third party, such as an accountant, to do this on your company's behalf.

Two main types of investigation

In general terms, there are two different levels of tax inspection – ‘aspect’ and ‘full.’ HMRC might choose to investigate a particular aspect of your company’s tax return - this will be more straightforward than a full investigation which generally covers all the company’s business records.

If errors have been made, HMRC may decide to extend their investigation. They could also ask to look into your personal tax affairs as a director.

Begbies Traynor is the UK’s leading professional services consultancy, and has many professional dealings with HMRC. We understand their powers, and can offer valuable advice to mitigate the risk of financial penalties.

During the inspection

If an accountant acts as your agent, they will receive notification of an inspection. HMRC could request to visit your business premises, your accountant’s office, or for you to attend their offices. Sometimes they simply ask for information to be sent, and then return with their questions following inspection of your tax returns and records.

An investigation usually begins with one year of accounts, but may be extended to cover a lengthier period if errors have been made. They may request an in-person meeting once their questions have been finalised, although you are not obliged to attend.

You may already be aware of certain anomalies in your accounts, and if this is the case, it is better to proactively bring them to the inspector’s attention and offer an explanation. This will save time, and in the long run can help to reduce the penalties that might be levied.

HMRC have a reputation for being heavy-handed, particularly with those they suspect of deliberate tax evasion. Although the body has sweeping powers, they may demand information to which they have no legal right, and which you do not wish to provide.

Begbies Traynor will offer the guidance you need if you are facing a tax inspection. We have over 80 offices nationwide, and can arrange a confidential same-day consultation to quickly establish your tax position. 

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