For any small business, a tax investigation can be nerve wracking. You might not know what to expect or what the results could cost your business.
There are a number of stages to a tax investigation. Understanding them, and being prepared for them happening can make the process easier, saving you time and money.
The start of the investigation
A Tax investigation begins with a business being notified by HMRC that the investigation will be taking place.
This includes what information a company needs to provide to investigators and the timeframe they have to respond. Businesses as a priority should respond to this notice by organising and finding the information the HMRC have requested. This might involve professional financial assistance from an accountant, especially if there are problems locating specific paperwork or organising financial information.
The next stage
What follows is a degree of back and forth, as you are asked to respond to a range of queries from HMRC. This tends to be in writing, with requests for specific evidence being made and you needing to reply, usually within around 30 days.
While some investigations can end quickly with only a few pieces of information exchanged others can go on for months. Working alongside an accountant can provide you with expert help to deal with the investigation, however it is important to keep in mind that this can become extremely costly the longer an investigation goes on.
The end of a tax investigation
The conclusion of a tax investigation is where its effects are most strongly felt. Not only do you have to pay for any accountancy work but the results of the investigation could see you repaying large amounts of back dated tax contributions, or fines.
The fines and penalties for a tax investigation cover a number of areas, such as:
- Deliberate fraud or tax evasion, such as concealing assets
- Failing to register for VAT when your company turnover reaches the required tax threshold
- Failure to register a new business
- Not keeping adequate records, such as indemnities or debt records
The amount this can cost a business varies, with fines being anything from a percentage sum of unpaid tax or business earning to criminal proceedings being taken against your business. This can cause severe damage to a business, in extreme cases causing closure and bankruptcy.
You can appeal decisions but this also comes with legal fees and no guarantee you’ll be successful.
Protecting your business
You can avoid running into difficulty and risking a tax investigation by ensuring all of your financial details are up to date, tax is paid on time and you have accurate and detailed financial records.
This helps to avoid any issues which could trigger an investigation and also means you are organised enough to be able to potentially handle the investigation without the costly addition of an accountant.
You should also consider insurance, for example, FSB Tax Investigation Insurance helps to protect a business against any losses, especially as during an investigation you need to be responsive and potentially unable to devote as much of your time to your business.
Taking the steps to ensure your business is organised and protected can provide peace of mind, ensuring that even if an investigation occurs you can still keep your business running. That extra back-up can help support you, giving you the space to respond to HMRC queries and get back to running your business.
