What Can Trigger a HMRC Investigation?

Having your income & tax payments looked into can be a stressful and difficult time, even if it’s a random check and you haven’t done anything wrong. At Blue Skies we have decades of experience working with companies and individuals who are the recipient of an investigation. If you or your business have triggered an HMRC investigation and need support in preparing & sending documents or just understanding your liability, speak to our team today on 01767 699996 or thecrew@blue-skies.tv.

When it comes to HMRC investigations, there are several common triggers that can lead to an audit that you need to be aware of.

Discrepancies in Your Tax Returns

One of the most common triggers for an HMRC investigation is a discrepancy, or discrepancies, in your tax returns. A ‘discrepancy’ can mean a number of things when it comes to a tax return, but often it refers to mistakes in your figures, errors, or inconsistencies in your tax returns that are not in line with your industry's typical numbers. For example, if you report significantly lower revenue than your competitors, this could raise red flags for the HMRC.

Frequent Amendments to Filed Returns

A second possible trigger for an HMRC investigation is frequent amendments to filed returns. If you are constantly making changes to your tax returns, this could suggest that you are not taking the time to properly review your returns before submitting them. This could also suggest that you are trying to cover up mistakes or discrepancies in your returns. This, in turn, can lead HMRC to verify & validate the income and costs that you have reported with a more detailed review of your finances.

Late Filings and Payments

Late filings and payments can also trigger an HMRC investigation. If you consistently file your tax returns late or make late payments, this could suggest that you are not taking your tax obligations seriously. This could also suggest that you are trying to avoid paying your taxes or that you are engaging in tax evasion or tax fraud - both of which are extremely serious criminal offences.

Remember - HMRC investigations can be triggered by a wide variety of factors, from accidental errors to intentional misreporting of finances. The reason behind your investigation will often dictate the length of time that your HMRC investigation takes and how far back HMRC can look during the investigation.

Specific Areas of Scrutiny

If you’re concerned about a possible HMRC investigation, it’s important to be aware of the specific areas that are likely to attract scrutiny & attention. Here are some of the most common areas to be aware of:

Income and Expense Claims

HMRC may investigate your income and expense claims if they notice inconsistencies in your tax returns. This could include discrepancies between the amount of income you have declared and the amount of expenses you have claimed. To mitigate the risk of having an investigation based on an inconsistency, you need to ensure that all of your income is accurately declared and that any expenses you claim are legitimate and supported by receipts.

VAT Returns and PAYE Records

VAT returns and PAYE records can also be a focus of HMRC investigations. You should ensure that all VAT returns are filed on time and accurately reflect your business's transactions. Similarly, you must keep accurate PAYE records and ensure that all tax and National Insurance contributions are paid on time.

Offshore Bank Accounts and Foreign Income

HMRC has become increasingly focused on offshore bank accounts and foreign income in recent years. If you have offshore bank accounts or receive foreign income then you need to declare this income correctly on your tax returns and make sure that you have accounted for all income and expenses correctly. Failure to do so can result in severe penalties.

HMRC are also entitled to carry out random checks, which means that even if you’ve given them no reason to doubt your income or expenses you may still be audited. The random check may only be a top-level review of your income & expenses, but there can still be penalties or fines if errors or inconsistencies are found.

Consequences of HMRC Investigations

Financial Penalties and Interest

One of the most common consequences of mistakes, errors on inconsistencies being found during an HMRC investigation are financial penalties and interest. If HMRC finds that you have underpaid your taxes, you may be required to pay additional taxes, penalties and even interest on overdue payments. These penalties can be significant, and can quickly add up if you owe a large amount of money.

Criminal Prosecution and Penalties

In some cases, HMRC investigations can even lead to criminal prosecution! If HMRC finds evidence of tax fraud or other criminal activity, you may be subject to criminal penalties, including fines and imprisonment. However, criminal investigations are rare, and are typically only pursued in cases of serious tax fraud or other criminal activity.

Appeals and Representation

If you are subject to an HMRC investigation, you have the right to appeal any decisions made by HMRC. You can also seek representation from a tax professional or legal expert to help you navigate the investigation process if you aren’t sure of the correct process or next steps. This can also be particularly helpful if you are facing criminal charges or significant financial penalties.

Preventative Measures and Best Practices

To avoid triggering an HMRC investigation, there are several preventative measures and best practices that you can adopt. These measures will help you to maintain accurate records, seek professional tax advice, and understand compliance and industry standards.

Maintaining Accurate Records

One of the most important things you can do to avoid an HMRC investigation is to maintain accurate records - being proactive rather than reactive!. Keeping detailed records of your income, expenses, and other financial transactions will help you to demonstrate your compliance with tax laws and regulations - you should also ensure that these are kept up-to-date and well organised as this will help you provide the right information to HMRC should you ever be investigated.. 

Seeking Professional Tax Advice

If in doubt, seek professional tax advice. An accountant or tax expert can help you to understand your tax obligations and ensure that you are HMRC compliant throughout the year. They can also help you to identify any potential issues or red flags that could trigger an HMRC investigation. By working with a professional, you can ensure that you are taking all necessary precautions to avoid an audit.

If you or your business are facing an HMRC investigation, or if you want to minimise your risk of being investigated contact the Blue Skies team today for a no-obligation chat. Find out how we’ve helped thousands of individuals like yourself over the last 20+ years.

Speak to our team on 01767 699996 or thecrew@blue-skies.tv