Technically, all businesses are at risk of being investigated by HMRC due to random selection; 7% of tax investigations per year are selected at random. But, In most cases, tax investigations are triggered through some kind of wrongdoing, mistakes on accounts, or through a tip-off.
So, how likely are you to be investigated by HMRC? 7% of all HMRC tax investigations are randomly selected, therefore all businesses, even if they haven’t done anything wrong, are at risk of being randomly selected for a HMRC tax investigation. However, you’re more likely to be investigated if your accounts are incorrect, or you are suspected of wrongdoing.
Read on to learn more about the likelihood of being selected for a HMRC tax investigation, as well as what can trigger a HMRC tax investigation, and how long they can take.
- How Common are HMRC Investigations?
- What Can Trigger a HMRC Investigation?
- Do HMRC Do Random Checks?
- How Will I Know if HMRC Are Investigating Me?
- How Long Does it Take HMRC to Investigate Someone?
How Common are HMRC Investigations?
Only 7% of all HMRC tax investigations are random checks that aren’t triggered by wrongdoing, or any kind of suspicious activity. However, if your tax return looks a little odd, even just one element of it, that could trigger a tax investigation.
Some claim that HMRC have an annual quota of tax investigations to achieve which, true or not, could provide insight into why so many individuals and businesses are investigated for small mistakes on their tax returns, or minor inconsistencies. That being said, you’re more likely to be picked up for investigation due to inconsistencies and criminal activity.
However, if your business is VAT registered or has PAYE employees, you should still expect routine tax audits every 5 years or so.
What Can Trigger a HMRC Investigation?
Since such a small portion of tax investigations are random, you might be wondering what can trigger a HMRC tax investigation. Generally, tax investigations are triggered by inconsistencies in tax returns, mistakes, late payments, and tip-offs.
A HMRC tax investigation may be triggered by:
- Lateness in filing tax returns or making payments
- Errors on your tax return
- Inconsistencies or substantial variations between different tax returns. This could be a large rise or fall in income or costs
- Abnormally high costs for your industry
- The tax return is inconsistent with how your business is performing, or with your standard of living
- You have offshore accounts
- You have income from property
- You operate in a high-risk industry
- A tip-off
Do HMRC Do Random Checks?
HMRC does conduct random checks at a rate of 7% per year. However, they will not turn up unannounced; HMRC will usually contact you beforehand by phone or post to request various pieces of information, and to schedule a visit. It is important to respond to any HMRC correspondence about tax investigations as soon as possible in order to avoid penalties.
How Will I Know if HMRC Are Investigating Me?
HMRC will not turn up out of the blue to conduct a tax investigation; you will be notified by phone or post when HMRC opens a case on your business. They will either request information or simply inform you that an investigation has been opened.
However, the type of investigation opened depends on whether HMRC is conducting a random check, or what they suspect you of:
- Full Enquiry – HMRC will review the entirety of your business records under the belief that there is a significant risk of an error in your tax. This may also be triggered by criminal activity
- Aspect Enquiry – HMRC will look at a particular aspect of your accounts, such as inconsistencies
- Random Check – Random Checks can happen at any time to any business, not necessarily because of mistakes or wrongdoing
How Long Does it Take HMRC to Investigate Someone?
A HMRC tax investigation can take anywhere between 3-16 months, depending on the scale of the investigation, and how much information HMRC has requested. Smaller investigations can take between 3-6 months, whilst larger, full-scale investigations can run for up to 16 months. However, full compliance and swift responses will help to reduce the length of the investigation.
Tax Advice Southend
ARB Accountants offers a range of tax advice in Southend, including for tax investigations and tax audits. Our chartered accountants in Southend will help to remove the worry and stress from your HMRC investigation, whether you’re facing a single issue dispute, formal enquiry, special enquiry, or just a random check.
Get in touch with us today to see how we can help ease the burden of a HMRC tax investigation, as well as saving you time and, potentially, a lot of money.