Figures from 2024, estimate that the UK tax gap stood at £39.9 billion, illustrating the difference between the annual amount HMRC collects and the amount it believes is payable. As a result, HMRC has significantly ramped up its compliance efforts, investing £1.6 billion to fund the recruitment of compliance officers and debt management officers over the next 5 years.
With compliance officer’s headcount increasing by 10%, we predict HMRC will increase investigations to close the tax gap and ensure accurate reporting.
How Will This Affect Me?
If you are a business owner, self-employed, or an individual with complex tax affairs, the likelihood of a HMRC tax enquiry is expected to rise. From minor discrepancies in tax returns to industry-specific compliance checks, HMRC will be cracking down on tax evasion which can be a time-consuming, stressful, and costly process.
Why Would I Be Investigated?
HMRC might open an investigation into your tax affairs for several reasons, including:
- Random selection as part of HMRC’s compliance checks
- Discrepancies in your tax returns
- Late filings or repeated errors
- Sudden changes in income or expenses
- Operating in ‘high risk’ industries
- Reports from third parties about unusual account activity
What Can HMRC Check?
HMRC has extensive powers to review your financial information and request evidence to support your tax filings. They can check:
- Business and personal bank statements
- Tax returns and accounting records
- Payroll and employee tax contributions
- VAT and corporation tax records
- Digital transaction data from online platforms
What Will Happen If I Am Investigated?
If HMRC launches an investigation into your tax affairs, the process will vary dependent on the type of investigation but will typically follow this process:
- Initial Contact: HMRC will notify you of the enquiry through a letter or phone call, specifying the type of investigation, requesting records you should provide and a timeline for responding to their request.
- Document Submissions: You may need to provide documentation, such as tax returns, receipts, and business records upon HMRC’s request.
- Interviews and Further Questions: In some cases, HMRC may request an in-person interview to clarify your tax position and gather further information.
- Findings and Outcome: If HMRC are satisfied with your response and documentation, your enquiry will conclude with confirmation of compliance. However, if discrepancies are found HMRC may issue penalties and fines.
- Appeal Process: If you disagree with HMRC’s findings, you have the right to appeal the decision and provide further evidence.
Professional fees can accumulate quickly throughout this process, especially if the investigation is complex and with some investigations potentially lasting months or even years, this process can cause immense financial and operational strain.
What Can I Do to Prevent an Enquiry?
There is no guaranteed way to avoid an HMRC enquiry, however taking proactive steps can reduce the likelihood of being investigated:
- Keep Accurate and Timely Records: Ensure all financial transactions, and tax filings are documented appropriately and are kept up to date. By filing tax returns on time, you can avoid unnecessary scrutiny.
- Seek Professional Advice: At Arnold Hill & Co we can help review your records and ensure you remain compliant with HMRC regulations.
- Consider Tax Enquiry Fee Protection Service: We can provide an insurance-backed service protecting you from accountancy fees associated with any HMRC enquiry or dispute, providing you with financial security and expert representation in case of an enquiry. Get in touch with our team to find out more.
Want to protect your business from costly HMRC enquiries? At Arnold Hill, we have the expertise and experience to help you every step of the way. From a tax enquiry fee protection service to a dedicated team equipped with the with the latest government requirements to ensure you stay compliant with your tax filings, we are here to help. Contact our team today to see how we can help you!
About Arnold Hill & Co LLP
Arnold Hill & Co LLP is an accountancy and tax firm who have been delivering tailored accountancy services for over a century. Based in the heart of London, the firm is built on strong, lasting relationships and combine tradition with a forward thinking approach to meet the evolving needs of clients, both across the UK and internationally. The firm advise a range of clients ranging from UHNWI’s, family offices and entrepreneurs to growing businesses and multinational groups.
Drupen Patel - Personal Tax Manager
