More than ever before, HM Revenue and Customs (HMRC) are cracking down on individuals and businesses who aren’t paying the right amount of tax. Investigations can be invasive, worrying, long and expensive.
But you can avoid those sleepless nights and make sure you’re protected. Here’s what you need to know.
What is a tax investigation?
A tax investigation is when HM Revenue and Customs (HMRC) decide to take a closer look at the finances of an individual or business. It is an official inquiry to ensure that individuals and companies are paying the right amount of tax.
During the investigation, HMRC may contact your accountant and will look at things like:
Tax inquiries can be inconvenient, stressful and lengthy. If you require professional assistance when dealing with HMRC, you will incur additional accountancy fees, even if you’ve done nothing wrong.
Why might HMRC conduct a tax investigation into your business?
HMRC may want to look at your finances for a number of reasons — don’t assume it’s because you’ve made a mistake or done something wrong. A tax investigation may be triggered by:
What are the possible outcomes?
The outcome of your tax investigation will depend on whether you were deemed to be at fault and the severity of any wrongdoing on your part.
If HMRC find problems they don’t believe were due to fraudulence or negligence, they will advise you on how to put it right and give you 30 days to do so. If you are asked to pay a penalty, extra tax or interest, we advise you pay quickly. You may be asked to pay a penalty if HMRC believe you made significant mistakes or deliberately concealed relevant information.
If you’re found to be at fault, HMRC will almost certainly monitor future financial activity, so make sure you’ve understood what went wrong and taken steps to ensure you don’t make the same mistakes again.
Why invest in tax investigation insurance?
Tax investigation insurance is a policy that covers the accountancy fees incurred in the event of HMRC carrying out a tax investigation into you or your business. Any penalties or additional tax found to be owed is not covered by the insurance.
It’s similar to car insurance in that you only need it in the event of being investigated. On average, full HMRC investigations can last 16 months and cost a potential £5000[i] in accountancy fees without insurance. Investing in cover considerably reduces your potential overall bill.
A tax investigation can happen to anyone. Investing in tax investigation insurance will give you peace of mind that you’ll be protected and have the right help available from your accountant, should you be selected. Most policies cover costs as well as providing help and advice from experts throughout the process.
What are the risks of not having insurance in place?
The bottom line is that the tax investigation process is time-consuming and costly. Even if, at the end of the inquiry, HMRC finds your tax returns to be accurate and complete, you will still incur the costs of working with your accountant to have provided all of the necessary information. If you are found to be at fault, deliberately or otherwise, you will have to pay penalties. With tax investigation insurance, your accountancy costs will be covered.
Tax investigation insurance is well worth the investment, but it’s also worth getting in the habit of using accountancy software such as Xero to manage your bookkeeping effectively, as this will make information requests from HMRC far easier to deal with, should they occur.
Want the comfort of knowing you’re covered? Talk to us and we’ll tailor the right package to protect your business.