Whether it concerns your personal or business affairs, HMRC tax compliance checks can be an intimidating process that can also have significant impacts on your stress levels. However, with our help as accounting experts you can take proactive steps to prepare for the procedure and master it. Here is what you need to know.
Facing an HMRC tax compliance check? First and foremost, keep in mind that such an inspection can be triggered erroneously or at random by HMRC. Therefore, it does not necessarily mean harm to your business or person. Nevertheless, tax compliance checks are inconvenient under any circumstances and certainly an occasion to double-check your records just to be compliance check proof.
At BH1 Accounting, we are specialists in preparing you for this investigation no matter if it is a full enquiry or just an aspect enquiry – starting right now with answers to the most frequently asked questions about HMRC tax compliance checks.
An HMRC compliance check is a review by HM Revenue & Customs to ensure your business is paying the correct amount of tax and following UK regulations. This can cover areas like VAT, PAYE, Corporation Tax, or bookkeeping accuracy. While it is not always a sign of wrongdoing, the check often involves detailed questions and document requests. Small to medium-sized businesses may find them particularily stressful or time-consuming as they tend to have less experience with them (especially in sectors like e-commerce, property, and hospitality from our experience). If you feel the same, then expert support can make a real difference. After all, understanding what HMRC is asking and responding unambiguously are key.
HMRC does not always disclose why a compliance check is started, but common triggers include inconsistent tax returns, large expense claims, late filings, or unusual financial activity. Businesses in fast-moving industries like e-commerce or cash-heavy environments like hospitality are particularly scrutinised, though it can happen to any nature of business (and also individuals). Moreover, HMRC may act on tips, software flags, or even random selection – all of which can be related to records of up to 20 years ago.
Any tax, such as income tax, NIC, VAT, sales records, purchase invoices, or corporation tax, may be subject to inspection. HMRC may request supporting documents to justify your calculations. In the UK, you are legally required to keep your records for six years (though we recommend keeping all of them at any time). These can be parts of aspect enquiries or full enquiries, depending on whether HMRC wishes to investigate only a specific aspect of your records or all your tax returns.
HMRC can visit your personal residence, business premises, or adviser’s office to review your tax affairs, examining the physical establishment and profit-generating operations. We highly recommend attending any checks with a competent professional, as the process can be quite technical, and your responses can impact the outcome of the check. In addition, if you fail to provide the requested information or refuse the HMRC’s visit without a valid reason, you can be penalised for it. On this account, it is very critical to be aware of HMRC’s rights during the investigation as well as your own.
The duration of a compliance check depends on the case. It may take from a few weeks to several years. If the taxpayer’s records are not in order and difficult for HMRC to comprehend, it may delay the process. In some cases, the duration may also be extended due to the responsiveness of HMRC. Thus, no one can estimate the exact duration of the check before it reaches a point of completion.
Depending on the case, HMRC may issue penalties, charge interest on unpaid tax, or in severe cases begin investigations into tax fraud. But to give one or two very common example for better understanding: you might be a property or e-commerce businesses in London with just a minor error in VAT or undeclared income and still face fines of up to 100% of the tax owed. Naturally, this hurts your finances and throw you back on your entrepreneurial journey. Not to mention that serious findings of tax fraud can be punished with terms of imprisonment. Therefore, it is highly recommendable to act early or even proactively before you are asked for a compliance check.
Do not give up on your case even if the first result of the check is not what you wanted. If the first check provides an unsatisfactory outcome, you can request an independent review to be conducted by a different HMRC officer. If you still find the result of the independent review disagreeable, you and your accountant can appeal to the tax tribunal. These options are officially listed by HMRC itself and common to the institution. Therefore, do not be afraid to object and fight for your case. If you struggle with this, let us know and we will be happy to help you out!
BH1 stands out as a leading accounting firm in London, boasting a team of tax experts with much experience in HMRC compliance checks. We understand that each company and case is unique, which is why we individualise our strategies to ensure a logical and persuasive approach for every check when dealing with HMRC.
And know that we are tenacious: If the initial check result is not the one you want, we do not give up. Rather, we develop a new strategy to overturn the outcome. This persistence pays off for you as most of our clients who have faced HMRC compliance checks with our guidance have achieved terrific results and expressed high satisfaction with our services.
Furthermore, for businesses that are not yet subject to a compliance check, we also offer proactive reviews of your tax affairs to minimise risk and prevent penalties.