What Triggers an HMRC Investigation?

HMRC investigations can place strain on even the most experienced business owners. While HMRC is at liberty to look into the affairs of any taxpayer it chooses, it tends to focus on those identified as being at high risk of underpaying tax. This does not necessarily mean those taxpayers have done anything wrong; sometimes, they may raise red flags simply by virtue of the sector they operate in or because they have filed their returns late. However, understanding what triggers an HMRC investigation can help you reduce the risk of coming under the scrutiny of HMRC and facing an HMRC investigation.

If you are facing an HMRC investigation or need legal advice and support in connection with any other HMRC-related issue, we can help. As specialists in this niche area of legal practice, we offer straightforward, commercially focused advice to facilitate the swift resolution of your issue and allow you to get on with running your business.

For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

 

What is an HMRC Investigation?

 Each year, HMRC opens thousands of investigations into taxpayers’ affairs to check that they are paying the right amount of tax and that their affairs are in order. Its powers are extensive, and it can open both civil and criminal investigations. However, it tends to favour civil ones and usually reserves its criminal powers for specific types of cases, such as those involving significant tax evasion or high-profile figures.

Many HMRC investigations amount to nothing, with the officers confirming that everything is in order. If the investigation uncovers anomalies, the consequences depend on whether the anomalies were deliberate, reckless, or innocent.

 

What triggers an HMRC Investigation?

 HMRC has access to a plethora of information about an individual’s or business’s financial affairs. It uses sophisticated software to cross-reference your tax returns against that data and highlight any anomalies. If HMRC notices any, it may wish to take a closer look at your financial records and open an HMRC investigation.

Some of the most common triggers for an HMRC investigation include the following:

• Financial discrepancies.

The information provided on your tax return being at odds with other sources, such as your bank accounts, can be a red flag for HMRC and may lead it to open an HMRC investigation into your affairs.

• Inconsistencies in your tax returns.

If your income appears to fluctuate considerably or you suddenly start claiming high expenses, HMRC may open an investigation to ascertain the reason for the apparent inconsistencies. You can mitigate the risk of coming to HMRC’s attention in this regard by ensuring your tax returns are accurate and make sense. Being able to effectively explain any consistencies in the event of an HMRC investigation will facilitate its swift resolution, so keeping detailed records of your business’s affairs is essential.

• Late submission of tax returns.

Consistently filing your tax returns late can give HMRC cause to investigate your affairs. While dealing with tax issues can be complex and time-consuming, you should make doing so a priority to avoid any delays leading to an HMRC investigation.

• Industry targeting.

HMRC may identify you as a candidate for an investigation purely by virtue of the sector in which you operate. For example, industries that regularly deal in cash, such as hospitality, property development, and construction, may come under particular scrutiny by HMRC.

• Tip-offs.

If HMRC receives a tip-off about potential issues in your tax reporting, it may open an investigation into your affairs.

 

How can you mitigate the risk of triggering an HMRC Investigation?

You cannot eradicate the risk of triggering an HMRC investigation entirely since it has the power to inspect the affairs of any business it chooses. However, there are a number of steps you can take to reduce that risk. They include the following:

• Ensuring you file your tax returns on time.
• Keeping comprehensive financial records to assist you in preparing your tax return, so the information you provide is correct.
• Double-checking your tax returns before filing them to ensure they are accurate.
• Keeping an eye on the sectors currently being targeted by HMRC to see whether yours is currently on its radar.
• Ensuring that you have comprehensive information and documentation to address any queries raised by HMRC swiftly and effectively.

If, despite your best efforts, HMRC decides to investigate your tax affairs, our HMRC solicitors and barristers are on hand to provide the advice and support you need. We will guide you through the process, ensuring HMRC follows the correct procedures and addressing any issues that arise on your behalf.

 

For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.