With tax investigations by HMRC on the increase, more and more business accounts are coming under rigorous scrutiny.
But proving your tax accounts are correct and compliant is a lengthy exercise involving significant time, regular correspondence and professional expertise. And that means big costs.
So how can you avoid it?
The truth is, there is little you can do to stop an investigation if your company has been targeted by HMRC. But you can evade hefty accountancy bills by protecting your business with a fee protection service that covers you in the event of a tax enquiry.
Who is liable to be investigated?
Not just a theoretical possibility, tax investigations happen regularly, and to businesses just like yours. It’s not just companies with questionable tax records that are investigated – it could happen to you even if you conduct all your tax affairs above board.
Such was the case for an electrician client of ours that was investigated by HMRC because “his expenses (were) high compared to his income”. His accounts reflected the fact that he ran his business as a lifestyle business, rather than wholly commercially, but HMRC don’t account for this.
What does an investigation entail?
Tax investigations are long-winded, time-consuming, and can be complex.
Our client was asked to present exhaustive evidence for his tax return, including all supplier statements, all sales and purchase invoices and calculations. Anything he didn’t already have needed to be provided by his supplier or bank – which added to the complexities and length of the process.
On receipt of these documents, a 2-hour interview was conducted by 2 tax inspectors at the same time. A daunting enough prospect for any client, HMRC followed-up by demanding to see all personal bank statements (a personal and probing scrutiny into his life), and sent a 3-page letter to our client on “discrepancies” that had been found.
After a further hour-long conversation with HMRC, our client responded to HMRC’s letter disputing all specified “discrepancies”.
Finally, 6 months after the tax investigation began, our client received a letter from HMRC confirming closure of the investigation along with a resultant tax repayment.
What were the costs to the client?
Because our client had enlisted our services, we handled all stages of the tax investigation for him. Our client didn’t have to speak to HMRC and was able to avoid an intimidating face-to-face meeting with the tax inspectors. The cost of this 6 month-long, labour-intensive tax investigation to our client was significant – but it cost him absolutely nothing.
Because he had previously paid for our fee protection service, all correspondence, time and paperwork were provided free of charge to the client.
What would the result have been had he not been protected by our service? A likely detrimental outcome and an accountancy bill of over £3000.
What can you do to protect your business?
Predicting who might be investigated by HMRC is difficult, especially with investigations continuing to increase – our client had done nothing wrong apart from run his business with a profit level that HMRC deemed to be incorrect.
Protecting your business is crucial. We always recommend investing in insurance, to ensure you never have to pay out hefty tax bills. Our fee protection service starts from just £40+VAT for the first year – a fraction of the cost of dealing with a tax investigation that has the potential to last for several years and involve chargeable time worth thousands of pounds.
If you’d like to know more about what our tax and VAT fee protection service comprises – including a complimentary direct line access to employment law specialists – just call us on 01249 465 435, we’d be happy to advise.
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