How Does A Tax Investigation Work?

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September 13, 2016

If you ever have the misfortune to see an envelope stamped with the HMRC logo drift through your letter box, a slight sense of panic is understandable. Tax investigations are rare, but when they’re launched, serious consequences can result if you wilfully ignore or disregard them.

Burying your head in the sand is no solution, and you should aim to draw up a solid response plan with your accountant. Yet many people still aren’t aware of what an investigation actually means – to rid this ignorance forever more, let’s discuss what those tax detectives are thinking…

Seeing through the cracks 

A tax investigation begins because HMRC has found inconsistencies with your payments, or suspect that you’ve been living off undeclared funds. You may, for instance, have been registered on the government database for a while without paying tax, even if it’s for a genuine reason. Expenses you’ve claimed for your business – such as travel costs – may not fit with what the system knows about you.

In any case, the taxman will detail their reasons for opening an investigation during their primary correspondence with you, outlining the dates and inconsistencies they’ve managed to find. Until you provide relevant evidence, no assumption will be made as to whether you’re guilty or not – but rest assured, they’ll be diligent in getting to the bottom of it.

Fighting your case

Technically, under the Data Protection Act, you can request to see any information HMRC hold on you. This may indicate as to how confident they are about the case, and how long they expect it to go on for.

However, it’s notoriously hard to secure this information, especially in a swift timeframe. If you want to mirror that response by suggesting a later deadline for your submissions, you can do so, but only if you justify it. In general, you should keep a steady head and start collecting all the evidence they’re after, including bank statements for gaps in their chronology. Your accountant should be able to help with this, and foster good estimations of what you were earning at a specific period.

Trying to anticipate their next move is another smart choice. For instance, if you have an idea of why you were unable to make a payment or declare yourself at a certain point, let HMRC know, along with any documentation that clarifies it. If you can’t provide anything sufficient in this regard, or you lie about your situation, it’ll catch up with you in the end.

Partnering up with the best

Tax investigations are a huge load on your shoulders, a black mark that must be scrubbed away before it swallows you up. Getting the right accountant on your side – a team of freelancer and contractor specialists that know how the taxman operates, and what they want to see – will smooth out the scrutiny you’re under.

Bright Ideas is your saving grace for such a problem. We can sort through a massive backlog of your financial data, and advise on how to deal with the issue at hand. Tax investigations tend to happen for a reason; contact us if you’re having trouble, or if you want to protect yourself against the nerve-wracking eventuality.

Tax Investigations


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