What to expect when HMRC comes knocking to undertake a company tax, VAT or PAYE inspection?

The prospect of an HMRC inspection can cause untold stress for business owners. It is disruptive and potentially very expensive, but if you know the reason why they are visiting and understand any issues they have, you can make preparations and seek professional help.

Businesses are often chosen at random for tax and PAYE inspections, but sometimes there are specific grounds. Keeping accurate and detailed records of all tax and employment matters will help to mitigate the risks of financial penalties, and prevent major issues from the interruption to your business operations.

Potential reasons for an inspection

Generally speaking, failing to submit your statutory returns, filing them late or making constant errors, is likely to draw unwanted attention to your business. HMRC concentrate their resources on recovering tax losses and preventing avoidance, and inspections are just one of the ways in which they are able to recover their money.

In the past, HMRC have targeted specific industries and sectors, offering an ‘amnesty’ period for those who have previously failed to comply with tax and PAYE regulations. High risk businesses such as cash-based retailers, investors in property, and importers/exporters, are also of interest to HMRC.

You are generally given seven days’ notice of a visit, either in writing or by phone. This contact should be followed by a confirmation letter which details the records they wish to inspect.

Depending on the type of inspection, these could include:

What happens during an inspection?

If an accountant acts as your agent, HMRC will contact them in the first instance. They may request to visit your premises, your agent’s office, or ask you to attend one of their offices.

If a full inspection is being carried out records will probably be taken away from your premises, with the inspectors later returning with various questions. If mistakes have been made, they have the power to levy a penalty equal to the amount of tax that was due, but if it is clearly an honest error you may be able to negotiate a lesser charge.

It is often the case that one year of records are checked, but if they find that something is amiss, they will search the accounts of previous years. For businesses with accurate and up-to-date records, inspections are generally straightforward and only cause disruption for a short period of time.

After an inspection

At the end of the visit the inspector should explain their findings, identify any issues that have arisen or areas of concern, and let you know what you should do next. This will be followed by a confirmatory letter summarising their requirements.

You or your accountant may be able to appeal a decision, and have 30 days in which to do so. It may also be possible to delay any penalties applied by HMRC until the appeal is heard.

Getting your tax returns right, paying liabilities on time, and keeping comprehensive records, may still result in a random check, but at least you’ll be able to demonstrate your willingness to comply with HMRC’s requirements.

Real Business Rescue can offer professional advice if your business has been selected for a tax inspection. We have a network of offices around the country, and can arrange a free same-day meeting to discuss the situation.