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Understanding tax compliance checks

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What tax compliance checks are carried out by HMRC on UK businesses?

HMRC may conduct tax compliance checks on your business, starting with small scale checks to a complete tax investigation if they are suspicious about your financial behaviour, you have overdue tax bills, or HMRC wishes to eliminate risk.

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What is a tax compliance check for a UK business?

A tax compliance check is effectively a tax investigation carried out by HM Revenue and Customs. A check can be commenced at any time if they have reason to believe your business has underpaid tax, or there are anomalies that have become known

Two different types of investigation can take place. A full tax compliance check involves all records being requested and inspected by HMRC, whereas an aspect tax compliance check focuses on a particular element of tax that they want to look into.

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Some compliance checks begin as ‘aspect’ checks and are upgraded to full investigations if HMRC believe serious issues are evident. So what reasons would HMRC have for starting a compliance check?

Tax investigations relating to PAYE, VAT, and corporation tax are common, and simple errors or changes in your accounting figures from one year to the next can initiate action by HMRC. It’s advisable to seek professional support as soon as you’re informed of a tax investigation so you can prepare and pre-empt as many problems as possible.

Why would HMRC start a tax compliance check?

HMRC are clamping down on tax evasion and avoidance, but they’re also trying to increase revenues for the Treasury - tax compliance checks can raise money by penalising even the most basic tax errors.

Some checks are random and may simply occur because your industry is regarded as risky from a tax point-of-view. The majority of investigations, however, begin for a specific reason – maybe your expenses have increased significantly, for example, or they believe VAT has been underpaid.  

Compliance check process

  • You may be contacted by letter or phone by HMRC. They will let you know you’re the subject of a tax compliance check, and tell you the records they want to see.
  • HMRC will notify you if they want to make an in-person visit to inspect documents and records
  • Once the compliance check is complete, you will receive a notice of any penalties to be charged and/or amounts of extra tax due

What are the implications of a tax compliance check?

If HMRC find your business has underpaid tax, whether due to a legitimate error or deliberately, they will take the view that it may also have happened in previous years. As a result, they may commence a wider investigation into your tax affairs and have the authority to look back up to 20 years in some cases.

The aim of HMRC tax investigations is to uncover deliberate tax evasion, but as we mentioned earlier, businesses making occasional or simple errors, or failing to explain the background to a ‘questionable’ transaction are also being targeted.

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HMRC carries out a significant number of tax compliance checks every year. If your business is the subject of a tax investigation Real Business Rescue can help by providing sound advice, technical expertise, and a reassuring presence.

We have extensive experience of dealing with HMRC, and understand how they operate. Call for a free same-day meeting with one of our partner-led team – we operate a network of offices around the country and can quickly assess your position.

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