HMRC is watching you

HMRC is watching you

 

Many fear the reach HMRC’s supercomputer, Connect. Capable of linking together seemingly unrelated pieces of information, this software scours taxpayers’ previous tax returns, bank transactions, social media and a plethora of databases to track down tax evaders.

Once it picks up on an anomaly in the data pointing toward potential evasion, an official audit is triggered. When this happens, HMRC will go through your company with a fine tooth comb; looking for errors or proof of misconduct in your financial accounts.

Even if you have made an honest mistake, an HMRC investigation can be a long and stressful process and one can cause major disruption to your business.

And it’s not just big businesses that need to watch out. According to research from UHY Hacker Young, the amount of tax collected from SMEs went up 5% in 2016/17 as a result of these investigations. Because of this, HMRC have turned their attention toward smaller businesses to look for tax evasion.

With the cutting-edge software and vigilant investigators at HMRC, staying off the taxman’s radar is near impossible.

But what can you do to lower your chances of triggering an investigation?

 

Submit your returns on time

Filing your tax return late is an easy mistake to make when you have a business to run. But frequently late submissions look suspicious in the eyes of auditors, and they’ll want to know why.

If you do tend to forget, engage an accountant. Then, you will have enough time to get everything completed and submitted with time to spare.

 

Explain big changes in income and outgoings

Any business’s cashflow will go through ebbs and flows over time, but sudden and dramatic changes will definitely raise red flags with HMRC.

Making sure you can explain why these fluctuations have occurred means you will have nothing to worry about if HMRC comes knocking. They understand how, for example, losing an important client could cause your income to plummet.

Be sure you have the proof ready to show you have declared all of your income if they do.

 

Declare all of your income

This may seem obvious, but it can be easy to let some things slip your mind. Your tax return must include any money you make from rental properties, sale of assets, or returns on investments.

It’s likely the Connect system will find out all sources of income you may have, so declaring them yourself shows HMRC you have nothing to hide.

 

Make sure your expense claims are accurate

Knowing what counts as an appropriate expense claim can be quite unclear territory. In most cases, it depends on the type of business you run.

Just make sure all the expenses you declare in order to reduce your tax bill are “wholly and exclusively” business related. It always helps to go through your expenses with your accountant before you submit your tax return too.

 

Keep records full and up to date

Errors and late submissions are some of the most common triggers for HMRC investigations. Keeping your books organised will make it easier for you to fill out your tax returns efficiently and accurately.

If HMRC do investigate, good record keeping will also help make the process quicker and less stressful.

 

Speak to an expert

If HMRC find a fault in your financial records, you’ll have to pay any money owed with interest. It’s possible there may be a penalty fee on top of this, so be careful.

Any evidence of deliberate fraudulent activity could also lead to a criminal investigation and prosecution.

To make sure your tax affairs are suitable and in order, have an expert accountant run through them with you. Speak to a Smart Team member on 01202 577 500 or email us at info@yoursmartteam.co.uk for experienced and professional guidance.

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