Receiving a letter from HMRC saying they want to investigate your tax affairs is one of the most stressful things that can happen to a small business owner. But understanding the process and being well-prepared significantly reduces the risk.
What triggers an HMRC investigation?
- Unusually high expenses relative to turnover
- Income inconsistent with lifestyle
- Late or amended returns
- Discrepancies with third-party data (banks, Airbnb, eBay etc.)
- Random selection
Types of HMRC enquiry
An aspect enquiry focuses on one specific area. A full enquiry examines your entire return. HMRC must open an enquiry within 12 months of receiving your return.
What records do you need?
HMRC can request up to 6 years of records (20 years for fraud): bank statements, sales invoices, purchase receipts, payroll records, VAT records, contracts and mileage logs.
How to respond
Never ignore HMRC correspondence. Always respond within the given timeframe. If you disagree with their findings, you have the right to appeal. Get professional representation immediately.
How Fernside Accounting can help
We represent clients throughout HMRC enquiries and work with The Tax Lead on complex cases. Contact us immediately if you've received an HMRC enquiry notice.