How likely is it that my company will be investigated by HMRC?

HMRC consider small businesses easy prey for investigations, and as such your company records should always be up-to-date.

HMRC has a regime of inspections that run along similar lines to VAT inspections. As a small business owner, it is better to work on the assumption that you will be visited at some time, and it is important that records are well kept, all invoices and receipts are properly filed and there are no grounds for criticism.

If evidence of dishonesty is found, the inspector will wish to review accounts for earlier years, and may choose to reopen the directors’ personal tax assessments, charging interest and penalties on any unpaid tax.

Remember that HMRC hold extensive information about you, and indeed they have developed new software that collects onto one database all the information they would need in connection with any investigation.

You could either be targeted, in which case you will probably have an idea of why this is happening, or you may be selected at random. Unfortunately HMRC consider small businesses easy prey.

To minimise the risk of an adverse outcome, you should have considered the following issues before any HMRC contact:

  • Ensure that you are covered by PI insurance. This is a strong indication that you are in business on your own account.
  • Ensure you have robust contracts with your clients.
  • If you pay yourself in any way other than salary, it is helpful to have a remuneration strategy developed with and signed off by an advisor who is qualified to give this sort of advice and who also is covered by PI insurance.
  • Ensure that all your company and personal tax returns are filed on time and that the taxes are paid on time.
  • Take out fee protection insurance to cover yourself against the additional accounting costs of providing information and defending your position. Competex offers this insurance and will cover all expenses of the investigation for those who subscribe to our policy (in the absence of any dishonesty). We will enlist the help of specialists and handle the investigation on your behalf.