Tips to Avoid a Tax Investigation by HMRC

It’s probably something that you dread, particularly as a small business owner – A tax investigation by HMRC takes up time and can be unnecessarily stressful. It can also be expensive for your business, as you may have to employ extra accounting services to deal with it.

Naturally, it’s something every business wants to avoid but knowing why which companies are chosen and why it isn’t straightforward. It appears to be at random. However, there are some ways that you can minimise the chance of being chosen for a government audit and as experienced accountants here at Barron & Co, we like to help out our customers and we’ve put together some tips for you.

Here are some ways to reduce the chance of being investigated:

  • Be more careful: If you make regular mistakes when filing and have to amend them, this will raise a flag to HMRC. Paying your tax late is another way of getting their attention. Many small mistakes might seem easy to fix for you, but will alert HMRC and make them think that you don’t keep track of your finances in an organised manner.
  • Pay your directors more than employees: It’s great to give back and to make your team feel valued but if you are paying your directors the same as more junior employees this may draw attention. Why? It looks like the bigger bosses are drawing money out of the business in some other way, such as through tax avoidance! This is not an appearance that you want to project!
  • Make sure your business is profitable: Sometimes it takes a while for a business to get off the ground and you may need to pour your own funds into it to make sure it survives. However, if it isn’t making a profit year on year, HMRC are going to wonder how the business is actually staying afloat, if it isn’t making money. Our small business bookkeeping can ensure that you do turn a profit! 
  • Don’t leave anything out: Some people may be tempted not to record cash transactions from time to time, thinking they won’t get caught. Or perhaps you want to avoid a higher tax bill. This is illegal but it also could land you in deep trouble with HMRC if another business has listed the transaction as an expense but it hasn’t been recorded on your end! They will want to see what else you may have missed.

Hire a good chartered accountant: You may be very successful at running your business but it’s unlikely that you have the time or expertise to handle your accounts, which means that mistakes are more likely. If you hire an accountant then you can rest assured that trained professionals are handling your accounts and you won’t have any mistakes on your returns. Having local accountants who are on your side means that accurate information is provided to HMRC and you won’t be as likely to be investigated.