What is a HMRC Investigation?

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What is a HMRC Investigation?  Did you know that VAT officers can visit your business to inspect your VAT records? They do this to ensure you’re paying the right amount of VAT and reclaiming the right amount of VAT too.

Each year HMRC sends out thousands of letters to businesses to inform them of an upcoming Corporation Tax, Income Tax or VAT investigation. For business owners, this can cause a lot of significant worry and stress.

Here at Direct Peak, we expect to see a greater increase in the number of tax enquiries as we enter 2021. This is because they will be looking to recover the massive £350bm spend by the government through the pandemic and lockdowns.

While HMRC will usually give you notice of their visit, this will only be around 7 days’ notice.

In the notice given by HMRC for the VAT investigation, they will confirm what information they need you to have ready for them to see. The notice of the VAT investigation from HMRC will also give you a rough idea of how long the inspection will take and if want to inspect your business premises as well as paperwork. It is possible to request for this visit to be delayed.

To prepare for your tax inspection you need to ask your accountant to prepare and review your accounts before a HMRC inspection. This can be an extremely time-intensive and costly expense to you and your business. Tax inspections can last months or even years. Therefore, the cost of dealing with an enquiry can cost thousands of pounds, even if no extra tax is due to be paid.

According to CompanyDebt.com for larger businesses, a tax or VAT investigation can take up to 16 months to complete.  Without the correct insurance in place, this can cost around £5,000 in fees to the accountant for them to deal with HMRC on your behalf.

There are a few common outcomes found in VAT investigations by HMRC. These could be overpaid VAT, underpaid VAT or deliberate wrongdoing. If you found overpaying VAT, you will receive a tax rebate with interest. However, if you are found of underpaying VAT you will be formally required to pay any tax owed within 30 days. Interest could be added to this. Finally, if HMRC conducts a tax investigation and concludes that there was wrongdoing on the part of the taxpayer, this could be escalated to the case of criminal status.

Our team of friendly VAT accountants here at Direct Peak wants to help our clients through the worry of HMRC inspections. While our normal annual fees do not cover the additional professional costs of handling tax enquiries and compliance checks, we now offer something that will help.

As an add-on service, we are placed to offer Investigation Protection Service for just £10 + VAT per month. This will cover all your professional fees if HMRC were to complete an investigation on your business.

If you would like to know more about how we can support you with VAT investigations from HMRC or our Tax Fee Protection Service, Contact us now