A tax investigation by HMRC (Her Majesty's Revenue and Customs) can feel like a time-consuming process, which keeps you away from the task of working on your business.
The start of a tax investigation
Tax investigations begin with a letter from HMRC. This highlights which area of your tax return they want to investigate or if they will conduct a full investigation.
This enquiry usually starts within 12 months of the due date for the tax return, or, if the deadline was missed, it could be up to 12 months after the return was filed.
Investigations can last several months as information is collected and evidence supplied. Cases can also uncover areas of concern, causing an investigation that’s focussing on one specific area to look at others. For example, looking at items declared as tax deductible could lead into a broader investigation into the corporation tax paid by a business.
During the investigation
The length of time it takes to complete a tax investigation can vary. This depends on the amount of information HMRC has to look through, the area of taxation being investigated, and the size of the business under scrutiny.
For example, a large business with a high turnover and rate of tax should, in theory, take longer to investigate than a sole trader.
Tax investigations often involve HMRC asking for specific evidence and information, which, once submitted, takes time to process and scrutinise. Correspondence from HMRC often puts a timeframe on when your business needs to reply. This is often 30 days.
Tax investigation resolution
Following the final decision of your tax investigation, you are often notified of how much you are required to pay in owed taxes and given a timeframe for HMRC to receive payment.
However, you also have 30 days within which you can appeal their decision.
The time it can take to get to a resolution can vary, from three to six months for an investigation of a single aspect of taxation, to an average of 16 months for a full tax investigation. However, as we have stated, other factors, such as an escalating investigation or appeals, can cause an investigation to take significantly longer.
How can FSB help during a tax investigation?
FSB offers its members automatic access to tax investigation advice and insurance. This helps to protect you and your business should you be investigated by HMRC.
The service provides members with access to a range of useful benefits, including:
- Tax investigation insurance – covering any accountant fees agreed within the policy
- Tax advice helpline
- Representation from former tax investigators who will liaise with your accountant
- Cover of up to £50,000 per individual claim
To learn more about tax investigations, or how our tax investigation protection service can help your business, visit the FSB Tax Investigation Protection page