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How does a tax investigation affect my business?

  • Blog
  • 13 December 2016

When you’re told your company is being subjected to a tax investigation by Her Majesty's Revenue and Customs (HMRC), you might wonder what affect this could have on your business.

We’ve provided an overview of what a tax investigation on your business can involve, the key things to know, and the impact it can have.

How does a tax investigation affect my business?

The beginning of a tax investigation

HMRC will first inform a business of a pending tax investigation by issuing a notice that outlines the specifics of the inquiry. This includes what information they will need from that company and the timeframe it has to respond.

Upon receiving this notice, you will be asked to respond before a given deadline, which is usually 30 days, and provide certain information to settle the inquiry. HMRC may accept your response, or ask further questions.

Depending on the information requested and the timeframe your business is given to respond, your priority should be to locate and organise the information HMRC needs. To do this you may require some professional financial assistance, for instance, if you’re running a larger company or you need help identifying certain paperwork.

Accountancy costs and time for business

In order to organise their finances and provide the appropriate information to HMRC, it’s common for businesses to enlist the help of an accountant.

This can provide a professional and experienced eye to help efficiently deal with requests for tax issues and respond to these requests promptly and accurately. While some tax investigations can end with one letter, others can go on for months, with HMRC asking for more information to settle their inquiries. As a result, this can cost thousands of pounds in accountancy fees. Even a simple inquiry can take three to six months.

Working with an accountant can also impact on the time you spend working on your company’s main business. Depending on how your business operates, for instance if you’re the sole employee, this could be a concern. However, if you have a deputy, or another key director you can rely on, you can delegate certain key business responsibilities to them, allowing you to focus on the investigation.

The end of a tax investigation

The main effect of a tax investigation is often felt at its conclusion. This could include you having to make large back payments of the tax you owe. The process could also continue to a taxation tribunal if you want to appeal a decision, or legal proceedings in the event of any wrongdoing.

HMRC may impose penalties on a business for a number of reasons, such as late filing of tax returns. Fines start at £100 per day of lateness, increasing to a fixed percentage for any unpaid tax, which must be paid in addition to the tax itself.

Other penalties can be levied based on:

  • Not keeping adequate records, such as indemnities or debt records
  • Failing to register for VAT when your company turnover reaches the required tax threshold
  • Failure to register a new business
  • Deliberate fraud or tax evasion, such as concealing assets

The fines can escalate from a percentage sum of your unpaid tax all the way up to criminal proceedings. This could have severe detrimental effects on your business, including bankruptcy.

How FSB can help with tax investigations

FSB offers its members automatic access to tax investigation advice and insurance. This helps to protect you and your business if you’re subjected to an investigation by HMRC. It can cover you in the event of a routine investigation, or a taxation issue, which is taken further.

The service provides FSB members with access to a number of benefits, including:

  • Tax investigation insurance – the policy covers any fees we’ve agreed with your accountant
  • Tax advice helpline
  • Representation from former tax investigators, who will liaise directly with your accountant
  • Cover up to £50,000 per individual claim

To learn more about tax investigation, or how our protection service can help your business, please visit the FSB Tax Investigation Protection page or contact a member of our team.

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Tax advice & investigation protection from the FSB

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