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Tax investigation for sole traders

  • Blog
  • 11 August 2017

A tax investigation is often seen as an inconvenience for any business. It often involves taking someone away from work while they resolve the queries HMRC has, and dealing with their accountant.

This can impact heavily on a small business as it means someone, usually managerial, isn’t working on their business at that time. If you are the sole employee of your business then this can be even more damaging.

We explain what to keep in mind when it comes to tax investigations for the sole traders.

Tax investigation for sole traders


During a tax investigation, your business tax returns and financial information are analysed by HMRC. The UK government department looks to see if there are any irregularities, which could impact the amount of tax you pay – be that too little or too much.

This often requires you to provide answers to questions that the department asks, and provide evidence based on your financial information. This includes expenses, finances and other costs for your business.

One way to speed up this process is to keep all of your financial information organised and in one place.

As a sole trader, this might be in a filing system in your home office, or it could be somewhere secure in your business premises.

It is important to ensure you have access to any financial information that HMRC might request. This could include:

  • Bank statements
  • Chequebooks and paying-in slips
  • Credit card statements
  • Job quotes or estimates
  • Payroll records
  • Purchase invoices and expense receipts
  • Sales invoices / Till rolls
  • VAT records

You might need to liaise with an accountant during your investigation, who can help you properly process financial information, and work with you in dealing with HMRC. However, this can be time-consuming and disruptive to a business.


Due to the disruption a tax investigation can cause, you might find that you can’t devote as much time to the running of your business as you would like.

This is where budgeting can help. For example, if you work as a joiner, you might not be able to take on as much work as you normally do. This could cause problems within your finances and make your income more irregular than you might be accustomed to.

Having careful budgeting in place can help to mitigate this, allowing you to carry on as normal without running into any financial difficulties.

How FSB can help with tax investigations

Tax investigations can be cumbersome and take you away from important day to day business operations.By having your business finances in order and all your paperwork present and organised, you can help ease the burden that an investigation can have on your business.

With our expert tax investigation service, we can help you protect your business from potentially costly fines and penalties. The tax investigation service includes:

  • 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 £100,000 per individual claim

To find out more about tax investigation and how we can help you and your business, please visit our FSB Tax Investigation Protection page. Tax Investigation Protection is included as standard with our Business Essentials membership. Please visit our product comparison page to compare benefits of our membership packages.

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Tax advice & investigation protection from the FSB

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