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What can a tax investigation cost my business?

  • Blog
  • 05 October 2017

Tax investigations can be incredibly costly, with various elements adding up to create a financial headache for small business owners.

We explain where the different fees can come from, and how your business can protect itself from running into financial difficulty as a result of a tax investigation.

What can a tax investigation cost my business?

Time

While it might not seem like a financial cost at first, a tax investigation can eat up a large portion of your time which will have a cost implication.

You will often be called upon to provide additional information during the investigation, working alongside accountants and other financial specialists to respond to requests. Completing these tasks  can keep you away from your business.

If you’re part of a small team of salespeople or a sole trader for example, this could severely hamper your business and your ability to work -  your ability to sell, offer services to customers and, ultimately, make money.

Putting steps in place to help protect your business can help you get through this process smoothly and help to keep your business afloat during a tax investigation.

Tax repayments

A tax investigation is carried out to  calculate if  you owe any money to HMRC and how much that is. That repayment can vary depending on the findings of the investigation.

You  should also be aware that any repayments you make could be subject to additional fines – especially if the errors in your original tax return were found to be avoidable or deliberately misleading.

Penalties are based on the reason for the error occurring, such as late or inaccurate payments. More serious reasons can incur a much  higher penalty.

For example, if you have provided a tax return that contains a deliberate error, you could be asked to pay a penalty that ranges between 20 and 70% of the extra tax you are required to pay.

This is why accuracy is so important when reporting your finances. Should you owe a large amount in back taxes, then be required to pay a large additional penalty on top of that, because of providing inaccurate information, this could potentially cause problems with your business’s finances.

Additional fees

On top of back pay and penalty fees, you should also take into consideration the additional cost of getting help to deal with your tax investigation.

You might need a specialist to help you work through financial issues in a certain area. This could include a VAT specialist to help you calculate whether you made accurate payments or not.

You should also factor in the general accountancy bills that might build up through the investigation. In some cases, these additional fees can be significantly more than the amount you’re being asked to pay HMRC.

These additional fees, penalties and back payments can mean that your business stands to take a significant financial hit at some point. This can cause a great deal of stress, especially in a lengthy investigation where you’re waiting on a final fee from HMRC, all the while utilising an accountant who has on-going fees to be paid.

How FSB can help with tax investigations

FSB provides automatic access to tax investigation advice and insurance as part of its Business Essentials package. This helps to protect you and your business from high costs if you’re subjected to an investigation by HMRC.

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

  • Tax investigation insurance – the policy covers any fees we’ve agreed with your accountant
  • Representation from former tax investigators, who will liaise directly with your accountant
  • Cover of up to £100,000 per individual claim
  • A tax advice helpline

To learn more about tax investigation, or how our service can benefit your business, please visit the FSB Tax Investigation Protection page. Alternatively, visit our package comparison page to see other benefits of our packages and how FSB could help your business thrive.

FSB Tax Investigation Protection from FSB

Tax advice & investigation protection from the FSB

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