HMRC checks and enquiries

These are very stressful and expensive to deal with. Most of our work is routine and we can generate accounts and tax returns very easily and cost efficiently. Enquiries on the other hand are one offs and require experience and expertise. Best avoided if at all possible. If you do receive an enquiry letter, HMRC believe that there is something wrong.

The main types of checks/investigations we get involved in are:

Self-Assessment and corporation tax checks.

  • This can be an aspect enquiry where HMRC may have different figures to those reported on the Return. We need to establish who is correct, and if it is HMRC, how the mistake arose. This may help in reducing penalty charges.
  • Status enquiries – whether an individual is employed or self-employed.
  • In depth inquiries into the accounts

PAYE and VAT checks.

In our experience these are usually merely checks that all is in order rather than formal investigations. We have never had any problems with these where clients have used the bookkeeping system we suggest. If you do receive a notice from HMRC you should review your system to ensure all is in order.

We do not get involved with:

  • Contractual Disclosure Facility (Code of Practice 9). HMRC suspect fraud in these cases.
  • Pay as you Earn Audits.
  • National Minimum wage investigations.

Examples of the types of investigations we have dealt are below

Client A.

This client is a husband and wife online retailer. Turnover is just under £250k. They had been preparing their own accounts and Returns using spreadsheets, sales being based on the deposits into their business account by Amazon, PayPal etc. There is also a rented property.  During the course of an Inland Revenue Income tax and VAT compliance visit it was pointed out that the VAT Flat Rate Scheme (FRS) was being operated incorrectly as the rate should have been applied to gross income (they had used the net amounts deposited to their account, after charges) and rental income had been omitted. Also, the profits made from the FRS had been missed from their partnership Returns.

All the figures for the year of enquiry and the previous 3 years had to be reworked. We put the client on QuickBooks Online and then imported all the bank account transactions into the software. Control accounts were set up for Amazon and PayPal and imported via CSV. files All the transactions were tagged and then each VAT quarter reconciled incorporating rental income. Detailed reports were supplied to the Revenue and all the queries resolved.  The Revenue accepted that the mistakes were genuine and applied minimum penalties. This client subsequently came out of the FRS (turnover exceeded limit) and incorporated the business on our advice as this produced a significant tax saving.

Our charges for reworking the figures for four years and dealing with the enquiry were £6,500. For a business of this type our approximate annual charges would be about £750 – £1,000 pa. This is for reviewing the bookkeeping each VAT quarter prior to submission of the VAT Return, preparation of the partnership and rental accounts, preparation, submission and agreement of the partnership and individual partners Returns.

Tax evasion is illegal and we do not get involved in tax avoidance for the reasons detailed in the links below.

Published 13 September 2017.
Updated 23 November 2017