Top reasons HMRC might choose to investigate you or your company

Melanie Richardson


Anyone can be selected for investigation, a business, director or individual tax payer. £34 Billion is the estimated tax gap between what HMRC collects and what it should collect. They are proactively targeting individuals and businesses using software to indicate anomalies. This article will discuss some of the main reasons HMRC may be interested in you or your business. 


  1. Consistent mistakes on tax returns


If you are constantly filing your tax returns with inconsistencies or mistakes this is a red flag for HMRC. They will question why this is happening and it might be a good idea to think about passing this responsibility over to a professional. If they are genuine mistakes it might be time to outsource this part of your business and free yourself up to concentrate on what you do best.


  1. Financial fluctuations


If there are unnaturally large fluctuations in your accounts this can be a cause for concern with HMRC. Hopefully profits continue to increase however large anomalies in financial reporting may cause HMRC to take a second look.


  1. Anomalies when financials are compared to industry standards


HMRC have an overall view of industry standards and if your business is an outlier and over or under performing to a large extent this might cause them to investigate further.


  1. Omitting income


All of your income needs to be declared to HMRC, no matter how irrelevant or small you think it may be if they suspect that you are omitting any income from your tax return they will certainly begin the process to find out if their hunch is correct.


  1. Too many years without profit


If you’ve been in business for a while yet still aren’t making a profit, this is going to raise suspicion as you’re consistently telling HMRC that you don’t owe them any money. This will raise the question of how you are managing to keep a business going for so long.  


  1. Not having an accountant


HMRC look favourably if you have a dedicated accountant. It does give your submission more weight, without one you might be vulnerable to making more mistakes and you might like to think about talking with one if you don’t already.


  1. Unjustified expense claims or over claiming


There is claiming what you are owed, and then there is twisting the truth, if you look as if you’re over claiming you will be flagged and may be in danger of triggering an investigation.



What to do if you are going to be investigated:

If you are going to be investigated by HMRC the first port of call is your accountant, and if you don’t have one it would be prudent to find one that can give you the necessary expert advice needed in this situation.

The sooner you have all the information you need you can come up with a plan of action, the audit will be quicker, and you’ll be less likely to receive a penalty.


If you have any questions or are worried about this do get in touch with our Managing Partner Melanie Richardson who can talk you through the necessary steps.

You can also download our leaflet on tax investigation and insurance here: TAX INVESTIGATION LEAFLET


Melanie managing partner East Sussex Accountants



Tel: 01825 763366

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