No one likes the thought or process of dealing with a tax enquiry from HMRC, whether in relation to the tax affairs of their business or on an individual basis.
Whilst a small number of tax enquiries are still random checks (especially in relation to VAT) due to the increased reliance on software to interrogate submitted tax returns in a fraction of a second, many more are now caused by the actions of taxpayers.
In order to avoid this, there are a number of simple tips that can be followed to reduce the risk significantly. The below won't guarantee you will avoid an enquiry, but do greatly reduce your chances of facing HMRC:
1. File your tax return and make payment of your liability on time
This sounds simple, but so many taxpayers leave it until the last minute, resulting in missed filing and payment deadlines, especially where the tax bill might be bigger than expected.
2. Avoid careless mistakes by checking your sums on at least two separate days
So many individuals create issues as a result of careless errors, such as when adding up, taking the wrong number from their paperwork or not checking the formulas in the spreadsheet they use are working correctly.
3. Don't make assumptions about tax law without checking
Many tax enquiries are caused by individuals making assumptions about the way that tax law operates or what it entitles them to do. It is important that you always check any issue or consult a tax professional.
4. Do remember to include all investment income
It is often amazing how many individuals whose main source of income might be employment related, then go on to forget to include income such as bank interest, dividends or rental income.
5. Know when to use a professional
Many taxpayers use an accountant or tax adviser to assist with the preparation of their tax returns and associated advice. If you don't, it is still important to know when you need help and when you should consult an expert.
Areas such as residence, property and offshore income are always complex and it is best to use an advisor on nearly all occasions.
6. Make sure your record keeping is up to scratch
A common cause of mistakes and therefore tax enquiries are businesses and individuals who have poor record keeping practices. Keeping good records is an important skill.
Best advice is to update records at least monthly, so that come the return filing date, you have all information organised and to hand and you are not looking at a big pile of paperwork.
7. Don't use estimates unless you have no choice
HMRC dislike estimates for obvious reasons since taxpayers tend to estimate in their favour. If you do use an estimate, this will need to be disclosed to HMRC.
It’s always best to try and get the true figures if you can. Hopefully these tips will help a business or individual to stay off the radar of HMRC.
However, if you are selected for an enquiry, it is important not to panic. If you don't have professional advice, now is the time to seek some to ensure you are working with an advisor who has experience in such matters and can guide you through the process.
How can Wisteria Help?
Wisteria have extensive experience in dealing with HMRC in many technically difficult areas and are happy to have an anonymous discussion about we can help.
However, prevention is always better than cure and so the team at Wisteria focus on helping clients to out the necessary processes and practices in place in advance to avoid issues later.
For more help in this area, please contact us.