Keep cool under tax investigations

By LBV

26 Oct 2011

With a tax gap estimated at £40bn, HM Revenue and Customs (HMRC) is taking a tough approach to reducing the shortfall – and all businesses are potentially under threat of investigation.

It is difficult to overstate the disruptive impact investigations can have, not only on commercial operations, but also in some cases on the private lives of business owners. This risk has been significantly elevated because HMRC has been ordered to reduce the tax gap by £7bn over the next four years.

HMRC uses the expression ‘breaking the records’. This means that once an inspector has shown weaknesses in any area of a company’s records, the credibility of the records as a whole can be undermined. This immediately gives the inspector a major advantage and HMRC has won a string of cases where it has successfully assessed businesses on its own estimated figures, simply because records were flawed.

Worse still, HMRC will argue it has justification for extending its investigation into the private affairs of the owner. We expect HMRC to target businesses perceived as high risk. Companies that persistently file late returns, or pay tax late without contacting HMRC to explain why, will attract unwanted attention.

In the eyes of HMRC, a business that submits returns late does not take tax compliance seriously, and represents ‘easy prey’. HMRC will also look at the sector in which the business operates, and from time to time, will target particular areas. For example, hotels and restaurants in the North West are currently in the spotlight.

Tax investigation work is a specialist and time-intensive area. It often surprises people that dealing with investigations can cost considerably more than the fee for preparing the accounts under review.

When an inspector calls, the first step is not to assume HMRC has contacted your accountant about the investigation or inspection. Call your accountant before you do anything. The next step is to prepare, and a properly qualified professional advisor will be able to advise you exactly how.

The first meeting with HMRC is critical: inspectors are very good at catching taxpayers off guard in a friendly initial meeting, and then using ‘throwaway comments’ as evidence to support ambitious tax assessments at a later stage.

If you know something is wrong, don’t try to hide it. An early, voluntary disclosure will reduce any final settlement with HMRC. Keep in mind that at the end of an investigation, a certificate of full disclosure must be signed, and HMRC will take criminal proceedings against people found to have knowingly signed incorrect statements.

When HMRC start an enquiry or investigation, it is for a reason. It should not be assumed the enquiry is a random event. In practice, virtually all investigations are started because HMRC inspectors think there is tax at risk. Thumping the table will not persuade them otherwise – just the opposite. The key is to identify the concerns and deal with them. That way, the case can be closed at the earliest possible opportunity.

Meanwhile, The deadline for paper tax returns is this Monday, October 31 and HMRC is urging anyone who hasn’t yet filed their paper return to act now, to avoid a late-filing penalty.

Around 874,000 people are expected to file a Self Assessment return in the North West this year and if you send in a paper tax return on or after 1 November, you will now be hit with a £100 penalty – even if there is no tax to pay or the tax due is paid on time.

And the longer you delay, the more you'll have to pay, as there are further late-filing penalties after three, six and twelve months.

You can still avoid a penalty by sending your tax return online instead, for which the deadline is January 31.

David Bennett
Moore and Smalley Chartered Accountants and Business Advisors

Enjoyed this? Read more from LBV

Latest news

1

New India branch campus on the horizon for Lancaster University Keir Starmer meets Indian PM and included Prof Simon Guy Lancaster University. Pic Simon Dawson

New India branch campus on the horizon for Lancaster University

09 Oct 2025

2

Best events and talented students complete finalists list for Lancashire Tourism Awards 2026 Best Events and Talented students on Lancashire Tourism Awards finalist list

Best events and talented students complete finalists list for Lancashire Tourism Awards 2026

09 Oct 2025

3

East Lancashire Learning Group named UK digital transformation leader in CIO 100 Awards Andrew Dewhurst with the award win

East Lancashire Learning Group named UK digital transformation leader in CIO 100 Awards

09 Oct 2025

4

PHX Training appoints new business leader in Blackpool Jason Davenport PHX Training

PHX Training appoints new business leader in Blackpool

09 Oct 2025

5

Velocity seals Airbus extension worth up to $54m Velocity Composites Has Announced Its Entry Into The Us Market

Velocity seals Airbus extension worth up to $54m

08 Oct 2025

Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
CMI Level 5 Management and Leadership Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Management and Leadership Course

Preston Campus, Preston , PR1 2HE

09:00 - 17:00

CMI Level 5 Project Management Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Project Management Course

Preston Campus, Preston, PR1 2HE

08:00 - 17:00

Help to grow management course
Help to grow - barriers to growth.png.png
LBV Hub Seminars
26 Sep 2025 - 16 Dec 2025

Help to grow management course

Preston Campus , Preston , PR1 2HE

09:00 - 15:00

Advantage: AI – A Workshop for Business Leaders – Oct 10th
Ai 10.10.png.png
LBV Hub Seminars
10 Oct 2025 - 10 Oct 2025

Advantage: AI – A Workshop for Business Leaders – Oct 10th

Door4 Office, Burnley Wharf, Burnley, BB11 1JG

09:00 - 12:00

Unlocking major project opportunities in the North West
Lancs-cham-logo.jpg.jpg
LBV Hub Seminars
15 Oct 2025 - 15 Oct 2025

Unlocking major project opportunities in the North West

Strathmore Hotel, Morecambe, LA4 5AP

08:00 - 10:00

The New Employee Rights Landscape: Day One Compliance Essentials
EventBrite NORi - 15th Oct 2025 Webinar.png.png
LBV Hub Webinar
15 Oct 2025 - 15 Oct 2025

The New Employee Rights Landscape: Day One Compliance Essentials

Microsoft Teams, Microsoft Teams, PR253XH

13:30 - 15:00

The Autumn Re set - pour me a wine
LBV Advert_Autumn Reset 1200 x 630px.png.png
LBV Hub Networking
16 Oct 2025 - 16 Oct 2025

The Autumn Re set - pour me a wine

The Artistry House , Preston , PR1 3JJ

17:30 - 19:30

The Business Network Central & East Lancashire
LBV Header (26).png.png
LBV Hub Networking
16 Oct 2025 - 16 Oct 2025

The Business Network Central & East Lancashire

Stanley House, Blackburn, BB2 7NP

11:30 - 14:15

October Freelancer Meet-Up
LBV Hub Networking
16 Oct 2025 - 16 Oct 2025

October Freelancer Meet-Up

Society1, Coworking Space, Preston, PR1 3LT

10:00 - 11:30

Women scaling up Blackpool Fylde and Wyre
LBV Hub Seminars
22 Oct 2025 - 09 Jan 2026

Women scaling up Blackpool Fylde and Wyre

The Small Business Academy, Blackpool, FY4 5JX

09:30 - 15:30

HR Essentials for pubs, bars and licensed venues
EventBrite NORi - 22nd Oct Webinar.png.png
LBV Hub Webinar
22 Oct 2025 - 22 Oct 2025

HR Essentials for pubs, bars and licensed venues

Online - Teams, Leyland, PR253XH

13:30 - 15:00

RISE - Lancashire's unique leadership programme for women
thumbnail_Emma Weston Illustration WENDY BOWERS RISE Illustrstion.jpg.jpg
LBV Hub Seminars
22 Oct 2025 - 18 Mar 2026

RISE - Lancashire's unique leadership programme for women

East Lancashire Chamber of Commerce, Clayton le Moors, BB5 5JR

09:30 - 15:30

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV124 Online Graphic
Subscribe now

Weekly news bulletin