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

University of Lancashire recognised for entrepreneurship and supporting business growth - Representatives from the University's Business School, local SMEs and the IOEE

University of Lancashire recognised for entrepreneurship and supporting business growth

29 Oct 2025

2

£8bn Typhoon order is great news for Lancashire BAE Typhoon ECRS Mk2 Radar

£8bn Typhoon order is great news for Lancashire

28 Oct 2025

3

Award-winning Lancashire wedding venue and hotel is sold The Mill at Conder Green

Award-winning Lancashire wedding venue and hotel is sold

28 Oct 2025

4

PM+M announces another 19 promotions across the firm PM+M promotions

PM+M announces another 19 promotions across the firm

27 Oct 2025

5

Celebrating 20 years of connecting the county LBV 20 Celebration Guests

Celebrating 20 years of connecting the county

27 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
November / December 2025 Magazine Launch Event
Holiday Inn Hotel
Networking
28 Oct 2025 - 18 Nov 2025

November / December 2025 Magazine Launch Event

Holiday Inn, Blackpool

16:46 - 16:45

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

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

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

Lancaster District Business Support Expo
Lancs-cham-logo.jpg.jpg
LBV Hub Networking
29 Oct 2025 - 29 Oct 2025

Lancaster District Business Support Expo

The Platform, Morecambe, LA4 4DB

10:00 - 15:00

Chamber Breakfast Networking – November
Lancs-cham-logo.jpg.jpg
LBV Hub Networking
06 Nov 2025 - 06 Nov 2025

Chamber Breakfast Networking – November

Porsche Centre South Lakes, Carnforth, LA6 1FW

08:30 - 10:30

Lancashire Police business update with The Police and Crime Commissioner
Lancs-cham-logo.jpg.jpg
LBV Hub Roundtables
10 Nov 2025 - 10 Nov 2025

Lancashire Police business update with The Police and Crime Commissioner

Lancaster Castle, Lancaster, LA1 1YN

14:00 - 16:00

AI, Creativity, and what it means to be human
2.jpg.jpg
LBV Hub Networking
11 Nov 2025 - 11 Nov 2025

AI, Creativity, and what it means to be human

Society1, Coworking Space, Preston, PR1 3LT

18:00 - 20:00

Beyond the Brand: Building trust through values and integrity
1.png.png
LBV Hub Networking
11 Nov 2025 - 11 Nov 2025

Beyond the Brand: Building trust through values and integrity

Society1, Coworking Space, Preston, PR1 3LT

18:00 - 20:00

The Business Network Central and East Lancashire
LBV Hub Networking
13 Nov 2025 - 13 Nov 2025

The Business Network Central and East Lancashire

Stanley House, Blackburn, BB2 7NP

11:30 - 14:15

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