HMRC has the right to investigate any tax return submitted by any taxpayer.
The department has considerable powers to inspect documents and to question the taxpayer.
HMRC does not need a reason for an investigation. It selects some returns at random so an investigation does not necessarily mean that you are suspected of doing anything wrong.
The procedures for tax investigations are formal and subject to a code of conduct. They can often arise from a “discovery”.
This includes situations where HMRC has discovered information not properly entered on your tax return. A discovery can extend the period allowed to HMRC to investigate.
As some investigations are conducted at random, you can never completely escape the possibility of an inspection.
However, most investigations, particularly the more detailed ones, arise because HMRC has concerns about a tax return.
The following steps should help avoid an unnecessary enquiry:
•Make sure your returns are correct – check the arithmetic, and make sure you have signed it
•Keep copies
•Retain documents for at least six years
•Record queries - name of the tax officer, their department, the date and time and a note of what was said
•Check your figures - If there are significant differences from the previous year, ensure you know why
•Check your basis - Do not assume that a basis is correct just because you have used it before without HMRC querying it
•Disclose mistakes immediately
•Avoid artificial tax avoidance schemes - these schemes rarely save the tax they are supposed to and can, sometimes, increase the amount of tax.
If you are contacted by HMRC about a tax return, you should contact your accountants to ensure that the matter is dealt with properly.
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