8 tips to avoid a tax investigation by HMRC 📩
Updated: Jul 31, 2022
HMRC’s resources are stretched, meaning that they’re far more likely to investigate where they have reason for suspicion. So, how can you avoid attracting the attention of HMRC?
1. Appoint an accountant – Errors on Tax Returns are one of the most common reasons HMRC has for taking a look at your file. An accountant will significantly reduce the risk of errors.
2. Review your Tax Returns – Ultimately, the book stops with you, not your accountant. When you receive your documents for review, make sure you give them their due attention.
3. Submit your Returns early – HMRC makes no secret that it views you as “risky” if you persistently file late returns.
4. Pay your tax on time – same reason as above
5. Keep business expenses sensible – HMRC compares sector averages – it knows how much you should earn. Significant deviations from the norm will raise eyebrows. If you’re unsure if a particular expense is legitimate – ask your accountant.
6. Use the “white space” – Your tax return includes a box “Additional Info” (aka “white space”) – use this if you are declaring something out of the ordinary. It may help avoid questions which can lead to an investigation.
7. Beware of easily overlooked omissions – one-off capital gains, interest on savings or small second incomes can easily be forgotten about when it comes time to prepare your Tax Return. But beware, since 2010, HMRC's Connect software has been trawling publicly available databases, e.g. Land Registry (for details of property ownership and transactions), eBay and Airbnb (for clues of second incomes), and even Facebook and other social media websites have become a treasure trove of information to compare lifestyle with declared earnings.
8. Avoid avoidance schemes – the scheme promoters will tell you that these are legal avoidance of tax, not illegal evasion. However, aggressive schemes such as Employee Benefit Trusts (EBTs) or Icebreaker (famously used by Gary Barlow) are constantly being shut down by HMRC. Worst of all, the participators of these schemes find that some years later, the government enacts retrospective tax laws (as controversial as that is) to recover lost tax since the scheme's inception.
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