Tax Investigations – what to expect

As the term implies, a tax investigation is an enquiry into your taxes. On the most formal and official level, tax investigations or tax enquiries are undertaken by the HM Revenue & Customs (HMRC).

A tax investigation should not be taken lightly and therefore it is important that you always make correct and timely submissions to the HMRC. On a less official level, a tax investigation could be in the form of an audit, either internal or external.

Keeping records and supporting documentation

Everyone is afraid of a tax investigation by the HMRC and so they should be. A tax investigation will include a check that all documents that have been submitted to the HMRC are correct and complete, including supporting documentation. This means that you need to keep good records at all times and maintain them for potential enquiries.

However, the HMRC will also make checks into personal tax returns – these checks are technically tax investigations, but on a smaller scale. A check does not necessarily mean that you have done something wrong. Checks are an important way for the HMRC to determine that taxes are paid correctly and on-time.

You will receive a notice in writing from the HMRC, if a check into your income taxes are being performed and the letter will usually outline what is being checked and what, if any, documents you will need to supply. Checks are usually undertaken within one year of submitting a tax return, therefore it is important for you to keep any tax and financial records for at least one year.  

Notify HMRC of any mistakes in your return form

There are no specific reasons a tax investigation is triggered, but a common trigger is a mistake on your return. This means that if you notice a mistake on your tax return after submission, you should inform the HMRC right away. The longer you wait to notify the HMRC of a mistake, the more penalty or interest you may have to pay, especially if you have under-paid taxes due to a mistake. However, the outcome of a check may also be that you have overpaid your taxes and this will be refunded to you, in some cases even with interest.

Tax investigation into your business

If you have been notified of a tax investigation by the HMRC, it does make sense to hire a professional accountant or accounting firm. This is especially important, if the tax investigation is for your business, where tax issues could be more complex. If you have not hired an accountant previously, i.e. to prepare your taxes, then you will need officially appoint the accountant and fill out a form to let the HMRC know that an accountant will be acting on your behalf during the investigation.

A tax investigation can also be part of a tax dispute. This means that either you are the HMRC does not agree with the amount of taxes paid or due. The HMRC tries to resolve tax disputes without going to court and is open to discussion with you and/or your accountant about your tax issues. It is always good to be forthcoming and upfront when dealing with your accountant and HMRC. If a decision is made by the HMRC and you disagree with this decision, it is still possible to appeal in writing.

If you have been notified of a tax investigation into your personal or business tax accounts, then please contact the Wilkins Kennedy tax team who will be happy to provide assistance.


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