HMRC compliance checks are a vital part of ensuring that businesses are paying the right amount of tax. Unfortunately, these checks can also be a time-consuming and stressful process for business owners. HMRC compliance checks typically involve sending a team of inspectors to a business premises to examine records and financial statements. The inspectors will then compile a report on their findings.
If they believe that the business owes additional tax, they will send a demand for payment. In some cases, businesses may be able to appeal the decision.
It is important to remember that the onus is on the business to prove that they have complied with all applicable laws and regulations.
Failure to do so could result in severe penalties, including hefty fines and even jail time. As a result, it is essential to take HMRC compliance seriously and ensure that all necessary steps are taken to avoid any potential problems
What Does a Compliance Check Mean?
A compliance check is an on-site visit from a regulatory agency such as HMRC to ensure that a business is following all the rules and regulations that apply to their industry. The purpose of a compliance check is to protect consumers, employees, and the environment from risks that could potentially arise from the business’s operation.
It is also to make sure that businesses are adhering to any licenses or permits they may have. Compliance checks can be announced or unannounced, and they usually involve interviewing staff, inspecting facilities and equipment, and reviewing records. If any problems are found during a compliance check, the business will be required to correct them as soon as possible.
Depending on the severity of the issue, failure to do so can result in fines, legal action, or even the shuttering of the business. As such, compliance checks are an important part of ensuring that businesses are running safely and smoothly.
The HMRC Compliance Check Letter
The HMRC Compliance Check Letter is one of the most important tax documents you will receive. The letter is sent to you after your taxes have been filed, and it contains important information about your tax return. The letter will list any errors or discrepancies that were found on your return, and it will also provide instructions on how to correct them. In addition, the letter will request additional information if necessary.
It is important to respond to the HMRC Compliance Check Letter as quickly as possible, as failure to do so could result in penalties or interest charges. If you have any questions about the letter, you should contact a qualified tax professional for assistance. If HMRC decides to conduct a compliance check on your taxes, you will receive an information notice in writing.
This notice will explain that HMRC is conducting a tax investigation and what they specifically want to check. If you use an accountant, the tax authority will contact them directly. It is important to cooperate with HMRC during a tax investigation. The compliance check will usually involve a review of your tax records and supporting documentation.
Depending on the results of the compliance check, HMRC may make adjustments to your taxes. In some cases, HMRC may also impose penalties for inaccuracies or non-payment of taxes.
If you’re registered with HMRC for Self Assessment, you must provide them with information and records so they can calculate your tax bill. If you don’t do this by the deadlines they set, HMRC can issue a formal information notice.
This is a serious matter – if you ignore an information notice, you could be fined up to £300. And if you still don’t provide the required information or records, HMRC can estimate your tax liability and issue a penalty of up to 100% of the tax due.
So if you receive an information notice from HMRC, take it seriously and act quickly to comply with their request. It’s always best to provide any requested information as soon as possible to avoid any potential penalties.
How Many Years can the Taxman go Back?
Once a Self Assessment tax return has been filed by the company, HMRC has 12 months to enquire into any or all aspects of your tax return for irregularities. HMRC tax investigations can go back as far as 20 years, depending on the type of inquiry. For example, if HMRC suspects you of fraud or evasion, they can open an investigation into your tax affairs dating back to when the offense was committed.
In cases of simpler inquiries, such as errors on your tax return. HMRC may only go back for a few years. It’s important to note that HMRC can also reopen closed investigations if new information comes to light. As a result, it’s always best to be honest and upfront with HMRC from the start to avoid any potential problems down the line.
Read more: How long does HMRC want you to keep business records
What is Tax Compliance?
UK taxpayers have a duty to comply with tax law. This means that they must take reasonable care to ensure that their tax affairs are in order and complete. HMRC may take action if it believes that a taxpayer has deliberately ignored their obligations or has not taken reasonable care to comply with the law. Action can range from sending a warning letter to issuing a penalty.Tax compliance is important because it helps to ensure that everyone pays the right amount of tax.
This is vital for the UK’s economy and public services, as it ensures that money is available to fund them. HMRC works closely with businesses and individuals to help them understand and meet their obligations. It also provides support and guidance on specific areas, such as Self Assessment and Capital Gains Tax. By complying with tax law, businesses and individuals can avoid penalties and maintain good relations with HMRC.
What can HMRC Look at During a Compliance Check?
HMRC may carry out compliance checks to verify that taxpayers are paying the correct amount of tax. During a compliance check, HMRC will examine a taxpayer’s financial records and other documentation to ensure that all taxes have been paid correctly. If any errors or discrepancies are found, the taxpayer may be required to pay additional taxes or penalties.
In some cases, HMRC may also take criminal action against taxpayers who have willfully evaded taxes. Compliance checks are an essential part of HMRC’s work in ensuring that everyone pays their fair share of taxes.
The following are checked during a visit:
- Your company tax return
- Your accounts and tax calculations
- PAYE, VAT and NICs
Compliance Factsheets Available from HMRC
To help taxpayers understand the rules, HMRC has published a series of factsheets covering different aspects of compliance checks. The factsheets are available on the HMRC website (link here).
It is HMRC’s policy to tell a taxpayer when a compliance check is being carried out on his or her affairs. If the taxpayer has appointed an adviser and notified HMRC of this on form 64-8, HMRC may also contact the adviser to notify of the check. A taxpayer can appoint an adviser to handle the compliance check and to deal with HMRC on his or her behalf.
HMRC will also tell the taxpayer what they are checking. This may be all of a document or return, or just part of it.
As part of the check HMRC will ask for information or documents. They may also need to visit the taxpayer’s business premises. However, they will only visit the taxpayer’s home if his or her business is run from home. They may also ask questions over the phone, however the taxpayer does not have to answer questions by phone and can request that HMRC write instead.
HMRC can only request that information which they reasonably require to carry out their checks but what is regarded as reasonable will depend on the nature of the checks.
What Rights do Taxpayers Have During HMRC Compliance Checks?
during a compliance check with HMRC taxpayers have a number of rights that can help them deal with and defend themselves against These include:
- The right to be represented – A taxpayer can appoint an accountant, tax advisor or even a friend or relative to handle the process on their behalf.
- The right to consult an adviser – Taxpayers will be allowed a reasonable amount of time to consult an adviser before responding to HMRC.
- The right to confidentiality – All your dealings with HMRC will be confidential.
- The right to complain – Taxpayers have the right to complain if they feel they have not been treated fairly by HMRC.
Although you do not have to comply with HMRC’s requests or provide assistance in its investigation of your tax affairs, it is in your best interests to do so. This will be taken into account and may reduce the penalties.
What are the Potential Penalties Following an HMRC Compliance Check?
HMRC has a number of different penalty charges that may be levied on a company if it is discovered that an underpayment has been made or there are inaccuracies on the company’s tax return. The amount of the penalty charge is determined by the cause of the error.
For example, if the error was due to careless mistakes, the penalty charge will be lower than if the error was deliberate. In addition, if the company cooperates with HMRC and provides all of the necessary information to correct the error, the penalty charge may also be reduced.
As a result, it is important for companies to ensure that their tax returns are accurate and complete in order to avoid any penalties.
You may be charged a penalty if:
- The inaccuracy leads to tax being underpaid, overstated or over-claimed;
- The inaccuracy was careless, deliberate or deliberate and concealed.
If they find that you have underpaid, you will be required to pay the outstanding amount plus interest. However, if they find that you took reasonable care to make your return accurate, you will not be charged a penalty. To show that you took reasonable care, you should keep accurate records and check with an adviser or HMRC before filing your return.
By taking these steps, you can avoid being charged a penalty if HMRC finds that you underpaid your taxes.
If an office has made an assessment that you will have to pay a penalty, there are eight factors HMRC will take into account when determining the penalty amount.
- The value of the ‘potential lost revenue’ (PLR). The penalty will be a proportion of this figure.
- The behaviour that caused the inaccuracy. The penalties will be greatest when inaccuracies are found to be deliberate and concealed.
- Was the disclosure prompted or unprompted? In an unprompted disclosure, where inaccuracies are disclosed before they are found by HMRC, penalties will be less.
- The range the penalty falls within. Penalties can fall into one of six ranges:
| Type of behaviour | Unprompted disclosure | Prompted disclosure |
| Reasonable care | No penalty | No penalty |
| Careless | 0% to 30% | 15% to 30% |
| Deliberate | 20% to 70% | 35% to 70% |
| Deliberate and concealed | 30% to 100% | 50% to 100% |
- Deductions could be made to the penalty according to the quality of the disclosure.
- The penalty percentage rate will then be calculated using the penalty range and the deduction.
- The potential lost revenue will be multiplied by the penalty percentage rate to calculate the value of the penalty.
- Other reductions will be considered. For example, if other penalties have already been applied to the same tax or duty.
Do you Need Help With an HMRC Compliance Check?
If you have been made aware that HMRC intend to carry out a compliance check on you or your business, we can help. By carrying out proper due care and management of the case the potential tax liability, interest and penalties can all be reduced.
To make contact simply complete an online enquiry or contact us on 01246 912052
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.