What is a HMRC compliance check?
Fretting about an HMRC compliance check? This mini guide will tell you everything you need to know.
Most individuals and companies pay the right amount of tax each year, but there is a minority that tries to pay less than they owe.
This creates a problem for the tax authority, because they need to collect over £500bn in tax receipts every year and they don’t have the resources to investigate every tax bill.
In recent years, HMRC has started using more sophisticated tactics to identify when a taxpayer isn’t paying enough tax. And if they do think that you’re trying to have them over, one of the first things they will do is open a compliance check.
What does a check involve?
A HMRC compliance check is a small investigation into your tax affairs. The taxman does it to:
- Make sure you’re paying the right amount of tax
- Make sure you’re getting the right allowances and tax reliefs
- Discourage broader tax evasion
- Make sure the tax system is fair
If HMRC open a compliance check against you, they will call or write to you and your tax agent. This will usually be your accountant, if you have one. The initial call or letter will tell you what HMRC wants to check and why.
At that point, you’ll have the opportunity to explain the situation and, if you’re lucky, the taxman will stop the check. If not, HMRC might ask you to send over information or they may try and set up a meeting to discuss your affairs and records. If you have business premises, HMRC might ask to visit and access your records.
You don’t need to co-operate with HMRC, but if you don’t share information or documents then they can use legal powers to make sure they see them.
There are advantages to co-operating with a compliance check. If you help, it means the check will be carried out quickly and, if they do find something is wrong, it can reduce the penalty you might be charged.
HMRC has opened a compliance check against me - have I broken the law?
Just because you’ve got a letter about a compliance check, it doesn’t necessarily mean that you’ve done something wrong.
A compliance check is usually triggered by a discrepancy in your tax affairs. This could include:
- A figure or figures that appears to be incorrect
- Large VAT refund claims when turnover is low
- Small tax declarations when turnover is high
HMRC also reserves the right to check any tax return, so there’s a chance your compliance check could be random.
If you’re worried about a compliance check, remember that the tax authority conducts thousands of these checks, and only a small proportion ever go further than a letter or a phone call.
The tax authority is also pretty good at differentiating between people that have made a small mistake and people that are deliberately trying to defraud the state, so you shouldn’t lose sleep if you might have made an honest error.
Getting your accountant to handle a compliance check
The easiest way to handle a compliance check is to give an accountant ‘formal authorisation’ to deal with it on your behalf.
For more information about compliance checks and accountancy services, speak to a member of the team today. Call: 0808 281 0303.