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Tax Investigation Advice | Expert Survival Techniques

The Purpose of a Tax Investigation

As a business owner, one of your primarily responsibilities is to make sure that your taxes are paid on time; otherwise, you could become a victim of the tax investigation conducted by the HM Revenue & Customs (HMRC). During a tax investigation, the HMRC is authorized to take away your records and investigate them to find out if you have been deceitful where your taxes are concerned. In most cases, only one year’s account will be inspected; however, if they suspect or find deceitfulness, they can go back and investigate five years or more. Depending on the level of deceitfulness, the penalty may be raised up to 100% of the tax that you should have paid or you might be banned from being a company.

In most cases, you will not know that you will be investigated until the tax officer is in front of your door requesting to take along your records for them to be inspected. Your company might be randomly selected by the HMRC to be investigated or it can be targeted by the HRMC. The HRMC targets certain companies based on their status, the types of activities that they partake it and their size. In addition, if the HRMC suspects that something is not right with your tax or if they suspect that you are being deceitful, they will target you. The investigation into APPLE is an example of a targeted tax investigation. 

Dealing with a tax investigation

So, what should you do if your company is being investigated? How should you react? Here are a few helpful tips.


Remain Calm

There is no need to become violent or to fear ending up in jail. Only a few tax investigations have ended in a custodial sentence but these are the most extreme cases.

Get expert advice 

Hire an independent financial advisor immediately as this person has the knowledge and experience needed and knows how the HMRC operates.

Do not lie

Answer all questions correctly. This is the simplest and most reliable way to avoid a jail sentence. If you lie and they find out that you have lied, the consequences will be great.

Be well prepared

The HMRC might schedule several meetings with you to discuss the discrepancies in you taxes so be prepared to answer all questions at any meeting.

Corporate in any possible way

Cooperation is very important to the HMRC. If they notice that you are cooperating and proving the information they need they might be a more lenient; however, a lack of cooperation might result in penalties. 

Do not attempt to destroy any evidence

If you do not have the appropriate records, the HMRC might assume that you are trying to hide something so do not destroy any paper work that may be useful.

How to avoid a tax investigation

So what is it that you can do to avoid tax investigations? Here are a few tips:

File on time 

If you do not file on time, the HMRC might assume that your organization is disorganized. They will also assume that if your organization is disorganized, it probably means that there might be error in your which means that the HMRC will most likely find something wrong with your returns and that will be cause enough for the HMRC to conduct an investigation.

File accurately and completely

Make sure that the information that you put on your tax return can be supported by the records that you have. If necessary, get assistance from an accountant so that you know which information should be placed on your tax return and how it should be placed.

Properly file your records

Make sure that all of your records are properly filed and organized as this will make it very easy for you to file your tax return on time and to make sure that the information placed on it is accurately.

Explain any major changes

If there are any major changes from the previous year, make sure that you properly explain them on your tax return. For example, if there is a major increase in your turnover or in your gross profit, it will be alarming for the HMRC and they will mostly want to know what the cause is for such a large increase. As a result, they will most likely be inclined to conduct a tax investigation. However, if you were to inform them ahead of time, they will be informed of the reason and will not need to conduct an investigation unless they are skeptical about your reason.



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