Get ready for when an inspector calls

Get ready for when the taxman calls, small businesses are urged...

Small businesses are being warned to prepare for a call from the tax inspector, as a national “grab for cash” targets business owners. HM Revenue and Customs (HMRC) are expected to massively increase the number of tax investigations they make, in a bid to reduce the tax gap – the difference between tax raised and what is thought to be owed – by £4 billion at the end of this financial year.

Cash businesses across the UK such as private taxi firms, pubs, corner shops and takeaways, are particularly vulnerable and should ensure they have all their books in order and answers ready. The investigation insurance company, CCH, has already seen an explosion in new cases, with new claims up 82%* compared to the previous year and this is expected to ramp up even more in the next few months.

Business owners should not take this attack on their legitimate earnings and hard work lying down. If they ensure they have all the right procedures, records and proof of income and expenditure in place, they can show the tax inspector the door. They should also ask their accountant for fee protection insurance to cover the costs which could be run up in fighting any claims from HMRC.

How we can help

HM Revenue and Customs no longer need a reason for opening an enquiry into your business or personal affairs. If you have concerns about your business’ vulnerability to a tax investigation, or would like more information about protecting your business from the cost of an investigation, contact us today to speak to a local advisor. 

How to deal with an enquiry

Small businesses should follow five golden rules when the tax inspector calls:

• Challenge any part of the tax assessment you know is wrong
• Answer all correspondence from HMRC within their deadline – or fully explain why if you need more time
• Anticipate the inspector’s questions – if there is anything to declare do so early
  
• Ensure your tax advisor is experienced in negotiating with HMRC


• Appeal against any HMRC order to the independent commissioners within 30 days and go to the Tax Tribunal if you have a particular grievance

HMRC to clamp down on poor record keeping

The government has announced that small businesses and other enterprises demonstrating poor bookkeeping are to be punished, it has been reported.

With all the activity surrounding the Self-Assessment Tax Returns deadline, taxpayers have every incentive to ensure that their records are in order and up to date.

However, in a bid to see small businesses and other taxpayers improve their bookkeeping, HM Revenue & Customs (HMRC) is preparing to fine those found demonstrating poor practice in this area, as reported by Accountancy Age.

According to the news provider, HMRC is looking to reduce the amount of unpaid tax by targeting small firms that make mistakes based on information from poor records.

"The businesses will benefit from improved financial management which in turn will boost their chances of survival. Those seen to be fulfilling their obligations will likely have a lower chance of a subsequent compliance intervention from the taxman."

News of the crackdown, which could see firms fined up to £3,000, was met with concern from a number of industry experts, with the Forum of Private Business (FPB) saying the move comes despite HMRC promising a "lighter touch" approach to bookkeeping mistakes in light of the recent VAT rise, which saw the rate increase from 17.5 per cent to 20 per cent.

HMRC's website explains that the department promotes a high level of record keeping in order to minimise the risk of tax overpayment, saying that if sufficient evidence of income and outgoings cannot be shown, mistakes are more likely to occur.

"If you do not maintain good records, you might not be able to render your VAT return on time and this can result in a surcharge," the department warned.

"Wherever possible, we will give you the benefit of the doubt, but don't forget there are penalties for failing to keep proper records to back up a tax return or claim. The law says that everyone who pays tax must keep the records they need to fill in a tax return. If you don't keep records, how can you show what you've earned and what you've spent?"

HMRC added that VAT-registered businesses are "legally required" to keep certain types of business record and reminded taxpayers that if they are charged any penalties, they can appeal against the decision to independent tribunals.