Insights
What triggers an HMRC investigation?
There are so many events that can trigger an HMRC investigation. Some are through actual errors you’ve made, some turn out to be misunderstandings, and some are completely random.
In this article, we’ll discuss the main events that trigger HMRC investigations.
Late or incorrect filings
HMRC grows suspicious of individuals and companies who submit their tax returns late, or with mistakes. These errors challenge the credibility of the tax return and the seriousness with which you take your tax responsibilities. Consequently, they are inclined to investigate your financial affairs in more depth to see if there are more issues hiding below the surface.
Late payments
Similar to late filing, making your tax payments late does not go unnoticed. It suggests you are not on the ball with your tax affairs, so you are seen as more likely to have made errors (by mistake or consciously) that need to be investigated.
Using estimates and provisional figures
If you don’t have concrete facts and figures to use in your filings, HMRC will be very suspicious. You have many months to ensure you have the correct information to hand, and if you can’t provide actual figures, you should be proactive and explain to HMRC why this is to avoid scrutiny.
Large fluctuations in income and expenses
If your incomings and outgoings vary dramatically, this is a big red flag for HMRC. A sudden drop in earnings could mean you are underreporting your income to avoid paying tax. A massive increase in expenses could be a sign of fraudulent claims.
Extremely low reported earnings
HMRC employees don’t restrict their investigations to facts and figures on paper. They consult social media and more to see how your reported earnings marry up with your lifestyle. In 2019, an unnamed football agent was caught underreporting income because HMRC found they purchased high-end luxury goods that they couldn’t possibly afford on the income they claimed to receive. This was part of a mass investigation of other football agents.
Results deviate from norm in your industry/area
If your income and expenses are very different from similar businesses in your sector or geographical location, this can also trigger an investigation. HMRC expects to see a pattern for similar businesses, and if there is an outlier, it suggests an underlying issue.
You work in a high-risk sector
HMRC has a list of “high-risk” industries they challenge more often than others. They regularly launch campaigns where they focus on investigating businesses in a certain sector, and this can be a trigger for your business to be investigated.
Tip-offs
HMRC has a fraud hotline where individuals can give them tip-offs about potential tax fraud. They’ll assess the credibility of all the tip-offs before deciding whether to investigate them further.
Investment in targeted schemes
Whilst legal, tax avoidance schemes are frowned upon by HMRC. If HMRC notices you using a tax avoidance scheme, they may class you as a higher risk and choose to investigate your financial affairs in more depth.
Information from overseas authorities
HMRC receives information about the activity of UK taxpayers from overseas financial institutions and tax authorities. If you have an offshore financial account, information about your activity is often automatically fed to HMRC. They may choose to investigate you if they are suspect of what you’ve been doing.
Random check
About 7% of all HMRC investigations are thought to begin completely randomly!
How likely is it to get investigated by HMRC?
Aside from the estimated 7% of random checks, HMRC will only investigate your company if they find concrete evidence that you have not paid the correct amount of tax, whether this is by mistake or on purpose.
HMRC has many ways to find out if you’re not paying the right amount of tax, so it is quite likely that HMRC will investigate you if you have done something wrong.
Anxious about an HMRC investigation?
Have HMRC told you that you are under investigation, or are you worried it is a real probability in the near future?
It’s critical you get legal assistance as soon as possible. When you speak to Holborn Adams’ tax fraud solicitors, you’ll be able to speak freely with them about your financial affairs without fear of repercussions – we are bound by legal privilege, meaning all of your communications with us are confidential by law.
We can instruct tax experts on your behalf who will also be covered by legal privilege. Together we can construct a plan to tackle any issues in your financial affairs and liaise with HMRC to secure you the best possible outcome. It’s never too late to take action – speak to our solicitors today.