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It doesn’t matter whether you’re a private individual paying tax or a business, the likelihood is that your tax affairs will be monitored by HMRC so that there are no inconsistencies and you are seen to be making sufficient tax contributions.

If there are any issues, HMRC may decide to proceed with an audit of your tax affairs to make sure everything is in order.

This inspection isn’t necessarily something to worry about as it could just be a formality, but it’s worth knowing what’s involved in an HMRC audit and if there is anything you need to do prior to it commencing.

Below we have put together everything you need to know about an HMRC audit if you have been notified that one will be undertaken at your place of business.

What is an HMRC audit?

An HMRC audit consists of a tax officer visiting your place of business to undertake a review of your dealings and to ensure that what you have put down on a tax return can be corroborated in person.

It will include a full assessment of your business from the property you work in, to your employees and equipment. They will also want to check your tax records in full and any other documents or systems that relate to the management of your business.

If you are to have an HMRC audit then you will normally be pre-notified by letter. This will inform you as to whether the audit will be looking into all aspects of your business, or just a single part (such as your tax records for individuals).

As to how far back HMRC can perform an audit, it will normally be related to a tax return filed within the last 12 months.

Why am I being audited by HMRC?

You would be well advised to speak to your accountant to find out why an audit is being undertaken. There can be many reasons as to why HMRC has decided to audit your business, but usually, it is because they have seen inconsistencies or clear issues with your most recent tax return.

The following reasons will also lead to an HMRC audit being undertaken:

  • There are large inconsistencies between tax returns with no valid reason why
  • Your tax return is not consistent with other businesses in your industry
  • Your tax return is not consistent with your current lifestyle or standard of living
  • The industry in which you work in is currently being targeted by HMRC as being ‘high-risk’
  • HMRC have received a tip-off about your inconsistent tax affairs
  • You have been “mystery shopped” by an undercover HMRC officer posing as a customer and a check will be made to see how that transaction was recorded

How often do HMRC perform an audit?

It may be related to any one of the reasons above or HMRC might just be making a routine tax audit that often occurs once every 5 years.

As mentioned, if you operate in a high-risk industry it might be that HMRC are simply investigating you as a matter of necessity and it isn’t due to inconsistencies in your specific tax affairs.

You are a lot less likely to be audited if your tax affairs are in order and there hasn’t been any drastic changes between your tax returns. All the more reason to be as accurate as possible when filing your tax return and ensuring there aren’t any mistakes or inconsistencies prior to filing it.

How should I prepare for an HMRC audit?

If you feel as if you are being audited because of an inconsistency or problem with your tax return, then you will need to get in touch with your accountant to check through your records.

Providing recent and accurate information during an investigation will ensure that the audit runs as smoothly as possible and does not have a larger effect on your business.

You can also get advice on how to provide HMRC officers with the information they require if you feel this would be viable.

If not, it might be best that you always deal with HMRC officers with your accountant or a legal adviser present so information can be conveyed properly and without holding up the investigation.

For any further information regarding an HMRC audit, feel free to get in touch with Patrick Cannon today.

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