What You Need to Know About HMRC Investigations

Published by Mohsin Khan posted in HMRC Investigations, HMRC notices on January 7, 2025

HMRC investigations are checks to ensure people pay the right amount of tax. There are different types. 

Some investigations look at your whole tax return, while others focus on specific areas like income or expenses. Random checks can happen to anyone.

HMRC also checks for fraud. In these cases, the investigation is more serious. If they think you’ve made mistakes on purpose, they can investigate for up to 20 years. For normal errors, it’s up to 4 years.

At Apex Accountants, we help you handle any HMRC investigation. Our experts guide you through every step. 

In this guide, we’ll talk in detail about HMRC investigations, how you can avoid or prepare for one, and how Apex Accountants can help you!

Comprehensive Overview of HMRC Investigation Powers and Oversight

A Complete Guide to HMRC Investigations in UK

HMRC investigations in the UK encompass extensive powers designed to enforce tax compliance and combat evasion effectively. These include issuing statutory notices for document disclosure, obtaining search warrants, making arrests for suspected tax fraud, and recovering criminal assets under the Proceeds of Crime Act. HMRC operates under stringent oversight, with internal mechanisms like assurance teams and external reviews by judicial bodies to ensure lawful use. Apex Accountants specialises in providing expert HMRC tax investigation advice and robust representation, ensuring compliance and safeguarding interests.

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Common Triggers for HMRC Investigations

Triggers for HMRC Tax Investigations

HMRC looks for patterns that suggest problems. Big changes in income or expenses without explanation can raise alarms. If you file tax returns late, it can trigger an investigation. 

Errors between different tax returns also catch HMRC’s eye. Claiming big deductions like personal expenses as business costs is another red flag.

HMRC gets information from banks, other agencies, and even employees. They also do random checks. 

Some industries, like restaurants, are more likely to be investigated due to higher risks of tax evasion. Unusual financial patterns, like high profits, also trigger an investigation.

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Strategies to Minimise the Risk of Undergoing an Investigation From HMRC

Understanding the Risk of Investigation from HMRC

To avoid an HMRC investigation, 

  • file your tax returns on time
  • Late submissions can trigger penalties and attract attention.
  • always double-check your figures to avoid mistakes
  • conduct regular audits to spot issues early
  • Use professional advisors to stay updated on tax laws.

Keep your financial records clear and organised. If you make a mistake, voluntarily disclose it to HMRC. This can reduce penalties and prevent investigations. 

Use reliable accounting software that meets HMRC’s requirements. Avoid cash transactions, as they can raise suspicion. Lastly, keep your records updated and easy to access to avoid any issues.

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HMRC Investigation Time Limits and Scope

Understanding the HMRC Investigation Time Limits for tax calculation

HMRC investigations vary in length and detail. The time limits depend on the suspected issue. Simple errors may result in a quick, limited investigation. Serious cases, like fraud, lead to longer, more detailed investigations.

The complexity of your finances matters. Multiple income streams or international transactions could lead to a broader investigation. The more documents HMRC needs to review, the longer it may take.

If the investigation reveals bigger issues, HMRC may look into related businesses, partners, or directors. Delays in providing information can also extend the investigation.

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Advantages of Early Cooperation and Voluntary Disclosure in HMRC Tax Investigations

Accountant Working on Tax Investigations From HMRC Files

Proactively cooperating with tax investigations from HMRC offers significant benefits. Voluntary disclosure can lead to reduced penalties, better negotiation terms, and the mitigation of legal risks. Taxpayers should identify errors, prepare supporting documents, and disclose inaccuracies via HMRC’s Digital Disclosure Service. Early cooperation demonstrates compliance and allows for manageable settlements, avoiding prosecution. Apex Accountants provides expert HMRC investigation advice to help navigate voluntary disclosures, ensuring accurate reporting and favourable outcomes.

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After an HMRC Personal Tax Investigation

Facing an HMRC Personal Tax Investigation? Here’s What Happens Next

Once your HMRC personal tax investigation ends, you’ll receive a report. This report will include a summary, identified discrepancies, and any additional taxes owed. It also lists penalties and interest charges for late payments or mistakes.

HMRC calculates unpaid taxes and penalties. Penalties can range from 30% for errors to 100% for deliberate fraud. Interest is charged on unpaid tax.

If you can’t pay right away, HMRC offers payment options like a Time to Pay arrangement. You can also apply for reduced penalties in cases of hardship.

If you disagree with HMRC’s findings, you can ask for an internal review or appeal to a tribunal.

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Penalties from HMRC Tax Investigations and Taxpayer Rights

Understanding Penalties from HMRC Tax Investigations and our expert accountants Guide you Are protecting Your Business from HMRC Investigations

HMRC penalties can hit hard for non-compliance. 

If you miss a filing deadline,

  • You’ll get a £100 penalty.
  • After three months, you’ll face £10 daily fines for up to 90 days. 
  • At six and twelve months, you may owe 5% of the tax due or £300, whichever is more.

For late payments, you’ll face 

  • a 5% penalty after 30 days, then again at six and twelve months. 

If your tax is wrong, 

  • Penalties can range from 30% to 100% for serious errors.

You have rights. You can request an internal review if you disagree with HMRC. You can also appeal to higher tribunals or use Alternative Dispute Resolution (ADR) for a quicker solution.

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HMRC Compliant Tax Planning Strategies

Accountant Work on Tax Planning Strategies

To avoid HMRC inspections, you need to use compliant tax planning strategies. In 2024 and 2025, 

  • Tax-efficient investments like ISAs offer tax-free returns.
  • Businesses can reduce tax bills by claiming capital allowances on assets like plant and machinery.
  • Contributing to pensions also lowers taxable income and provides tax relief.
  • Using tax reliefs like R&D credits helps cut the tax burden.
  • Business owners can reduce taxes by paying dividends instead of a salary.
  • Charitable donations, such as Gift Aid, provide extra tax benefits

Non-compliance can lead to penalties and legal action. 

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Comprehensive Tax Advisory and HMRC Investigation Support Services

Reliable HMRC Investigation Support from Apex Accountants

Apex Accountants helps businesses stay compliant with tax laws and avoid HMRC inspections. 

We offer expert guidance on

  • VAT registrations
  • payroll processing, and 
  • company accounts preparation

For VAT, we assist with registrations, ongoing compliance, and selecting the best VAT schemes. We ensure all documents are accurate and submitted on time to avoid penalties.

Our payroll services ensure accurate wage calculations and compliance with HMRC rules. We manage employee benefits to avoid errors.

For company accounts, we prepare financial statements that comply with regulations and submit them on time.

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