HMRC compliance checks for small businesses

What Happens if Your Business is ‘Chosen’ for an HMRC Enquiry?

06/09/2022Business , Uncategorised

Your business may go under an enquiry by HMRC if you are carrying out a business. If you are in the role of a business owner, such a situation turns out to be very stressful at times. The enquiry is aimed to have a check on your company’s financial health and tax implications. There is no doubt that the enquiry from HMRC is a process that is known to be time-consuming. This even occupies you to such an extent that you will be spared no time to focus on your business growth in this phase. HMRC compliance checks for small businesses, however, are a way to improve your business activity.

Moreover, this guide will help you to have imperative information about what you are required to do when you are having an enquiry from HMRC. You will be more clear about how to respond to an HMRC enquiry and how the tax enquiry works in different business scenarios.


Talk to our best accountants and bookkeepers in the UK at CruseBurke. You will get ensured instant help whether you are running a small business or large.


HMRC Compliance Checks for Small Businesses – What is the Reason for Enquiry?

The possibility of being selected for the tax enquiry is random. If you have allowed yourself to maintain good records of accounts and finances of your business, the process of enquiry will be a lot easier for you. This also depends on the inspector of the investigation and his attitude towards the process that will decide your experience with the enquiry. There are multiple sources that HMRC uses to gather important data about your business activity and finances. This might include the details from your bank, publically available information, social media, land registry, and other sources. Public members also work like an axe to grind in this case.

However, you need to keep in mind that HMRC is under no obligation to provide you with a valid reason for the enquiry. But there are a few open questions that you are allowed to ask to realise their major concerns about your business. Some of the prominent reasons that trigger the enquiry might include the following:

  • If your VAT returns are asking for the claims in form of repayments.
  • There are multiple types of businesses and the financial information about this is received by HMRC from a third party.
  • Capital low drawings are a part of the business.
  • There are major financial changes every year. An increased amount spent year after year could be one of the possible reasons.
  • The result of your business activity is more unusual than the expectations of HMRC.
  • If you are frequently making mistakes and omissions while doing your tax returns or there is the factor of inconsistency involved in the process.


How Does HMRC Tax Enquiry Work?

The first step of the enquiry process is you being intimated by sending a notification from HMRC that the enquiry will be undertaken. You should not expect HMRC to provide the reasons to set the enquiry for your business. Normally the enquiry undertook within twelve months after the submission of tax returns. You need to keep a check on the validity of the notification. The notification from HMRC normally has the details of the deadline for your response.

This is usually 30-35 days. You are obliged to respond in writing. The possible enquiries are of two types. Aspect enquiries and full enquiries are the two types and this depends on the concerns of HMRC that will decide which one is up for your business.

Aspect Enquiry: This enquiry is usually concerned with a specific part of your tax return entries. This type of enquiry is considered to be a little more challenging and tougher than the full-time enquiry. This is because the enquiry targets a specific area and questions why particular detail is claimed.

Full Enquiry: A full enquiry is often considered to be a dissatisfaction factor for the entire submission of tax returns. This will bring in concerns of HMRC for the business. HMRC tends to view all the possible records that you have maintained for the whole tax year.


What will HMRC Require From me During the Enquiry?

Once the enquiry is decided for your business, there will be a few requirements that you will be obliged to provide to HMRC. You have to provide all the records that you have maintained in the year of enquiry. These details may vary based on the type of investigation and what is the concern of the enquiry. The regular requirement includes the following listed information:

  • Records of payroll.
  • The records of VAT.
  • The invoices for purchasing.
  • The receipts of the business expenses.
  • The estimates or quotes of the job.
  • Sales invoices.
  • The statement of the credit card.
  • Paying in slips and the chequebooks.
  • The bank statement of your business.


The Bottom Line

Now that you have gathered a fair amount of information about HMRC compliance checks for small businesses, we can bring the discussion towards wrapping up. We can say that if your business is chosen for the enquiry from HMRC, you need to review your records and the details of tax returns to keep your safe side. As HMRC is not bound to give you a valid reason, you will have to identify their concerns depending on the type of enquiry you undergo. That says a lot about what triggered the enquiry. We hope these few minutes of reading have helped you to develop a better understanding and you will be able to undergo an enquiry more professionally and successfully.


Are you seeking professional help to calculate HMRC compliance checks for small businesses? Why not get help from the experts at the CruseBurke? Talk to us now!


Disclaimer: All the information provided in this article on HMRC compliance checks for small businesses including all the texts and graphics, in general. It does not intend to disregard any of the professional advice.

Related post