HMRC compliance checks – what small businesses need to know

by Jake Martin, Title Text

2 min read

Copyright: iStockPhoto/CGinspiration

HMRC is working hard to make sure that all tax that should be paid is paid. In an economic environment characterised by deficit reduction, failing to collect taxes that are due is an unnecessary own goal which the Treasury is keen not to score. HMRC compliance becomes crucial.

One of the tools at HMRC’s disposal to help collect the right amount of tax is the Compliance Check.

There is nothing new about HMRC checking a particular aspect of a business’s tax affairs but you may well have noticed a growing number of media reports recently on these checks being targeted on various sectors, including direct sellers, online traders, plumbers, hairdressers, lawyers, retailers and more.

Accounting software will help you keep good business records

Figures released recently by UHY Hacker Young show that HMRC has yielded an additional 39% in the last year from compliance investigations into small and medium sized businesses.

You may well be wondering how all this might affect you.

What is a compliance check?

So, what can you expect if it’s your door they knock on?

HMRC will use a compliance check to verify that a business has paid the correct amount in taxes. The full range of taxes they may check is listed in this HMRC factsheet.

To verify the return they are checking, HMRC will ask you to provide the relevant documentation on which a return is based. They could also check whether all claimed expenses are “wholly and exclusively” for the business’s trade, and that the declared profit does not include any disallowable expenses

Be prepared

Three things are important:

  1. If you think you have got something wrong – tell HMRC before they tell you
  2. Throughout the Compliance Check be as helpful as you can
  3. Ensure you have good records which will make it easier for the Compliance Check officer to do their work

Points 1 and 2 are both related to reducing any penalties HMRC are able to charge if they find anything wrong. HMRC measure the “quality of disclosure” and they reduce penalties where the taxpayer has told them what is wrong and helped to get it right.

Prevention is better than cure

Like so many things, preventing a problem is usually better and cheaper than curing a problem and the key to this is having good financial records in the first place, and accurate and up to date bookkeeping and management accounts are the key to this.

However,  accurate and up-to-date bookkeeping and management accounts should be the bedrock of every business because no business can be sustainably profitable without them!

Also, although most transactions are routine, it is worth taking advice if you begin to do something different, such as doing business overseas.

See HMRC Compliance as your ally here. Their helplines are very good; they have a lot of useful information online and have recently gone on YouTube with videos and webinars. For example, click here if you want to know more about Compliance Checks!

No one likes HMRC Compliance Checks but they are a fact of commercial life. If you run your business sensibly and have strong financial records and controls then you have every chance of getting through the process quickly and hopefully without any problems.

Do you have any questions about HMRC Compliance Checks?

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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