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What triggers a tax investigation?

  • Blog
  • 09 February 2017

As a business owner you might find your business’s finances and tax under investigation by HMRC.

We have previously covered how tax investigation works, but what actually triggers the investigation in the first place?

What triggers a tax investigation?

Random selection

In larger businesses, it’s possible to be selected for a tax investigation at random.

These investigations focus predominantly on bigger businesses. However, businesses that undergo strong periods of growth, or expansion, can find themselves selected for investigation, based on the sudden change in their business and size.

While being selected at random is unlikely, there are other areas that, unless correctly managed, could leave you susceptible to a visit from HMRC.

Mistakes and inconsistencies

When completing your accounts and tax returns you need to ensure that any information you provide is accurate and consistent.

Mistakes and inconsistencies cause problems when processing tax returns. And frequent inaccuracies can cause HMRC to investigate your business in order to get a clearer picture of your company and its finances.

Large year-on-year changes

If your finances change without good cause from one tax year to the next, it can appear suspicious on your tax return.

Coupled with a lack of, or inaccurate, justification, this could lead to a tax investigation. An example of when this could happen is if your business has spent substantially more in a particular area, such as equipment or maintenance in a single year, but this isn’t adequately explained on your tax return.

The large increase of spending from one year to another, and the lack of reasoning why, can prompt HMRC to request additional information, which could lead to a subsequent full investigation.  

Avoiding inspection

While there is still the chance you might be asked to provide details or submit records to HMRC, keeping your finances, accounts and tax information in order can help you to avoid a tax investigation.

Organisation is crucial to help ensure all expenditure is accounted for, and all information is correct and consistent.

How can FSB help with your tax investigation?

  • FSB members receive automatic access to our tax investigation advice and insurance service. This service helps to protect you and your business should you be chosen by HMRC for a tax investigation.
  • Our tax investigation services provide our members with a number of benefits, including:
  • Cover of up to £50,000 per individual claim
  • Representation provided by former tax investigators who liaise with your accountant
  • Tax advice helpline
  • Tax investigation insurance – covering any accountant fees agreed within the policy

To learn more about tax investigation, or how our tax investigation protection services could benefit your business, visit the FSB Tax Investigation Protection page or get in touch with a member of our team.


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