Corporate tax investigations conducted by HMRC Local Compliance usually take one of two forms that being aspect tax investigation or full tax investigation.

An aspect tax investigation conducted by HMRC Local Compliance is a tax investigation where HMRC are only looking at specific areas of the tax return submitted.  For example they may ask for a analysis of expenses for say travel and subsistence.

A full tax investigation is much more serious than an aspect tax investigation.  In effect HMRC will be conducting a tax investigation into the whole of the books and records of the limited company and this is usually for one tax year.  If tax evasion, or material errors, are discovered in an HMRC Local Compliance Tax Investigation then HMRC will conclude that this has occurred in other years.  All full HMRC Local Compliance Tax Investigations are based on risk assessing the business and on information held by HMRC.  If HMRC launch a full tax investigation then they consider that there is something wrong with the tax affairs of the entity whom they are investigating. Call Lindsay to discuss this if you have an issue or query and put you mind at rest

HMRC Compliance Checks: Corporation Tax

Corporate Tax Investigations are described as Compliance Checks in HMRC literature will be dealt with by Inland Revenue investigators who have significant experience in dealing with Corporate Tax HMRC Compliance Checks.

Corporation Tax Investigations are described as compliance checks in HMRC literature.  These compliance checks are conducted by tax inspectors whom normally have years of training to enable them to deal with companies.

In order to deal with Corporation Tax Compliance Checks the tax inspectors often have to have years of training and pass rigorous examinations.

HMRC only conduct compliance checks when they have identified a risk.  That is that they believe that further tax may be due and that the best way to check this is by a corporate tax compliance check.

Generally corporate tax compliance checks are conducted into the last tax return that has been filed and the compliance check should be notified to the company within 12 months of the date the tax return was filed.

In order to start a corporate tax compliance check HMRC should send a notice in writing to the company at its registered office and the letter should make it clear that HMRC are conducting a compliance check into the tax affairs of the company.

The compliance check should relate to the company only and not its directors.  If HMRC want to enquire into the tax affairs of the directors they should open separate income tax self assessment compliance check.

Corporate tax compliance checks will basically fall into two categories:

  • A full corporate tax compliance check where HMRC look at all of the business records for a whole year.
  • An aspect corporation tax compliance check where HMRC look at one or two aspects of the companies tax affairs such as entertaining or travel and subsistence.

An aspect compliance check can turn into a full corporate tax investigation in certain circumstances and this change should be made clear.  If this happens it is a clear sign that HMRC believe that there are serious issues with the company’s tax affairs.

It is possible that at the same time as HMRC conduct corporation tax compliance check they also conduct a VAT compliance check and a PAYE compliance check but these are in effect separate tax investigations and it should be made clear that HMRC are also looking into these matters.

HMRC have published guidance on the conduct of a corporate tax compliance check and this is here.

As part of the compliance check HMRC may wish to meet with the directors and the accountant.  It is not compulsory to have a meeting with HMRC.  That is not to say that as part of a compliance check a meeting with HMRC should not occur but it should always remember that this is a tax investigation because HMRC believe that there may be something wrong with the accounts which could lead to additional tax being due.  Preparation for any meeting is important and should be assisted by someone who has experience of compliance checks.  HMRC will make notes of the meeting and we have seen many instances where ill thought out answers, or misrepresentation of what was said in the notes has led to massive problems during the enquiry.

HMRC are entitled to look at the business records supporting the tax returns and nothing else, however their information requests often go way above and beyond what they are legally entitled to.  Thus the starting point for any compliance check is to satisfy yourself that HMRC entitled to ask for what they are requesting.

If for any reason the tax returns submitted are known to be incorrect then it is important to disclose this at the earliest given opportunity to your advisor or speak to someone whom specialises in tax investigations.  Early disclosure of tax evasion or errors can help your advisor manage the tax investigation and lower the level of any penalty that will be charged.

If errors are found during the corporation tax enquiry HMRC will often assume that similar errors have occurred in other years and wish to make adjustments for these years as well (and charge interest and penalties).  Many errors found as part of corporation tax compliance checks can also effect the tax affairs of the directors.

That is not to say that errors will be found in all compliance checks and if there are no errors then HMRC should close down their compliance check.  Major issued can arise where HMRC have decided there are errors and none exist.  This is why it is important to ensure that the compliance check is managed by someone with experience of dealing with tax investigations.

How can we help?

Lindsay understands that people make mistakes. Where someone has evaded taxes they can often spend their life worrying about what they have done, yet not know how to put it right.  We also understand that HMRC do not always act appropriately and tax investigations cause severe stress on the people who run businesses.

Proper management of HMRC disputes and compliance checks has the potential of reducing the tax, interest and penalty so act now and call Lindsay on 07584 706664.