HMRC Investigations into Company Tax Returns

Tax investigations into companies are often divided into two categories: “aspect” enquiries and “full” enquiries; in the legislation there is no difference between the two categories. Broadly speaking, the “aspect” enquiries are cases where HMRC is asking about particular entries on the corporation tax return.  On the other hand, “full” enquiries look at every aspect of the company tax return.

Aspect enquiries are usually more straightforward to deal with, because HMRC are only interested in a limited area of the tax return or accounts.

When HMRC open a full tax investigation into a company tax return they will usually ask to see all the business books and records.  This will include any financial accounts prepared, either by the company or their accountant.  HMRC will examine these records in detail to see if all the income and expenses have been correctly reported and claimed.

HMRC will usually want to meet with the directors of the company face-to-face so that they can get an understanding of the way in which the business operates.  WLH Tax recommends that directors do not attend a meeting with HMRC unrepresented, and that ideally the meeting should take place without the directors being present.

Often when a company tax investigation is undertaken by HMRC they will also want to review the personal tax affairs of the directors of the company, particularly where the company has few directors or is a family run company.  The Tax Inspector will often try to obtain personal tax information, either by requesting personal financial information such as bank account statements, or by asking questions about the personal tax affairs of the directors at a meeting.  In some cases, this may be justified, but HMRC often work on the basis that they can ask for anything that they want; however, sometimes they do not have any legal powers to make the director submit to the request they have made.  An investigation into a company’s tax affairs does not automatically give HMRC powers to obtain personal information from the directors of that company.  WLH Tax regularly encounter this issue and are able to advise you what documents should and should not be provided to HMRC.

WLH Tax will seek to quantify any discrepancies and agree the revised profits that should be subject to Corporation Tax.  If the same errors arose in earlier years, HMRC may seek adjustments in these years – going back at least 4 years, but in some circumstances HMRC can go back up to 20 years.

Where income of the company has been diverted to the directors personally, HMRC will also seek personal tax investigation settlements with the directors.

Although the primary concern of HMRC when opening a company tax investigation is Corporation Tax, WLH Tax has noted that HMRC frequently use this opportunity to look into other taxes relevant to the company.  For example, they may review the VAT and PAYE aspects of the company’s operations to ascertain if there are any irregularities.

How can WLH Tax Help

Whilst HMRC has various powers granted to them to assist them in carrying out a tax investigation there are also limits to these powers.  WLH Tax is a specialist tax investigation practice and so we are aware of the limits to HMRC’s powers and know when it is appropriate to challenge the way in which HMRC is conducting the investigation.  In particular, where there is a company tax investigation, we will not allow HMRC to extend their investigation into the personal tax affairs of the director unless they have established a very good reason for this.

WLH Tax will discuss with you and with HMRC any apparent discrepancies between the accounts and the records with a view to reaching an agreement.  Where there are discrepancies, we will endeavour to minimise your tax liability.

If HMRC have opened an enquiry into your company then please contact us for a free, confidential and no obligation discussion.  We are happy to have an initial free of charge meeting with prospective clients.

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