Is your business paying the right amount of tax? Is it worth evading tax because the likelihood of being investigated is perceived to be of a low risk? Read below to find out why you should pay the correct amount of tax.
Is it likely I will be investigated?
You should know that HMRC investigations have resulted in £185 billion in extra tax and they have a 90% success rate in criminal cases that are taken to trial.
Compliance with IR35 legislation has been focused upon by the Revenue, as the government want to crack down on ‘disguised employment’ among contractors and freelancers.
The cost of an investigation?
You should know that even if an investigation finds that your tax returns are complete and accurate the process is still expensive and stressful.
Most investigations can cost thousands of pounds and can last for more than a year depending on the number of queries made from inspectors.
There are some tax investigation insurance packages are available to help cover the costs of unexpected and prolonged probes.
What can trigger an investigation?
If you have a high turnover or profit and are paying low or no tax then this will raise suspicions.
Anything that appears to be out of the ordinary or different for your sector will raise scrutiny, for example if your business is profitable and you manage your accounts rather than accountant
Supercomputers and whistleblowers
HMRC is now better than ever at spotting out unordinary behavior, as it uses a data analysis system called Connect to find information on taxpayers.
In some other cases, many investigations are caused by tips offs from neighbors and employees.
In 2017/18 HMRC tax fraud hotline received more than 40,000 calls and more than £340,000 was paid out in rewards to informants.
Making Tax Digital
Making Tax Digital (MTD) will make it compulsory for businesses to keep their accounts using online software to make them more transparent.
If your business has a taxable turnover above the VAT registration threshold of £85,000 then you will be affected by the first stage of MTD which will begin on the 1 April.
You should be aware that you will not be required to submit the details to every transaction to HMRC, but you should keep a record of them incase of a future investigation.
If you are concerned about your tax affairs, then the first step is to talk to someone and get advice.
HMRC advise those who have failed to declare income, or pay tax on it, to make them aware at the earliest opportunity.
Talking to an accountant can help reduce the stress, as we as accountants can help you work through the issue and pin down the numbers and prepare you for the conversations with HMRC.
Overall, if you seek further advice about the risks of tax investigation, then please read our article below or get in touch as we would be happy to help.
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