Top Tips How To Survive Hmrc Investigation
Here are our tips on how to survive even the most thorough HMRC audit and keep your accounts in order before you receive a tax investigation letter.
Don’t put off the paperwork- keep everything up to date
This is the most important thing you can do- make sure that you update your books regularly. This is not just because HMRC require you to do so, but it is also essential to know what is going on with your business finances.
When your records are up to date you can pick up crucial information quickly (such as whether customer have not paid you on time), you can also easily respond to any HMRC audit enquiries without the stress of searching for documents.
Make sure your bank account balance matches the balance shown in your accounting software.
Connecting your bank account enables you to pull transactions from your bank account so you don’t have to key them in manually. You can quickly check that they match to bring your books up to date.
Keep copies of invoices for all the money you have received
You can record all the invoices that you have sent on your accounting software and then see at a glance which invoices have been paid, what is due and overdue. You can set up automatically recurring invoices that send and chase themselves-you can keep your accounts updates all the time. You will be able to see who owes you making it far easier to chase late-paying customers.
Keep copies of receipts for all costs in your business- HMRC will accept scanned receipts instead of hard copies.
With a good accounting software, you can snap expense receipts on the go. You can also track bank payments and out of pocket expenses so you can update your accounts when you are away from your desk. You can create a custom list of expense categories making it easier to understand what is going on in your accounts, which will be invaluable information during the investigation.
Avoid basic accounting errors that might trigger an automatic tax investigation
To keep HMRC happy it is important to make sure that your records are not only up to date, but error-free as possible. If you have had a problem lurking in your books that you have been vainly hoping would go away, now is the time to ask your accountant for guidance.
Few common errors to look for in your accounts:
- Allocating costs to the wrong category
- Posting costs as out of pocket expenses rather than bank payments (or vice versa)
- Entering the wrong amount of VAT
- Treating a cost as tax deductible when it is not (or the other way round)
- Matching receipts to the wrong invoice
File your Self-Assessment and VAT returns on time
HMRC is likely to select your accounts for review if you submit tax for VAT returns is late, so making sure you remain on top of that tax obligations can help you stay on the right side of HMRC.
When HMRC is happy, you are happy too
Your business will benefit from tidy, up to date records. You will not only be ready if HMRC opens an enquiry, but you will also know how your business is doing on a daily basis. This will enable you to sort out any problems in your accounts before they become major issues and will help you to discover potential opportunities, like whether you might be able to save some tax by buying new equipment sooner.