How Long Does It Take To Complete A Tax Investigation?

If you do not pay your taxes on time, there is a serious error in your tax returns that has to be corrected, or you are engaging in tax avoidance and evasion, HMRC may launch an inquiry. These factors may prompt HMRC to investigate an individual's or a company's tax affairs further. In general, HMRC conducts it as part of its overall effort to reduce tax evasion. With several departments, hundreds of distinct cases, and the scope and number of paperwork involved, it can be impossible to determine how long a tax investigation takes. Before we get into the meat of the matter, what exactly is a tax investigation?

What Exactly Is an HMRC Tax Investigation?

HMRC can audit your tax affairs at any time to verify you're paying the correct amount of tax. Before conducting a tax investigation, HMRC may contact you or send you a letter alerting you of what they intend to investigate. These elements could be:

• the taxes that you pay
• the Self-Assessment tax return for a particular time period
• a corporation's tax return
• your financial and tax computations
• your PAYE returns and records ( if you are an employer)
• your VAT returns and documentation (if you are VAT-registered)

  

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HMRC typically conducts three levels of audit or tax investigation:

• HMRC conducts a full examination of your business accounts.
• HMRC will check a certain aspect of your finances during an aspect enquiry.
• HMRC may also conduct a random check at any moment, regardless of the state of your accounts.

Tax investigation entails more than just looking at an individual's income tax; it also looks into:

• VAT
• Tax on landfills
• Capital Gains Taxation
• Climate change tax
• Tax on insurance premiums
• Corporate Income Tax
• Scheme for the Construction Industry
• IR35, for example.

What Is the Purpose of a Tax Investigation?

Most typically, HMRC will initiate a tax inquiry if you submit an erroneous tax return, claim more VAT as a small business, or are a large organisation and declare a small amount of tax. In addition to these, HMRC will flag similar situations for further examination. Furthermore, the following factors may lead to a tax investigation:

• HMRC receives a tip
• You work in a high-risk field (involving a lot of cash in hand transactions)
• You regularly file your tax returns late.
• if income has decreased significantly, your costs have increased, or there are anomalies between different returns
• Your accounts do not conform to industry standards.
• You work in an HMRC target industry.

How Long Does It Take To Complete A Tax Investigation?

The short answer is that it is dependent on individual circumstances. A tax investigation does not have a set timeline. It varies according on the complexity of the problem, the severity of the tax fraud, and the size of the business. It can last a week or two or it can last for years. In general, a comprehensive investigation takes at least a year and may take longer depending on the complexity of the case.

The aspect investigation, which looks into a certain aspect of accounts, takes about 3 to 6 months. The random screening might take up to three months. Remember that the longer a tax investigation lasts, the more expensive it becomes.

How far back can HMRC go in its investigation?

Here is a table that shows how far back HMRC can investigate your case:

• How far back can HMRC look?
• How Can You Reduce Your Chances Of An HMRC Tax Investigation?
• Here are some suggestions to help you avoid an HMRC tax investigation:
• Check that your returns were submitted correctly and on time.
• As evidence, keep track of your expenses, income, and taxes paid.
• Before HMRC asks, notify them of a change.
• Get assistance from our qualified accountants.

To summarise

That's all about HMRC tax investigations, what causes them, how long they take, and how you may minimise your chances of being examined by HMRC. To avoid a tax investigation, you must follow HMRC tax laws and pay all required taxes on time. Keeping neat, up-to-date financial records can not only prepare you for an HMRC audit, but will also allow you to better examine your company's financial status on a daily basis.

If you make a lot of money as an individual or as a corporation, it might be challenging to keep track of your finances. We will manage your accounting and tax matters with HMRC correctly and on time, minimising the possibility of an HMRC audit. So, call our trained accountants to relieve you of the financial load and allow you to focus on building your business.