An audit is an investigation carried out by HMRC to ensure that a company is tax compliant. It’s often a long, disruptive and stressful process where investigators run through all your financial information looking for errors or evidence of fraudulent behaviour.
HMRC aren’t just targeting the big businesses, money launderers or deliberate tax avoiders. Any business, big or small can be subject to an investigation if they see something’s not right in the accounts.
In fact, HMRC have been focusing their attention particularly on smaller businesses. Research from UHY Hacker Young found that during the 2016/2017 tax year, the amount of tax collected from SMEs had seen a five per cent year on year increase as a result of further investigations.
Things that could trigger an investigation
Submitting returns late
If there’s a pattern of late submissions with your company, investigators are going to want to know the reason behind this. If it’s a case of forgetting, make sure that in future you set up alerts that give you enough time to get sorted. If you don’t already have an accountant, get one as they could help with this.
Big changes in income or outgoings
If HMRC see that your income levels have changed dramatically, this could make them suspicious. In this case, make sure you can explain these fluctuations in income. For example, if your income falls dramatically, this could be due to losing a big client. HMRC are just checking that you’re declaring all income as this affects tax liabilities.
Not declaring all income
As income affects how much tax you owe, HMRC will come knocking if they suspect that you’re keeping some of it a secret or forgetting to declare it.
Inaccurate expense claims
This catches a lot of people out because there often isn’t a concrete answer for whether something counts as an appropriate expense. It’ll depend on your business. You need to make sure that any expenses you declare to reduce your taxable income are “wholly and exclusively” for the benefit of the business.
If they find anything wrong
If HMRC do find anything wrong with your financial records, you’ll have to pay back any costs owed with interest and perhaps a penalty charge too. If auditors find evidence of deliberate dishonesty and fraudulent activity, this could lead to a criminal investigation and eventually prosecution alongside any financial penalties.
How to avoid or deal with an audit
Keep good records
In order to avoid an audit you’ll need to keep immaculate records. Any errors or late submissions could run the risk of drawing HMRC’s attention to you. If you are investigated, good record keeping will make the process less of a hassle.
Have proof ready
Investigators will need to see proof of any expenses your business has incurred and wishes to claim for. If this proof isn’t there, it’ll sound alarm bells for them.
The best way to keep a hold of all your information is to start storing everything digitally, including scanned receipts. Handy bookkeeping software like Pandle can help you keep all of this in one place so that it’s ready for HMRC to look at.
Join the cloud
Cloud based bookkeeping software is becoming more and more popular right now and for good reason. You can store receipts for expenses, send invoices, keep on top of payments and manage your transactions. This helps to keep all your finances in order so that you’re less likely to have a visit from HMRC.
With Pandle, you can keep all your records in one place and access them whenever and wherever you need to as it’s all cloud based. To find out more about what Pandle can do for you, you can take a look at our range of features here.
If you’ve got any questions you can contact us directly via firstname.lastname@example.org.