worried about tax investigation.

keaton

I'm a bit of a stress head, I worry over the smallest things and I'm in the process of planning a small business that would have a turnover of 25k a year 15 k profit. but really can't get my head past tax investigations, I read that hmrc are increasing there investigations and mostly on small and medium businesses. My business would all be above board, and I'd keep impeccable records and reciepts, but have read that if hmrc want to find something, they will, then can go back up to 20 years. Being a one person run business a investigation would probably ruin me ( they take up so much time apparently), so what are the realistic chances of being investigated?

chrismac1

It's mostly smoke and mirrors by HMRC. Nationally they are supposed - per my tax insurance folk - to enquire into the affairs of 3% of businesses per year. Note this covers a wide range of different enquiries, the typical VAT one is "show us these 6 invoices". You e-mail or post the invoices and that is that, job done.

In my practice which has 124 clients at the moment, the average is 1.7% and 87% of those enquiries have been completed and closed down by HMRC within 31 days of being opened, with 13% being closed within 90 days. So if you are running a decent operation there is not much to worry about.

Some sectors - for example construction, cash businesses, internet sellers - are at higher risk. It therefore follows that if you are not in one of those sectors your risk nationally is less than 3% per year, call it 2%.

cotswoldaccountant

My practice has around 40 clients, and I have been operating for around 5 years. I have never had an HMRC enquiry into any client.

My advice would be to employ the services of an accountant (get recommendations from self-employed friends) who can then help you to ensure that your paperwork and tax returns are all correct. If HMRC should happen to choose your business for an enquiry, then your accountant can assist with the enquiry, reducing the time burden on you as the business owner.

A potential enquiry from HMRC should not put you off running a business.

keaton

Thank you so much for the replies so far, I'd be internet based selling on eBay, why are internet sellers targeted more often when all money is through PayPal, no cash transactions?

Laurajo_2

They tend to target specific industries at certain times - healthcare workers are under scrutiny too.

I would suspect it's actually a lot easier to target internet sellers BECAUSE the money is easily traceable, rather than cash sellers. That said, my firm has over 2000 tax clients, and I would say we get less than 30 investigations per year across the whole spectrum - include PAYE and vat compliance.

For sole traders, the figure is much lower and in twelve years I've only come across one 'full on' income tax investigation where they wanted to look at everything. Most are quickly resolved within 30 days and to be honest, in my experience hmrc have been quite reasonable where there has been an error made by a client.

Don't let it put you off starting a business. There are a lot of scare stories about hmrc enquiries, to be honest most are nothing to worry about even if you were to get selected.

chrismac1

Internet sellers are at risk because they are more likely than the average taxpayer - per HMRC - to fail to include all sales on their returns. The acid test for you is to:

1. Get a Paypal account dump into Excel or similar for the accounting year.
2. Adjust for any transfers in and similar non-sales receipts.
3. That adjusted receipts figure now goes in your "Paypal income" line item in your accounts - it will be 100% of your sales if you have no other routes to market.

If you prepare your sales line like this, you have nothing to fret over. Give HMRC the reconciliation if they ask for it and they can get lost.

greyteam1959

If you have home or business legal protection on your insurance tax investigation costs MAY be covered
HTH