Tax investigation stresses.

mr-moon

Hello,

I'd love in the future tgo open my own business as a sole trader ( it seems the easiest to set up) I'd be opening a online shop as well as selling on eBay. However while I've been researching what needs to be done I have come across sites that mention tax investigations and how they are on the rise. With my business i m looking to have a profit of around 20k per year.

I've read they can go back as for as 20 years if they wish, some are done at random and even if your totally above board (which I of course would be) they'll keep digging until they find something.

I've always suffered with depression and the thought of a tax investigation is making me have second thoughts about starting a business. Does anyone have any advice? Just what are the chances of being investigated?

DigForVictory

Last I heard it was the setting up of a business that was stressful, along with chasing slow and or bad payers. A tax inspection *wasn't* the first anxiety.

A limited company and sensible use of the 'right' chequebook and the amount they may dig into your personal finances drops off like a rock. Yes, they do have a lot of powers but under the Human Rights act you have a lot of acceptable legal grounds for saying go away. They need to see the place of business, so working from home may not be ideal, but you can still say interview at mine for half an hour, all records at the accountant. They're OK with that.

As far as I know, they go back 20 years if they can Demonstrate fraud. Ordinarily it's 7 years for income tax and 4 for VAT. For VAT the officer appears and has a single day so while it's a bit spooky, they do not know your business. You do.
I'm sure your accountant will also be present if asked but the fee for being a teddy bear is not cheap.

They have rules and regs about not hassling the depressed unduly, so if you do get paged for a visit, say at once you're being treated for depression. Odds on you will still get that visit, but the officer will be be treading on eggshells.

So go ahead with the business, but get a good acountant from day one.

Errata

With my business i m looking to have a profit of around 20k per year.

That would seem to indicate a turnover of c£60k pa. Get an accountant and leave the worrying to them.

mr-moon

The turnover would be around 30k, I would be buying raw materials and making stuff from them. Even then my accounts would be on the simple side.

Pennywise

Take your book-keeping seriously and you'll be fine. Keep up to date, open separate bank, paypal and credit card accounts for business transactions (to keep business and private separate), make sure your tax returns are filed on time. Get into the habit of keeping all paperwork, both personal and business, including bank statements, etc.

Despite the doom-mongers, VERY,VERY,FEW people get subjected to an in-depth tax enquiry, and most tax enquiries on innocent people are dealt with quickly and simply and painlessly. Whilst it's possible to do your books, accounts and tax returns yourself, if you're worried and going to get stressed about this, get an accountant from day one - get for at least three initial consultations and pick the one who you feel most comfortable with, if you don't with any, get another three - there's plenty out there.

Errata

mr-moon wrote: »

The turnover would be around 30k, I would be buying raw materials and making stuff from them. Even then my accounts would be on the simple side.

If your accounts are simple an accountant will cost you an incredibly small percentage of your 200% profit.

Cyberman60

I had my own company for 15 years and never had a tax investigation. Just let a good accountant take care of everything as I did and you'll be fine. HMRC will only normally investigate if things appear to be being done incorrectly.

PlutoinCapricorn

There is a difference between an enquiry into some aspect of your figures e.g. why your expenses are so much higher this year than last, and a full investigation. The latter is when there is a good reason to believe that someone has been concealing income/inflating expenses.

Filing at the last minute can trigger HMRC: they might suspect that your figures are not being maintained very well. Some cash handling professions e.g. taxi driver are always candidates for checking. Sometimes HMRC decide to hit people with market stalls; they might then move on to dog walkers! Earning a lot more or less than others in the same line of business might seem suspicious. If you keep good records, if they ever do enquire you will be ready so there would not be a full investigation.

mr-moon

Pennywise wrote: »

Take your book-keeping seriously and you'll be fine. Keep up to date, open separate bank, paypal and credit card accounts for business transactions (to keep business and private separate), make sure your tax returns are filed on time. Get into the habit of keeping all paperwork, both personal and business, including bank statements, etc.

Despite the doom-mongers, VERY,VERY,FEW people get subjected to an in-depth tax enquiry, and most tax enquiries on innocent people are dealt with quickly and simply and painlessly. Whilst it's possible to do your books, accounts and tax returns yourself, if you're worried and going to get stressed about this, get an accountant from day one - get for at least three initial consultations and pick the one who you feel most comfortable with, if you don't with any, get another three - there's plenty out there.

Thank you for the re assurance. Do you have any idea of the percentage of people that are investigated each year?

kendall17

Also to ease your mind, whilst on your look out for an accountant, look for some tax investigation insurance. We (accountants) offer it at £180 a year for any business, it can be a lot cheaper but still offers great value - equivalent to an hour & half of a partners time.

nonnatus

I employ an Accountant to do the end of year stuff (I do my own VAT returns etc) and at the beginning of every year, I pay him £99 as an insurance premium against any future Tax Investigations. This means that if HMRC ever decide to investigate me, he will cover all of the costs of that Investigation, no matter how long it takes.
Of course, like every Insurance, if I never get investigated, it seems an unnecessary cost but it's cheap for peace of mind....