HMRC regularly audit businesses and individuals to examine records and check for mistakes. While checks on Self Assessment Tax Returns are less common than those on VAT and PAYE, you should always be prepared for a visit from HMRC’s inspectors.

If you have been selected for a check, HMRC will write to you to request further information or inform you of an intended visit by inspectors. The letter should clearly state HMRC’s intentions, but if you are unsure you have the right to ask for an explanation.

There are certain factors which may make you more likely to be checked, such as if you have filed your returns late, paid the tax due late or made corrections to the initial return. You may also be flagged for a check if your year to year figures are inconsistent, for example if your turnover figures fluctuate dramatically across several financial years. High risk sectors of the business community often find themselves under scrutiny, such as those that deal in cash.

A tax enquiry must normally start within 12 months of the due date for the tax return that it related to, or if it was filed late the deadline will be 12 after the date you actually filed the return. You can make an enquiry quicker and easier by making sure that you have kept accurate, up-to-date records of your income and expenditure easily available for the inspectors to review.

Records relating to your tax return should be kept for at least another 5 years after the tax return deadline of 31st January for the relevant tax year (for example records for the tax year ended 5th April 2013 should be kept until 31st January 2019). These records can be kept electronically as long as all of the information is captured (ie both sides of the document), the information is in a readable format (e.g. PDF documents) and you make sure you have a back-up of the files.

Once HMRC have completed their checks they will inform you of the outcome. If you are found to have additional tax to pay HMRC will tell you how much to pay, when you pay it (normally within 30 days) and how they have calculated the amount due. There may be interest and/or penalties to pay which are calculated based on the following factors:

  • Whether you took reasonable care to pay the right amount of tax
  • How helpful you have been in the course of the check and in correcting the error
  • How freely you have provided the information requested.

If you disagree with the decision made by HMRC, you can challenge it by making an appeal in writing. You can find more information at the HMRC website (http://www.hmrc.gov.uk/sa/appeals-decisions.htm).

If you are likely to have difficulty paying tax that is due by the deadline for payment, or in the event of an enquiry you can contact the Business Payment Support Service Helpline on 0300 200 3835 to discuss whether you can spread the payments due over a longer period.

However unlikely it may seem that HMRC will check on your affairs, you can save yourself a great deal of stress and hassle by operating an effective bookkeeping system. We provide accounting services to hundreds of small businesses and freelancers and can help get you started with Xero or Freeagent or take the burden of bookkeeping off your hands completely.