Preparing for HMRC investigations

Guide to HMRC Investigations

An HMRC investigation is a painful, expensive, unpleasant and time-consuming experience. There are different reasons why your business might be selected for an investigation and whatever the reason the whole experience can take up to 16 months on average and cost upwards of £5000.

Fortunately, the HMRC investigation doesn’t just choose businesses at random to investigate, they do conduct audits occasionally at random, but even with that, the business names are generated at random. 

Reasons for HMRC Investigation;

That being said, we’re going to go through some of the other reasons why your business might be investigated by the HMRC:

Accounting representation

Business owners that feel they can do it all by themselves run a risk of being chosen for an audit or investigation. Although this is not a rule set in stone it is one of the most common denominators for businesses investigated by the HMRC. The logic behind this is that if a business owner is filling his taxes without a third party VAT consultant input it might be for a couple of reasons. The first is, they might not want a third party to see finances, which suggests fraud, the second reason is the chances of making mistakes are greater when the account is not done by a professional.

Inconsistent figures

The HMRC investigation normally has a good idea of the average earnings in most industries. So when if you submit your taxes with inaccuracies and the numbers don’t match up with industry standards, then you’re probably opening yourself up to an investigation.

Specific industries

For those working at barbers, or taxis, or fast food restaurants and other small to medium-sized business that deals with a lot of cash payment, they might be subjected to more than the average amount of investigations and audits. In these situations, HMRC investigators are forced into action because of higher instances of risks for tax invasion and bribery.

Preparing for an HMRC investigation

Vat reclamation

According to Accountancy Age, the first thing to do is to make sure that you are claiming correctly. Some businesses have taken to avoiding the whole process all together, although this means you’re reducing the risks of being investigated, you’re also walking away from money.


Based on historical finding, we’ve noticed that for SMEs tend to have audits at least once every six years. It may take an average of three months for most companies to prepare for an HMRC investigation audit, some of the things you would need to prepare include information of auditable account, corresponding receipts, expenses claims and proof of approvals and legitimate expense claims.

Payment process

The investigators will also need to see your payment process. You must show them that the process you have in place cannot be tampered with. You’ll need to identify the people with access to the export and output so calculate how many touch points you have.

Approval process

Most businesses will have an approval process in place, but that is not to say it is the correct approval process. You need to think about who needs to review expenditures and make sure that the process is visible and transparent.

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