What to do when you get HMRC Enquiry.

There are many reasons why the Taxman might decide to open an enquiry into your tax returns.

Late filing or inconsistent returns can trigger an enquiry but sometimes it is simply the luck of the draw.

In a perfect world, your accounts and business records will be in perfect order and the Taxman will find absolutely nothing wrong with any of your tax returns. If this is the case, you can pat yourself on the back for keeping fastidious records and fully complying with tax laws and regulations. However, we all know it is not a perfect world, and sometimes the Taxman will find at least a few minor issues. He might query the amount of travel you are claiming or the number of expenses paid for in cash. Nothing will enrage the Taxman more than the presence of a disorganized mess and the absence of any assurance that you keep careful, well-organised records.

Once you get notification of an HMRC Enquiry, you must do two things. First, contact the Tax Inspector immediately and talk through the reasons for the enquiry and find out exactly what records and paperwork he needs to see. Second, agree on a schedule of when the required information will be provided. The HMRC are reasonable and although they will want to see your records within a reasonable time-frame, they will take into account your own particular circumstances.

For example, if you are about to go abroad on a contract or job and are likely to be away for a month, it is not reasonable to be expected to comply with a 28-day deadline. Once you have agreed on an acceptable schedule, you must stick to it. In the event that the Taxman does find something wrong with your tax returns, and it is decided you have not paid enough tax, you will have to pay the tax owed plus interest plus a penalty. The penalty can be as much as 100% of the tax owed, but it is likely to be much lower if you have demonstrated a willingness to be as open, cooperative and helpful as humanly possible.

If you ask your accountant to handle your HMRC  enquiry, it is very important indeed to agree in advance how much he will charge for his services. The Taxman can ask as many questions as he likes and if your tax affairs are at all complex, he can continue asking for data, reports, paperwork and accounts analysis for as long as he chooses. And that could be months or even years. Your accountant charges by the hour and every time he responds to a further query from the Taxman, the till will be pinging.

Article by Angela Brooks Wong, Tax Relief.

More on tax advice.