What Is A Compliance Check?

 In Complicance Check, HMRC Investigation

A compliance check can be anything from a five-minute phone call (to sort out an obvious arithmetical mistake) to a major investigation into a sizeable company’s fraudulent activities – and everything in-between. So it is an investigation into your tax return.

The HMRC compliance checks factsheet says, “We carry out checks into returns to make sure our customers are paying the right amount of tax.” but what they don’t say is why I’ve been picked.

Only a tiny percentage of checks are random, the vast majority arise from an analysis of the risk of your tax being incorrect. At the start of the investigation it may not be clear why your tax affairs are being investigated and HMRC may not tell you. You should ask and be persistent. Why should you answer questions when you do not know the context?

What about the bit that says, “We carry out some checks over the phone. If we phone you, you can ask us to write to you instead.” Should I talk to them on the phone?

It’s fine if the matter is straightforward and you are comfortable with dealing with the issue on the hoof. But be aware that these conversations may be recorded or detailed notes taken. At a later point in the investigation these notes may be produced to support the case against you.

If you do agree to talk with HMRC on the phone and you start to feel out of your depth remember you can end the call at any time. Just say, “I can’t talk to you anymore, you need to put this to me in writing.” If they try to make you say more just repeat the sentence over again. They will eventually get the message.

What about this bit that says, “Some types of check can only be done within a certain time limit” that sounds like it might be interesting, is it?

HMRC have considerable powers but there are often rigid time limits to their activities.

For example enquiries into the tax return of an individual have to be started within 12 months of the filing date of the return (usually 31 January after the end of the relevant tax year).

Enquiries into the returns of small companies generally have to be made within 12 months of the date the return was received.

Then it says, “If we find something wrong we may extend our check… we may check earlier periods.” This doesn’t sound like checking to me, it sounds like an investigation!

Don’t let this word “check” fool you, this is an investigation. If HMRC find something wrong in your return they are likely to make an assumption that you were also incorrect in earlier years.

They can then either open up the earlier years for investigation or simply “scale back” which is a process where by HMRC estimate how incorrect your figures were in earlier years, then add penalties and interest then send you a bill.

Have you found this useful? If so check out Compliance Checks Decoded, this ebook goes through the HMRC’s document paragraph by paragraph, explaining what they actually mean and what you should know – it’s a vital read if you are at the start of a HMRC investigation.

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