Corporation Tax Investigations: What You Need to Know
If HMRC comes knocking on your business’s door for a Corporation Tax Investigation (or a “compliance check” in their official lingo), it’s because they suspect there might be extra tax due. This isn’t a random audit—they only investigate when they see a risk.
So, what does that mean for you? Let’s break it down…
Why Would HMRC Investigate?
HMRC’s tax inspectors aren’t amateurs—they go through years of training and rigorous exams to do their job. They only launch a compliance check when they have reason to believe a company might have underpaid tax.
Normally, they’ll investigate the most recent tax return you’ve filed, and they must notify your company within 12 months of that return being submitted.
How Do You Know If You’re Being Investigated?
HMRC will send an official letter to your company’s registered office stating that they’re conducting a compliance check into your tax affairs.
Important! This should relate only to the company. If they want to check the tax affairs of directors, they need to open a separate income tax self-assessment investigation.
What Types of Checks Do HMRC Do?
There are two main types of compliance checks:
- 1. Full Compliance Check – HMRC wants to review all your business records for a tax year. Think of it as a full-body scan of your accounts.
- 2. Aspect Compliance Check – HMRC is only interested in one or two specific areas, like business expenses (e.g., travel or entertainment).
- Watch out! A small “aspect” check can turn into a full-blown investigation if HMRC finds something concerning. If this happens, it’s a red flag that they think there’s a serious issue.
Sometimes, a corporation tax check runs alongside a VAT compliance check or a PAYE check—but these are separate investigations, and HMRC should make this clear in their letters.
What Happens During the Investigation?
As part of the process, HMRC may ask to meet with the company’s directors and accountants. You don’t have to attend a meeting, but if you do, be prepared. HMRC will take notes, and a poorly thought-out answer (or a misunderstanding) could cause major headaches later.
Key things to remember:
- HMRC can only request business records that support your tax returns—nothing else.
- They often ask for more than they’re legally entitled to. Always check what they’re requesting before handing anything over.
What If You Know There’s an Error in Your Tax Return?
If you’re aware of a mistake in your return, tell your accountant or a tax investigation specialist ASAP. Early disclosure can significantly reduce penalties.
- HMRC assumes that if one year’s return is incorrect, previous years might be wrong too. This means they may want to make adjustments to past years, adding interest and penalties.
- Even worse, errors in corporation tax often have knock-on effects for the personal tax of directors—so be extra cautious!
What If HMRC Finds Nothing Wrong?
If HMRC doesn’t find any issues, they should close the case.
However, if they believe mistakes exist when none do, it can turn into a battle. This is why having an expert on board is critical—they know how to push back against unfair assumptions.
Final Thoughts
HMRC is investing big money in compliance checks and tax investigations, so the risk of an inspection is higher than ever.
If you’re under investigation, stay calm, get expert help, and don’t hand over more information than necessary. The right approach could save you a lot of time, stress, and money.
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