Managing a small business can be difficult at the best of times. During a pandemic, it can be even more strenuous as additional costs can set you back, especially investigations. That is why many small businesses are taking tax investigation insurance.
What is a tax investigation?
A tax investigation is where HMRC checks your business affairs at any time to ensure you’re paying the right amount of tax. It may happen because HMRC sees something suspicious or they may do it randomly.
HMRC will phone or send you an official letter where they will inform you what they want to look at regarding your business. These include:
- Tax you pay
- Accounts and tax calculations
- Self-Assessment tax return
- Company tax return
- PAYE records and returns (if you’re an employer)
- VAT returns and records (if you’re VAT registered)
If you use an accountant, HMRC may contact them instead of you but your accountant should be in touch to tell you about it.
Tax investigations can be costly and disruptive
Even if your accounts are all in order, the investigation can be complex and take several years.
The process can take up to 16 months to complete and may involve thousands of pounds in legal fees. If inaccuracies are found, you could face penalties and pay additional tax.
Tax investigation insurance can help with the high costs
For small businesses, a tax investigation may cause a serious drain on your finances which is why it may be better to take out insurance.
You can expect the insurance to pay for accountancy fees and give you access to support such as:
- Tax advice helpline
- Representation from former tax inspectors in HMRC communications
- IR35 legislation support
- Corporation/Income Tax full and aspect enquiry protection
- PAYE/VAT representation
Tax investigation insurance will protect your business with the costs involved with PAYE, VAT and Self-Assessment investigations. It can also help you financially and appeal against HMRC’s decision.
Keep financial records accurate and updated
To protect yourself against issues, it is best to keep all financial records accurate and up-to-date. This will lower the possibility of your records being flagged up as suspicious by HMRC and then causing an investigation.
For small businesses, accounts are often completed by the business owner or it is assigned to a member of staff who may not be fully qualified. As the business grows, things can become more complicated and mistakes can pile up. Entering wrong data into the wrong place or assuming profit always refers to cash flow can cause business records to be inaccurate.
Staying up to date with new rules and regulations is becoming a more specialist task, which is why it is essential to ensure all records are up to date and comply with the latest tax obligations.
Need help with updating your financial records?
Not to worry, feel free to contact our experts online or call us on 020 3327 6340 to help keep your records up to date and accurate. At Apex Associates, we want to help you reach your business goals.