This post looks at what happens during an HMRC compliance check and what you can do to prepare your business. 

HMRC will use a compliance check to verify that a business has paid the correct amount in the following taxes: 

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To verify the return they are checking, HMRC will ask you to provide the relevant documentation on which a return is based. 

They could also check whether all claimed expenses are “wholly and exclusively” for the business’s trade and that the declared profit does not include any disallowable expenses.

So how do you find the documentation easily?   Here are some ideas:

• File the invoices you issue in invoice number order

• File the bills you pay in payment date order.  If you use financial management software,  you can reference the documentation with a cash book voucher 

• Keep a separate file for creditors’ statements and correspondence.

• Keep all your returns and back-up documentation grouped by the type of the return.

If you have employees:

• Keep all your payroll input filed in pay run order, e.g. overtime details, bonus payments etc.

• Keep copies of your employee payslips filed by date order

• Keep employee files which contain all your employee contracts

Be consistent in your method of filing, otherwise you might forget where you have put something. Your accountant is a great resource, so why not ask him/her for a few tips to get you started.

When starting a compliance check, HMRC might just check one of the taxes.  Depending on what they find, HMRC might expand the check to include some of the other taxes.

The legislation surrounding tax is both complex and considerable.  If you have prepared your own returns in the past, we recommend having these checked by an accountant. If your accountant then finds an error, we recommend that you disclose this to the HMRC immediately.  HMRC will reduce the penalty in cases where businesses have owned up, and the sooner you own up, the bigger the reduction in the penalty.

You can choose to tell HMRC either by phone, in person, by letter or by completing an amended return.  HMRC further recommends that: “Overall, the person [that's you!] must be positive and as complete as possible in making a disclosure.”

So, don’t delay, get filing today!


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