One of the benefits of being a contractor is the ability to work in a tax-efficient way. If you’re not careful, however, that can get you in trouble with HMRC so you need to make sure you do things properly.
Avoiding HMRC Investigations
There’s much more emphasis these days on tax avoidance (which is legal, but even this comes under immense social pressure) and tax evasion (which is not), and seemingly greater pressure to make everyone pay their ‘fair share’ of tax. Consequently, you want to avoid being subject to a HMRC investigation, which can be time-consuming and costly.
The best way to do this is to always play by the rules, so you firstly need to establish what those rules are. Seek the advice of an accountant, read relevant guides and consult HMRC’s website.
Even if you employ an accountant to produce your accounts and tax details, it’s you who are still ultimately responsible for your records and tax returns. So, to minimise the chances of getting into trouble:
- keep accurate and comprehensive records, including copies of invoices, receipts and statements
- file returns before the deadlines and pay tax due on time so you don’t draw attention to failings
- check accounts prepared by your accountant, ensuring you know the reasons for variances and that tax calculations are correct.
If you do everything by the book, you’re less likely to attract unwanted attention, although that’s not guaranteed.
Handling a HMRC Investigation
Although most investigations result from omissions or errors, some are random checks. They start with a compliance check and may escalate to a full investigation if there’s evidence of non-compliance with the law. Once that happens, you may be required to pay unpaid tax, interest and penalties as well as facing possible criminal charges.
It’s important you don’t get into this situation and, if everything is in order, you won’t. If, however, there’s any suspicion that something is wrong, the investigation will proceed to establish possible tax fraud.
Once this happens, you must co-operate fully with investigators, supply promptly all information they need and do anything possible to overcome concerns they may have.
Do nothing to make them believe you’re being evasive or trying to conceal the true facts. Having complete and well-organised records will make information readily available and help convince the investigators that everything is above board. If you fail in this aim, the proceedings will be stressful, long and costly.
If things go badly, you may have to resign yourself to paying what’s demanded. If, however, you believe any tax due has been calculated incorrectly, appeal to the Commissioners. Should you feel you’ve been badly treated, take your complaint to the independent Adjudicator in the hope of receiving an apology and compensation. Your MP may also be able to take your case to the Parliamentary Ombudsman.
You can, of course, avoid all this by using professional help. Phoenix Cloud Accounting will ensure your records are complete and accurate, and that all due taxes are paid on time. Contact Us today, and experience the joy of Simply Great Cloud Accounting.