Every year, HMRC collects a substantial amount of money through Corporation Tax. This figure has increased significantly in recent years, even breaking annual collection targets. While this could be partially due to increased revenue from businesses translating into higher tax income for HMRC, it is also due to a lower tolerance for tax evasion.
Although most company directors are prompt in paying their Corporation Tax, there are some who are less forthcoming. This can be because the directors forget, but they do end up paying their taxes, albeit late. However, there are also some who participate in tax evasion schemes, aiming to reduce the amount of Corporation Tax they pay to HMRC, or avoiding paying anything at all. Whatever the reason, if you do not pay your Corporation Tax when it is due, you run the risk of HMRC carrying out a compliance check on your company.
In this article, Clarke Bell will discuss HMRC compliance checks, what they mean, and the implications they could have for you and your company.
What is a compliance check?
A compliance check, also known as a tax enquiry, can be conducted by HMRC to assess whether a company or an individual is keeping up with their tax obligations. It takes the shape of an investigation being opened into a company or an individual suspected of not upholding their responsibility to pay their taxes. Documents, accounts, and payments will be checked, identifying whether the subject of the compliance check has been paying their taxes correctly, or whether they have been withholding them.
A compliance check can also be used to investigate suspected tax evasion or avoidance schemes. An investigation into tax evasion will play out much as it would for any other reason, with HMRC checking the financial documents and accounts of the company or individual in question. If evidence of tax evasion is found, there can be severe consequences for the guilty parties. HMRC can choose to carry out random compliance checks on companies and individuals, with a view to keeping the tax system fair and in working order. As such, if you are subject to a compliance check, this does not necessarily mean you are suspected of tax evasion, avoidance, or any kind of fraud.
Being contacted by HMRC about a compliance check
If HMRC intends to conduct a compliance check into you or your company, you will first receive a written letter. This letter will contain all the relevant information about what HMRC wants to check. If you use an accountant, they will receive this written letter on your behalf.
Once you or your accountant have received the compliance check letter, you will have roughly 40 days before the check starts. In this letter, you will be apprised of what information HMRC wants from you. This information must be provided within the approximately 40-day timeframe. Failure to do so will result in a second written notice, which is essentially a formal warning about the compliance check and a reminder that you should submit the information and documents that have been requested. If you still fail to do so, you will be penalised with fines. The first fine will be up to £300, with a further £60 for each day that you fail to supply HMRC with the relevant information.
What to do if you receive a compliance check letter from HMRC
If you receive a compliance check letter from HMRC, it is vital to act decisively. You should seek professional advice straight away – typically, from your accountant. While it is possible to handle a compliance check without any professional help, having support can make the process much easier for you, and it greatly reduces the likelihood of you making any mistakes.
Once you have obtained professional advice, the next step is gathering the information detailed in the compliance check letter. This information should be compiled and sent to HMRC. It is worth noting that you should not volunteer any information that you haven’t directly been asked for. At best, it won’t be necessary and will have wasted your time; at worst, it could clog up the process by raising more questions.
If you know you haven’t paid your taxes, you should immediately pay your bill once you have supplied HMRC with the necessary information. If you have any questions or problems, you should promptly contact HMRC to resolve them. HMRC can be quite accommodating, so you will likely be able to negotiate an agreement that benefits both parties, assuming you have a valid reason.
Penalties for failing a compliance check
The severity of penalties, if any are appropriate, depends heavily on the severity of the wrong doing. For example, if you have submitted your Corporation Tax with minor accidental inaccuracies, your penalties are likely to be limited to small fines, if any penalty is applied at all. You could receive more substantial penalties for small inaccuracies made intentionally, though likely nothing more than fines. Serious wrong doings, such as an outright attempt to avoid paying any taxes, will result in much more severe penalties.
Penalties can be mitigated by performing an “unprompted disclosure”. This is when a company or an individual discloses inaccuracies or underpayments before HMRC finds them. Such disclosures carry lighter penalties than the alternative, known as “prompted disclosures”, and can sometimes result in no penalty being applied at all. These disclosures occur when HMRC finds an inaccuracy and confronts a company or an individual about it. Additionally, you can reduce the severity of any penalties you may incur by being helpful during the investigation. The more forthcoming and cooperative you are, the lighter the penalties, if any are applied.
How can Clarke Bell can help you?
If you have fallen behind on your Corporation Tax payments because your company is facing financial issues, and is insolvent, then Clarke Bell can help you.
We have more than 28 years of experience in helping companies deal with their financial problems. We can do the same for you.
Contact us now for your free, no-obligation consultation, and find out how we can help you.