How To Avoid A Tax Inquiry

Typically, you will not be subject to a tax investigation unless HMRC suspects that you have made mistakes or not been honest. The taxman will either enquire about specific aspects of your tax return, or they may perform a full inquiry that investigates all of your accounts in depth. However, around 8% of tax inquiries are started on a random basis and nothing can be done to avoid this.

Despite this, there are steps that can be taken to minimize the possibility of evoking HMRC’s interest.

Study Your Tax Return and Accounts for Any Substantial Changes

HMRC will examine your figures, comparing them to your tax return of previous years. They will also measure your accounts against the standard principles for your corporate division. If you find that your tax return is drastically different from your accounts of previous years or is majorly outside of the bracket for your business sector, provide a justification in the “other information” section. This will mean that HMRC are not as likely to launch an inquiry.

How To Avoid A Tax Inquiry

Your justifications might include an explanation of the discrepancy between money taken from the business and private living expenses. Similarly, you might explain why prices have fallen, why expenditures are remarkably high, why the gross profit margin has drastically changed, and where did any money introduced into the business come from?

Avoid Estimating

Some estimates on your Options To Help You Pay Your Taxes may be completely unavoidable but they should be steered away from as much as possible. Estimates will flag your tax return to HMRC to be kept under observation.

Disclose All Capital Gains and Income

When completing your tax return, you cannot simply address your expenses and income for your sole trade business. You must also include aspects such as the capital gain on selling a second home, interest on your savings account, and employment income.

Pay Your Tax and File Your Tax Return on Time

If you do not pay or file your tax on time, HMRC will assume that you are trying to mask something or that you are unorganized, meaning that your tax return will be littered with errors. Either way, this puts you more at risk of being investigated by HMRC.

Keep Business Records

For the production of precise accounts, you will need a good bookkeeping system in place. This means that it is simple to use, information can be easily retrieved from it, and that your data is secure. There are multiple accounting softwares that are designed to keep all of your business records in order. Additionally, you should keep duplicates of all your mileage records, receipts, paying in books, checkbook stubs, bank statements, and invoices for six years.

Hire An Accountant

HMRC are also have more of a tendency to investigate your tax records if you do not have an accountant. An accountant’s role is to look over your tax return and accounts and suggest any further disclosure on your tax return in order to dodge any questions.


It is worth noting that even if you put all these precautions in place, you may still be randomly selected for a tax inquiry. Despite this, as long as everything is in order and you have been completely honest on your tax return, you will have nothing to worry about. HMRC are permitted to commence a tax inquiry on any account so if you are selected for one, it is ultimately unavoidable.

When in doubt, contact a professional accountant; they will be able to certify that your tax return is correctly filed and is in order. Typically, if you do not partake in any suspicious activity, you will fall under HMRC’s radar.

Written by Frederick Jace

A passionate Blogger and a Full time Tech writer. SEO and Content Writer Expert since 2015.

Leave a Reply

Your email address will not be published. Required fields are marked *

4 Ways Of Maximizing Your Solo Ads

4 Ways Of Maximizing Your Solo Ads

How To Start a Business

How To Start a Business