HMRC has been working on investigation procedure in the last decade to improve effectiveness by speeding up the procedure and introducing new penalties. Until now, it was starting the process with compliance visit and then taking the next step but now HMRC declares that its investigation process with use a new trial method called the Single Compliance Process, which is expected to reduce overall costs and improve customer experience.
HMRC targets four different areas during investigation. These areas are PAYE, VAT, Personal tax, and Company tax. Compliance can involve one or more than one of these areas. In case, HMRC has decided to investigate you and the compliance visit determines loss of tax on your part, a tax-geared penalty will be applied. The penalty will depend on the nature of error, concealed or innocent. In case HMRC decides that the error was due to lack of ‘reasonable care’, HMRC will check your last 6 years record and apply a penalty accordingly.
HMRC will randomly select visits but they also visit when they doubt that something is expected to be wrong. Now it is easy for HMRC to investigate because of electronic filing and iXBRL filing with manual accounts. HMRC can easily track irregular transactions and tax evasion using this advanced filing system. However, you can still stay away from HMRC radar by following these tips
If HMRC has initiated an investigation against you, it means that HMRC is expecting something wrong with your tax. You can stay low on HMRC radar by simply filing returns and paying taxes on time. You will have the upper hand during any investigation if you review tax returns, keep the receipts, and explain huge variations on side notes when filing tax returns.