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10 Top Tips To Reduce The Risk of A Tax Enquiry


A tax enquiry isn't a pleasant matter, especially if it is a full enquiry as opposed to an aspect enquiry into just one part of your tax affairs. Bearing in mind that initially Tax Returns are read by computers for risk assessment a lot can be done to help minimize the risk of an enquiry by appreciating what may trigger the computer to flag the Return as higher risk.

So here are out top 10 tips to help avoid enquiries.

  1. Don't file your return late. The logic is that this is indicative of disorganised affairs and so more likely to contain errors.

  2. Ensure you enter the same expenses in the same boxes each year. For example, a driving instructor putting their fuel cost in the cost of sales figure one year and then motor expenses the next will produce large variations that the computer will want further explanations for.

  3. Explain any unusual variations in items when the Return is sent in (use the white space on the Return) to avoid the start of questions about it.

  4. Don't forget to put everything on your return. HMRC automatically receive a lot of information from other sources such as banks. If you've forgotten to put the interest received on your return, an enquiry is likely.
  5. If your profits are low, explain how you've been able to support yourself.

  6. Don't upset people who may inform on you. For example, a plumber insisting on cash to a fit a bath that then leaks but won't return to fix it, may well find the customer calling the Tax Evasion Hotline. You can now do this online as well - HMRC make it as easy as possible and it can be anonymous! Even if the cash is being declared, the customer and HMRC don't know that and an enquiry is how they'll find out.

  7. If you do get an aspect enquiry, deal with it as efficiently as possible to avoid it moving into a full enquiry.

  8. Try to avoid estimates and round sum figures on the Return.

  9. It is probably better to show private use adjustments on the Return rather than net them off in arriving at the figure to go on the return so that it is clear to HMRC that adjustments for private use of items such as Motor Expenses have been made.

  10. Don't pay your tax so late that the Collector visits you and notices the luxury car on the drive!

Of course, with random enquiries you can never be sure you won't get one. If you do, expert assistance is essential.

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