Should you be afraid of the UK tax authorities? Company tax audit in the UK

Every entrepreneur must expect routine actions from institutions such as the tax office, with tax audits being a standard procedure that verifies the accuracy of a company’s financial accounts. Contrary to popular opinion, legal actions carried out by the office should not cause concern at all – provided that you keep your tax records in accordance with the applicable regulations.

How to prepare for a tax inspection and avoid problems with the tax authorities in the future? Take advantage of the expertise of the accountancy advisors at Essence Accounting and prepare for a visit from a tax inspector without worrying about penalties for tax errors. After reading our article, an HMRC UK tax audit will not trouble you.

Tax Office and Tax Audits – What You Need to Know?

A company tax audit is a process of verifying that a business is complying with its tax obligations, such as paying the correct VAT rates or reporting income to HMRC. Remember that such an audit does not target you, but only seeks to confirm the reliability of your tax return (Self Assessment).

The key to peace of mind is regular bookkeeping and using professionals to ensure that your accounts are correct. This is the best way to avoid worrying about a visit from officials.

What are the most common reasons for a business tax audit? HMRC may initiate a tax audit of a business if there are doubts about the accuracy of the report submitted. The most common reasons for such audits are:

• entering figures into Self Assessment that appear to be incorrect,
• reporting profits that are too low in relation to turnover,
• submitting a large VAT refund claim when turnover is low,
• failing to make regular or late tax payments,
• errors in VAT returns or Self Assessment returns,
• notifications from third parties or other authorities.

A visit by the tax authorities may also take place in the case of routine verification activities that are not justified by any suspicion on the part of the UK tax authority.

What are the penalties for accounting errors in the UK? HMRC and tax arrears

Remember that a taxpayer’s obligations in Poland may differ from those in the UK. If HMRC finds irregularities, it may impose penalties on the trader for tax errors that, in some cases, can place a significant burden on the company’s budget.

Penalties for late submission of tax returns

• £100 for missing a deadline by one day, up to a maximum of three months.
• An additional £10 for each day of delay after three months (up to a maximum of £900).
• For delays of more than six months, the penalty increases by an additional £300 or 5% of the tax due (whichever is greater).

Penalties for inaccuracies in tax returns or documents

• between 0% and 30% of the amount of tax as a result of a negligent error (from 15% if disclosed at HMRC’s request),
• between 20% and 70% of the amount of tax in the case of an intentional understatement of tax (from 35% in the case of a disclosure at the request of HMRC),
• between 30% and 100% of the amount of tax where the taxpayer deliberately conceals material information (up from 50% where HMRC requests disclosure).

Penalties for late payment of tax

• 5% of the tax amount for failure to pay within 30 days of the due date,
• an additional amount of 5% for a delay of more than 6 months,
• a further 5% of the tax amount for a delay of more than one year.

HMRC also charges interest for late payment, the value of which, along with other penalties for missed deadlines, can be calculated on the government’s website: https://www.gov.uk/estimate-self-assessment-penalties/y.

Preparing for a tax audit: how to avoid problems with the tax authorities?

How can you effectively guard against the pitfalls of UK tax rules and pass tax audits without fear of financial penalties? Well-managed bookkeeping and timely tax returns can minimise the risk of getting into trouble with HMRC to zero.

The best preventive measure is to maintain regular, reliable bookkeeping and to keep documentation such as invoices, bank statements, and tax returns in a secure archive. It is also a good idea to have a regular tax audit of your business to ensure that all accounts comply with current legislation.

Essence Accounting knows precisely how to prepare for a tax audit – our specialists will advise you on every step of your bookkeeping and help you optimise your tax burden without breaking the law.

How do you act and what do you do during a tax inspection?

Wondering what to do during a tax audit when it happens? First and foremost, stay calm and cooperate with the officials; they may ask you for your accounts, invoices, VAT reports, or tax returns. Prepare all the necessary documents well in advance to avoid stress.

If any irregularities are discovered by the Taxman, these should be explained as far as possible. Remember that withholding information from HMRC can result in serious legal and financial consequences. To ensure that all your records are in order, it is worth consulting a tax adviser or accountant before a tax audit, who can help you identify any inaccuracies in good time.

Protect yourself from company tax audits with the assistance of Essence Accounting

Every entrepreneur wants to avoid problems with the tax authorities and ensure that their records are kept in accordance with the law. To address the needs of modern businesses, Essence Accounting offers full accounting, tax, and advisory support to both smaller and larger companies.

Contact our accountants today and prepare your company for a possible visit from a tax inspector. When you work with us, you can rest assured that, with accounting in our hands, your company’s tax audit will proceed without any surprises.