Facing an audit by HMRC?
- TBA
- Mar 29, 2024
- 3 min read
Updated: Feb 25
If you’re living and working in the UK, or you sell online to UK-based customers, you may have encountered situations where HMRC request an audit of your finances.
Sometimes, due to a misunderstanding or inadvertent negligence, even if you have filed your taxes on time and accurately, you may still be subject to an audit. Many audits are routine procedures that are not necessarily triggered by a specific event.
In other circumstances, you may have indeed made a mistake by accident, which could have been corrected immediately. If you had forgotten to respond to HMRC’s correspondence within the specified time frame, HMRC may choose to take action without further warning.
In this article, we’ll cover three different previous situations where TB Accountants has helped our clients in relation to audits of their tax affairs.
1. VAT assessments
One client (A) recently received a letter from HMRC on the 11th January 2024 to inform them that an audit had concluded that due to exceeding the VAT registration threshold, their business was required to pay an estimated £37,810 in taxes, along with an interest penalty of £5,105.47.
The total amount requested by HMRC was £42,915.47!
A then got in touch with TB Accountants, and we analysed their specific situation. After negotiating with HMRC, the tax authority accepted that A had not actually violated the VAT registration requirements, meaning that the tax due was reduced to £86.
This reduced M’s tax liability by £42,829.47!
2. Amazon seller account suspension
On the 26th January 2024, another client (B) received a letter from HMRC to inform them that their UK VAT registration had been deregistered. As a result, their Amazon UK store was also suspended due to the lack of a valid VAT number.
The reason for the deregistration was that B had not responded to a previous postal notice from HMRC in a timely manner – the tax authority had asked B to provide evidence of trading as part of a routine audit of businesses believed to be inactive.
Given this situation, B promptly contacted TB Accountants.
On the 9th February 2024, TB Accountants began organising the relevant appeal documents for submission and began communicating with HMRC. Within 10 working days, B’s UK VAT registration was successfully reactivated, and their Amazon UK store reopened.
3. Tax refund audit
Did you know that if you file a tax refund request as part of your routine tax filings, it can result in an audit, even if the refund amount is genuine?
Another client (C) recently received an audit letter from HMRC due to a large refund amount filed in their tax return.
On the 22nd November 2023, HMRC sent a letter to inform C that they would conduct an audit of their September 2023 VAT declaration, due to a substantial refund request that had been submitted as part of the declaration. This audit started on the 7th December.
HMRC believed that C had filed their September 2023 VAT declaration using a lower rate of VAT (compared to the standard 20% rate). Usually, a lower VAT rate would mean that input tax cannot be used to offset the tax liability. HMRC therefore decided to reject C’s refund request.
C immediately contacted TB Accountants for assistance, and we promptly started investigating their case and compiling the necessary documents to submit an appeal. On the 11th January 2024, HMRC agreed with the appeal and refunded the amount originally requested.
As we mentioned above, HMRC can conduct routine audits, even without a specific event that warrants investigation. Maintaining good records of your business transactions and finances can therefore be crucial to preventing issues such as additional taxes and fines resulting from investigations.
TB Accountants has 14 years of experience in handling tax compliance issues. If you have any questions regarding tax audits, or any other issues, please get in touch with us for more advice.