When Does HMRC Investigate Self-Employed and How to Avoid?

when does HMRC investigate self-employed

It turns out to be a daunting prospect for any kind of business when it comes to the investigation called by HMRC. This is because such investigations are very costly as well as equally time-consuming. So it is a genuinely terrifying idea to get an HMRC investigation, especially for self-employed individuals and small business structures. If you are wondering when HMRC investigates self-employed and what are the possible ways to avoid it, you are on the right page. As we will get along with the discussion of what triggered the call for an HMRC investigation and what are the possible reasons.

You can avoid the possible reasons that can trigger the call for the investigation from HMRC. As we all know that submitting self-assessment tax returns is a liability that is considered to be serious once in a tax year. The relevant details are a part of the submission. This might include the profits your business is making no matter if it is a one-man business or a small business. Your business will have to go through this process.


Paying your tax bills on time and accurately is a daunting and time-taking exercise. AccountingFirms can help you in managing your taxes and pay your taxes on time.


When Does HMRC Investigate Self-Employed – What Triggers It?

There are chances of millions of dollars swirling in the mind right now about what are the possible reasons that work as a trigger to HMRC investigation and they decide to choose a business for that. On the other hand, they do not opt for a business and decide to leave them alone.

When it comes to self-employed individuals who tend to handle their accounts on their own rather than hiring a professional accountant are the usual reasons to go through the investigation call from HMRC. However, you do not need to worry about anything in the process even if you are self-employed. You can do the process just in the right manner by filling out the documents yourself.


What are The Possible Reasons for the HMRC Investigation?

A sole trader or a self-employed individual has received a call for an investigation from HMRC, there can be a few possible reasons for that. If your tip-off shows a dramatic fluctuation in the figures during the process of self-assessment tax return submission, That can be one possible option to trigger HMRC. Some prominent reasons are explained below in this regard.


1- Your Business Hasn’t Made a Profit for Years

All businesses can’t make profits every year. However, in the case your business has not made a profit for consecutive several years in a row, that is questionable. There can be an investigation in such a case. This is because HMRC will start to suspect your business reports are not fair. Whether you are under-reporting the profits that your business is making or you are over-reporting the expenses of your business.


2- Mistakes in Self-Assessment Tax Returns

If you think there can be a chance of a mistake in the self-assessment tax returns you have submitted recently, this can be another reason to trigger the investigation. The mistakes do not have to be drastic or major dramatic. It can just be a simple box that is left unticked or a section of the form that you forgot to fill out. Or maybe you are missing out on income supplementary information. This is to ensure here that HMRC does not punish anyone for a genuine mistake. If you ensure to keep your documentation right, you will be safe and the matter will be sorted out in no time.


3- A Tip-off is Received

A business can experience a call of investigation from HMRC if anyone has reported about the below-level business activities being performed. Or the trading is not up to the required standards. This will work as a trigger to launch an investigation by HMRC. On the other hand, if you are being reported in a way that the income is not being declared fully, even this will make you go through the immediate HMRC investigation process.

This will help to remove the doubt of you not declaring the income. HMRC will redevelop the trust factor in your business that the income is being declared in the self-assessment tax returns. This will further ensure the right amount of tax is being charged and paid as well.


The Bottom Line

Now that you have gathered a fair amount of information about when HMRC investigates self-employed, we can bring the discussion towards wrapping up. There can be multiple reasons in business practices that can trigger HMRC for investigation. However, you can keep yourself away from such an experience since it is a costly and time-consuming process to go through. We hope these few minutes of reading will help you to avoid being involved in such business practices that can trigger HMRC investigation.


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Disclaimer: All the information provided in this article on when does HMRC investigate self-employed, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.