Getting noticed by the Inland Revenue can have some very unpleasant consequences. Even if you are scrupulously honest and your business records are good, very few of us have endless time to spend on record-keeping which invariably means there is going to be something for them to find. Honest or not, that’s going to lead to financial pain and stress, so avoid at all costs putting your head above the parapet and getting noticed by HMRC, because otherwise it won’t be long before you are investigated! Here are some pointers which will help:

  1. Late or incorrect returns/Late payment of tax. The tax returns or payments you make or send to HMRC are like a language all their own. If your returns are late or full of errors or you habitually pay your tax late you are telling HMRC that your business is inefficient and that you have not taken the necessary steps to get to grips with tax or your business. Eventually, you are going to be on the receiving end of a call or a visit. With limited resources, it makes sense for the Inland Revenue to select businesses for enquiry where there is a greater chance of success.
  2. Low drawings or profits not in keeping with lifestyle. I had a lovely client in New Zealand whose policy was “one job for the Inland Revenue, two for me”. What that meant was at the end of the year his profit was about £10,000 and his drawings were similar, despite his extravagant lifestyle and outgoings like a big mortgage and vehicle finance. He used to laugh at me and say that I worried too much until one day, we received a letter from the Inland Revenue.
  3. Unusual or “out of kilter” with norms. These days with increasing information technology it’s very easy for HMRC to benchmark our trading figures. If your trading results or profits are unusually low, it’s quick and easy for HMRC to send a letter asking you to explain why your figures are poor. Easy for HMRC but difficult and costly if you’re on the receiving end!
  4. Local knowledge or being featured in the press. The Inland Revenue live amongst us! They read the papers and use Google too. If Fisheries Protection raids your home for busting your quota and finds £500,000 in cash (as happened where I lived in NZ), guess who will be turning up soon! Or, like a client of mine who was mistaken for the millionaire secret boyfriend of a very high profile lady celebrity after he offered her the one remaining parking space at his sports club. Snapped walking together into the club house afterwards, his picture suddenly appeared in the tabloid press and given his declared income of £20,000 he was a worried man for quite some while!
  5. Bad accountant. It’s an unfortunate fact that there are some very poor accountants around, normally I’m pleased to say those without any qualifications. Some of these accountants produce work which is so poor that HMRC soon notice that the tax or VAT returns they prepare are shoddy, incorrect or just not in accordance with the law. Of course, it’s no fault of the clients who don’t know any better but they are the ones who end up suffering when that letter arrives from HMRC. Ensure your accountant has a good reputation with HMRC!

Let others take the heat and keep a low profile yourself. It’s bad enough paying what you have to pay to HMRC without giving them anymore!