Demystifying the tax audit for small businesses


Xeinadin Group



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The world of taxation and dealing with the HMRC is difficult enough as it is, but it is even more intimidating when you are notified that they intend to conduct a tax audit on your small business. While daunting, audits are normal when it comes to tax compliance, and are often nothing to worry about.

The most important part of approaching a tax audit is making sure you understand the system, the causes, and how to stay out of trouble. If you have already received notification that a tax audit will occur, or you are just cautious in case it ever should happen, it is important to understand some of these key points of the process.

Different audits mean different actions

For many, audit means audit regardless of the context, but that isn’t necessarily true. Routine tax audits and full investigations are different beasts and require different approaches. If you act as an employer and work with VAT, then random checks are entirely possible so that the Revenue can keep mistakes on routine work to a minimum The goal of this investigation is to minimise mistakes rather than catch someone for wrongdoing.

“While there is no way to avoid random audits, the easiest and most effective way to avoid issues with the Revenue is to make no mistakes.”

On the other hand, are full-blown HMRC tax investigations, which are triggered when there is a suspicion of mishandling or misconduct. They will dig into your records and analyse them with the goal of finding evidence of criminality. These are often intense, time-consuming endeavours.

Preventing audits

While there is no way to avoid random audits, the easiest and most effective way to avoid issues with the Revenue is to make no mistakes. The HMRC looks for suspicious trends in your records, and use this as justification for an audit. The most obvious of these are inconsistent fluctuations in submitted figures, indicated long periods of unprofitability. While this is naturally (and legally) possible, it is a red flag for the HMRC. Additionally, repetitive mistakes in your filings are indicative of a problem. Overall, accuracy, preparation, and rule-following are the best way to avoid an audit. Make sure your records are intact and correct, follow all procedures exactly, and have up-to-date and expansive records that protect you in an audit.

If you are unsure if you are prepared if an audit should come your way, make sure to contact an accountant or tax advisement professional so that no audit will disrupt your life and business.


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