Contractors' Questions: Does HMRC grant new contractors an amnesty?

Contractor’s Question: I’ve heard there’s some truth to the claim that the first two years of opening a new limited company is a cooling-off period, whereby HMRC does not bother the company with investigating it about filing and taxes. Am I correct? 

Expert’s Answer: I'm afraid that you are wrong and that there are no early life amnesties for traders from HM Revenue & Customs.

HMRC use many different systems to select the businesses that it investigates; some are intelligence-led, some risk-led and some completely random. While it is unlikely that a fledgling business will have attracted intelligence reports or likely to be perceived as a risk, it is quite possible for a random selection to fall upon it.

It is difficult to establish statistics to show how likely a new business is to be investigated but there is no reason to believe that the probability is less than the average. We dealt with a PAYE investigation recently into a company which was two months old. There have also been other instances, particularly in respect of VAT, where control visits have taken place after just one or two quarters of returns have been submitted.

Any new business should establish a comprehensive bookkeeping system and deal with all of its fiscal duties carefully and promptly and it should then have no need to fear any investigation.

The expert was John Green, an adviser at Cobham Murphy, a tax investigations specialist set up to help young and growing businesses.

Editor’s Note: Related Reading –

How to minimise your chances of being investigated

Contractor guide to VAT inspections 2) how to prepare

Contractors’ guide to penalties v) HMRC enquiries