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View Full Version : Do HMRC have any triggers/warnings used to select companies for investigation?



DrStrange
27th February 2019, 13:29
I'm doing a forecast for the tax year 19/20 and my projected CT is only 5% of the projected turnover. I'm wondering if such a low value would attract any attention with our friends at HMRC?

The contract I'm pricing up is outside IR35, and involves extensive travel and overnight costs which, when added to pension contributions and salaries, reduces the gross profit to under 30% of gross turnover which is why the CT is so low.

Obviously I'll take the usual IR35 precautions but from what I understand the changes of an investigation in normal circumstances are slim, but I'm wondering if my chances are higher given the headline numbers?

Appreciate there's no hard evidence here so just looking for any observations anyone has from their own experiences of HMRC Investigations

Thanks in advance for any (helpful, non-sarcastic, "speak to your accountant" type) responses!

malvolio
27th February 2019, 14:43
As long as your accounting is accurate and your end-of-year books in proper order, you can only pay what you owe. So stop worrying.

craigy1874
27th February 2019, 14:46
What type of investigation are you worried about?

If IR35 then that has nothing to do with profits.

If CT, then that has nothing to do with IR35.

Maslins
27th February 2019, 14:59
I'm sure HMRC will have some kind of expectations based on certain criteria. If your figures are wildly out of kilter, they may pry a bit. However if you're happy what you're doing is correct, there shouldn't be any concerns.

I gather HMRC do also do some completely random enquiries, as of course your figures looking broadly in line with averages for similar businesses doesn't mean they're right.

WordIsBond
27th February 2019, 15:37
Lots of companies only have profit of 30% of turnover.

Dom at Fox Bartfield
27th February 2019, 16:56
They do carry out random checks based on risk and industry, historically if you're largely cash based then expect more regular visits.

There will also be an increase in risk with businesses that fluctuate wildly, as @Maslins advise but if all in order and genuine then nothing to worry about.

DrStrange
28th February 2019, 09:36
What type of investigation are you worried about?

If IR35 then that has nothing to do with profits.

If CT, then that has nothing to do with IR35.

I suppose it's any investigation really. I wondered if they had systems to detect anything that looked unusual, and they then stick their noses in. Given their behaviour of late I really don't want any involvement with them at all.

My primary fear, of course, is that they somehow deem me inside IR35 as, without being able to deduct the expenses, I'd be working for nothing.

It doesn't sound as though they have these sort of automated trigger warnings though, so probably nothing to overly concern myself with.

Thanks everyone

Maslins
28th February 2019, 10:30
Given their behaviour of late I really don't want any involvement with them at all.

For possibly a bit of balance, we have a reasonable number of enquiries (not in a concerning way, just part and parcel of having quite a few clients), and we find them very reasonable.

Most common thing will be HMRC highlighting some personal income a client received, or perhaps that they did have a student loan/receive child benefit but forgot when we asked the client the question. HMRC have consistently accepted it's an innocent mistake, wasn't negligent, no penalty (though return will be adjusted, often leading to some extra tax, but only tax that should have been due first time around).

Occasionally we get VAT enquiries, especially when a client's sales are largely overseas. Inevitably the question is "why do your accounts show turnover of £100k whilst the 4 VAT quarters for the same period show turnover of £10k". Answer is "£90k sales to overseas, here's some copy invoices", they're happy, enquiry closed.

As things stand I don't think we've ever had a CT query, which is at least partly what you seem to be concerned about.

I do get that some people are very upset re things like the loan charge etc. However to my mind that's a completely different kettle of fish. In HMRC's mind that's people who have completely taken the michael. This is why I'm always nervous about people who really try to push the boundaries on everything, even if there's some tenuous argument it's legal. You're going to get HMRC's backs up, so will come under close scrutiny, and likely suffer penalties as well as extra taxes if they find anything wrong.

DrStrange
1st March 2019, 20:33
For possibly a bit of balance, we have a reasonable number of enquiries (not in a concerning way, just part and parcel of having quite a few clients), and we find them very reasonable.

Most common thing will be HMRC highlighting some personal income a client received, or perhaps that they did have a student loan/receive child benefit but forgot when we asked the client the question. HMRC have consistently accepted it's an innocent mistake, wasn't negligent, no penalty (though return will be adjusted, often leading to some extra tax, but only tax that should have been due first time around).

Occasionally we get VAT enquiries, especially when a client's sales are largely overseas. Inevitably the question is "why do your accounts show turnover of £100k whilst the 4 VAT quarters for the same period show turnover of £10k". Answer is "£90k sales to overseas, here's some copy invoices", they're happy, enquiry closed.

As things stand I don't think we've ever had a CT query, which is at least partly what you seem to be concerned about.

I do get that some people are very upset re things like the loan charge etc. However to my mind that's a completely different kettle of fish. In HMRC's mind that's people who have completely taken the michael. This is why I'm always nervous about people who really try to push the boundaries on everything, even if there's some tenuous argument it's legal. You're going to get HMRC's backs up, so will come under close scrutiny, and likely suffer penalties as well as extra taxes if they find anything wrong.


Thanks for this context - I've only ever heard the bad stories and I can't help but feel they're on a mission to raise "maximum taxes" rather than "correct taxes", so I'm wary of any interaction really.

Perhaps I'm doing them a disservice though!

Old Greg
1st March 2019, 23:47
I suppose it's any investigation really. I wondered if they had systems to detect anything that looked unusual, and they then stick their noses in. Given their behaviour of late I really don't want any involvement with them at all.

My primary fear, of course, is that they somehow deem me inside IR35 as, without being able to deduct the expenses, I'd be working for nothing.

It doesn't sound as though they have these sort of automated trigger warnings though, so probably nothing to overly concern myself with.

Thanks everyone
Do you have insurance?