March 2009

Warning signs that could trigger a tax investigation

Auker Rhodes accountants are warning businesses to be aware of the warning signs that could trigger a tax investigation.

Responsibility for deciding which taxpayers should have their tax returns scrutinised rests with HM Revenue & Customs’ Risk Intelligence Assessment Teams (RIATs).

As might be expected, the RIATs are secretive about the way they operate and are even protected from providing details by the Freedom of Information Act.

A member of our team said: “What we do know is that their reasons for initiating a tax enquiry are much the same as they were for local tax inspectors’ pre-RIATs.

They also draw on UK-wide information, which they use to compare factors within a target business, such as income, profit ratios and expenses, with those of similar businesses”.

While the RIATs remain tight-lipped about possible triggers, tax issues likely to arouse their interest include:

• more than one recent set of overdue accounts or tax returns
• significantly fluctuating income or expenses
• expenses that are obviously incorrect
• no adjustments for the private use element of expenses
• low income compared with likely outgoings.

“Some simple steps can help to reduce your risk of attracting the RIATs’ attention. Staying up to date with your tax returns is a wise move, even if you have to submit a form using estimated figures. Make sure that you tick the “estimated figures” box on the declaration page and submit the correct figure as soon as you can.

It is also worth taking time to double-check your accounts, querying any figures that look out of place with your accountant. If the figure is correct, remember to include an explanatory note with your tax return”.

The author is a director in Auker Rhodes Chartered Accountants of Bradford, members of UK200Group with offices throughout the UK and Associates overseas.

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