To ask if any self employed have ever had a hmrc investigation?

[SapphireBattersea]

I am quite newly self employed and submitted my first years accounts a few weeks ago via my accountant. HMRC have accepted my return so All seems fine.

However my accountant is trying to sell me this "tax investigation service" cover, where if my business gets investigated, the practice cover any fees involved to deal with HMRC on my behalf. it's £160 a year so not a huge amount but I'm not paying for something I don't need and may not!

I have nothing to hide, however having done a bit of googling it seems that if you're picked for a random investigation it can be really stressful and costly.

So I wanted to ask has anyone actually had this happen? And would it be worth paying for the cover?

I've been self employed 15 years. Never been investigated. I think - but not 100% sure - that having an accountant do your return might reduce the chances of you being randomly investigated anyway.

I wouldn't pay it. If you've a fairly simple business and keep good records I don't see how complicated it could be for them to investigate you. If you've a complicated business with staff then perhaps. I'm a sole trader though so there'd be no point for me.

My parents have buit they run a limited company employing 30 people. It was all fine, they keep proper records and the ccountant was doing their normal job.

How complex are your accounts, and how able are you to deal with any queries yourself?

I've seen someone be investigated and it cost them thousands, but their accounts are a mess, and many of their expenses stretch the definition of what is allowed. But if you're a small business with limited expenses then you won't have much to worry about.

I pay for it but its nowhere that much. I took a bundle of Ir35 insurance, liability and tax investigation for £200.

Self employed 11 years here. Never investigated.
I had a colleague who was. They just had to go through everything with HMRC. If you keep good records and accounts even if you are investigated it should be ok. I wouldn’t pay for such insurance.

30+ years self employed. One VAT inspection. Was a bit stressful as the Inspector didn't say a word all day and brought his own flask and food. Just looked at the books. Everything okay after visit. If your accounts are in order then any investigation should be straight forward and non costly. If all you have is a million plastic bags stuffed with receipts and deal in nothing but cash it could be a bit trickier!

As an accountant I offer this insurance- mainly because my profession body expect me to. I make it very clear to clients that it's entirely up to them whether they take it or not.

It would also be worth checking whether any subscriptions you pay include fee protection insurance ( some of the artistic unions do)

DS is self employed , he has an accountant, his books were audited last year. He's been self employed for 3 years.

Hubby's been self employed for years and never investigated. However he deals with big companies only, and sends invoices that are paid by bank transfer, no cash involved whatsoever.
I think HMRC are more concerned with people that have the opportunity to syphon off cash, so businesses where they sell product in cash to the public or offer services where they might be paid in cash. It's worth weighing up the disruption of spending time with HMRC vs money you'd loose by not being able to work while they investigate vs what potential have you to hide cash payments?

If you are solely working for companies and sending invoices and there is no cash floating about then I'd say the risk of being investigated is going to be fairly low. What industry are you in?

I was, after my first submission, but I'd only been going for three months and there wasn't a lot on the books yet, so very easy to provide the evidence they asked for. Didn't take much time or cost me any money.

I'm a sole trader and it's a small business so I do my own books. It's all very simple and straightforward and I wouldn't dream of paying anyone else to do it for me! I know that wouldn't suit some bigger businesses though.

my accountant is trying to sell me this "tax investigation service" cover

They'll probably try to pretend they have no financial interest in offering it too; certainly mine did, but maybe they've given up on that now?

I ran a business for years and never had any investigation, but if you really want this type of insurance there are plenty of companies who you can buy it from directly, and usually for much less

Thanks for all the replies

I do cleaning but it's mostly commercial with one or 2 domestic cleans.

I invoice them all and the commercial clients pay via bacs every month. The domestics pay via bank transfer after each clean. Everything is recorded for hmrc.

Friend was investigated (builder) all OK except for a payment into his bank for £80. Revenue asked him to explain it, he couldn’t and had no paperwork for it. Revenue told him he had 14 days to come up with an explanation or they would go back 7 more years.
Cue 13 days of hell, sleepless nights and wracked brains. At 2 am before deadline day he finally remembered it was a refund from HMRC! He rang them the following morning and told them to which the response was “correct, thank you very much”. The buggers knew what it was all along.

We run a partnership and had an investigation in to our payroll / employee stuff. It didn’t cost us anything (we sorted it all ourselves) but was very stressful, and completely out of proportion to the type / size of business we run (very small & very seasonal).

I'm a self-employed sole trader. I'm basically a freelancer, my business is vert straightforward. I don't buy stock, add value and sell it on. I just keep notes of everything I earn on a spreadsheet, and all money goes into my bank account electronically so there's an easy trail to follow.

I declare everything, every year and have all the proof they'd ever want to see if they ask. But they never do.

I suspect that HMRC know where to target their investigations, some sectors are more likely to be dodgy than others.

Like all government departments and public services, HMRC are underfunded and understaffed. Unless you are doing something really wrong or you are really unlucky you won't get investigated because unless you raise major red flags they just don't have the resources. Your accountant should also know what levels of expenses etc HMRC should be happy with. (eg for a home office) If you keep good records and have a good accountant then you should be fine.

HMRC are so busy investigating half of the bbc, I'd not worry too much for now.
To me the whole point of paying an accountant is making sure things are done properly and on time.

@rslsys

😱😱😱 OMG! How shit of them to cause him all that worry

I’m self employed and do take out the insurance my accountant offers me because I’m risk averse that way.
I know about 40 self employed people and I don’t know anyone whose been investigated - though that might be because they don’t want to talk about it

HMRC have accepted my return so All seems fine.

Returns are filed electronically and logged by an automated system. If it is made in the correct format it will be processed through the system and you'll get the acknowledgment.

HMRC has a year for an inspector to actually review it and raise an enquiry. Right now your return has just been filed, not accepted. Nobody will have looked at it yet.

The enquiry window can be extended if it turns our you failed to disclose on your return that there was something contained within it that HMRC might want to look more closely at.

Whether or not HMRC enquiries into your returns has little to do with how good your agent is (unless your agent is really shady and considered high risk!), because it's about you and some of it is random. If they do enquire they won't accept you having relied upon your advisor as an excuse for any errors - it will fall on you to have made sure what they did was correct.

HMRC also has access to lots of other sources of information it uses to identify people who aren't declaring all their income etc so if something gets flagged up by that system you could end up under enquiry.

You're absolutely right that you may never face an enquiry, but you cannot know. If you do it could drag on for months or even years and run up thousands of pounds in costs for your accountant to deal with HMRC on your behalf. Or it could be wrapped up quickly in a few weeks for little to no cost.

You have no way of knowing. Same as any other kind of insurance.

Bear in mind that almost nobody thinks they will end up under enquiry. The tax courts regularly see cases from taxpayers who thought they'd done everything right but unfortunately hadn't.

I used to aid Inspectors in their compliance investigations.

I would think that Cleaners are likely to be chosen for investigation as there would likely be cash involved.

It's not just your trading records that are examined - a large part of my working days were spent analysing private and trade bank statements to see if there was any unaccounted income, or expenditure not serviced by reported income.

(BTW in the example above of the £20 credited to account no way would any of the inspectors I worked for have asked him to account for it when they already knew the answer! That's just one inspector being unprofessional and a twat to boot)

If your trading records are accurate and clear, and you have not been under declaring, I think you could handle any investigation yourself without too much stress. Save your £££.

To me the whole point of paying an accountant is making sure things are done properly and on time.

Oh I've come across plenty of errors made by reputable agents - they are still only human and fallible.

The taxpayer still had to cough up though, despite the error being the agents. Whether the agents recompensed the client I couldn't say. I doubt it because the Revenue is only getting the tax that should have been paid in the first place.

My parents had a small partnership business and they were investigated by HMRC. It was a very worrying time for them - I believe it came about because HMRC did believe that their wages were so low (i.e. they thought they were doing a lot of work for cash and not declaring it). However, this wasn't the case (and was eventually accepted by HMRC) but they went into everything - including a visit at their home. My parents have always lived very frugally and they are very honest, but I think they felt pretty powerless for a while. I mean how to prove you haven't accepted cash for a job and then not recorded the job or the cash.... maybe don't take the guy's insurance, but shop around.

Urgh all this actually puts me off being self employed 😓

All the years that I was contracting I had IR35 and tax investigation insurance.

Even if you have an accountant it is you who is signing off on the accounts and your responsibility. I didn't buy it via my accountant though, I bought via one of 2 main reputable providers in my area of business.

An HMRC investigation is very stressful and can be quite lengthy and expensive. Especially, as has been pointed out they are underfunded and understaffed so their response time will be slow. This can drag the process out.

For me knowing that I could just hand it all over to an expert who is used to dealing with them it was worth it. I just considered it an overhead cost of contracting.