The best way to avoid trouble with the authorities is to get your affairs in order, keep good records and take the best advice available. However, certain types of behaviour act as red flags to HMRC and if you wave them then they will follow. Here we identify 10 things to avoid.
1) Keeping poor records: This has turned many an inquiry drama into an investigation crisis. If you suspect your accounting systems are creaky, sort them out-before there's a problem.
2) Showing different benchmarks: If you suspect you're a bit of an anomaly in comparison to other businesses in your industry, get tax management software to test the key performance indicators in your return, before sending it in. Try and find a package with a risk assessment report, which works much as the tax authority's own risk assessment methods.
3) Having major fluctuations in your returns: If you know your fortunes have changed, explain why, carefully on your returns. Otherwise the tax authorities might think you've changed the basis of your trading.
4) Being a late payer: There’s no excuse for this, get your returns in on time.
5) Having complex tax affairs: If you're in an industry where there is a minefield of technicalities or where changes in tax legislation makes mistakes more likely, get a compliance review from your tax advisor-prior to submitting your returns.
6) Being in a high risk industry or business: Frankly, there's not a whole lot you can do. If your number's up, it's up. But a compliance review might help.
7) Netting off capital: This is a big no-no and is especially prevalent in new companies where the introduction of capital is netted off against drawings in the accounts. Inspectors are looking for lower than average, or a significant change in director's drawings. Make sure you keep the two separate.
8) Using round numbers: This always looks suspicious. Better to state £1,230 rather than £1,200.
9) Paying your wife: If she works for you, be sure you can prove she's earning market rates for her duties. Dividends in husband & wife businesses are also under close scrutiny so make sure you know the rules.
10) Being obviously suspicious: These include a whole host of sins, from failure to register for VAT, being just under the VAT limit, a frequent change of accountants, failure to enclose a full copy of your accounts and omission of information from banks and other sources. The answer is don't.