HMRC Self Assessment Checks: How Your Tax Return Is Reviewed

Filling a Self Assessment tax return may seem a frightening task. You submit your figures, claim reliefs, work out your tax and send it to HMRC. So what do you do when you submit it?An unexpected question that a lot of taxpayers will ask is how your tax return is checked by your taxman (HMRC) and whether they check every number at once.The truth is that HMRC can verify tax returns in a number of ways. A review can be a relatively simple compliance review or a comprehensive one. HMRC can ensure that the correct tax is being paid and you are claiming the correct allowances and reliefs.This guide will tell you what HMRC may be looking for, what the reasons are for an HMRC Self Assessment check and what you should do if you receive a letter from HMRC.

What is an HMRC Self Assessment check?

An HMRC compliance check is an examination of your tax situation. These checks are designed to ensure that taxpayers pay the right tax in the right amount at the right time to HMRC.A check can relate to your Self Assessment tax return, accounts, calculations or supporting records. HMRC can write or telephone you and tell you what they want to look at.A review does not necessarily indicate that something is wrong.HMRC can make checks for a variety of reasons. Some checks are targeted at certain numbers or statements, others can analyse more general tax records.

Examples of a check might include:

Your reported income
Business turnover
Allowable expenses
Tax relief claims
Capital gains
Property income
Pension contributions
Employment income
Bank statements, financial documents
Supporting business records

The details that are requested are dependent on the circumstances of the check.

HMRC will review your tax return in the following manner

HMRC can obtain information from various sources. This can assist in comparing information on your Self Assessment return to information which is available elsewhere.According to HMRC guidance, the records that may be included as part of the compliance check can include tax returns, accounts, calculations, and other records. If applicable, HMRC can provide an integrated tax service when identified risks are at risk.

HMRC checks the information provided

The first step is typically comprehending the data you are receiving in your return.HMRC will look at whether your income, expenses, allowances and other numbers seem reasonable, taking account of the information you have provided.Not all odd figures are necessarily wrong.However, figures that need clarification may lead to questions or requests for supporting evidence.

HMRC may make a comparison of information.

In determining a taxpayer’s position, HMRC may take into account information it has received from other sources.For example, an individual’s Self Assessment figures may be taken into account with information concerning employment, benefits or any other income which is liable to tax.This is why records keeping is important.It is easier to explain how you arrived at the numbers if you have kept your bookkeeping records to support those numbers on your tax return.

Supporting documents might be demanded and submitted to HMRC.

HMRC could initiate a compliance check, which may request documents or information to determine the appropriate tax position.This may involve records of income and expenses, among other things, depending on your situation.If you are self-employed, you may have to submit business records and records of expenses and turnover.The landlord might require documents to prove rental income and expenses.The bottom line: Don’t hand in numbers that don’t make sense.

What are the reasons for HMRC to review a Self Assessment return?

HMRC does not have a single reason that it chooses a return for review.Some problems may trigger a compliance check, HMRC says. This might include figures that seem off, high claims or when there isn’t any declared tax that seems to match other information.HMRC can also carry out random checks. It’s internal guidance says that a perceived risk is not always a prerequisite to a compliance check.So, a HMRC enquiry doesn’t necessarily constitute an accusation.When it comes to the tax position, it’s more appropriate that it’s a request to set that position.

So what’s HMRC looking for on a Self Assessment return?

The subject matter that HMRC reviews will vary from taxpayer to taxpayer and from reason to reason. But it is essential to report income correctly.

Undeclared income

When filling in a Self Assessment return all taxable income should be taken into account.This is especially significant for those who have more than one income source.A freelancer might work for several clients during the course of the year, for instance. A landlord could have rental income in addition to employment income. There can be multiple sources of income for a business owner.Having full records minimises the chance of omissions.

Business expenses

Money can be a consideration.

One of the frequent errors is claiming costs just because they’re remotely associated with a business.Rather, it is important for taxpayers to know if an expense is truly allowable and have the proper documentation.This can be a much easier process with good bookkeeping.

There are various tax reliefs and allowances available.

HMRC may also look at the correct claiming of reliefs and allowances.A valid claim must be backed up by the facts and records.Don’t assume the item belongs to you because someone else has claimed it.Things may be different for you.

Property income

Landlords should pay careful attention to the reporting of rental income and related expenses.

Records of the property should be maintained for the entire year, not just the year of filing.

This will make it easier to spot the audit trail if HMRC asks questions in the future.

Self Assessment errors that can make things difficult

Some tax return issues aren’t malicious.

They can occur due to incorrect interpretation of the rules or due to inaccurate records.

Common mistakes include:

Forgetting a source of income
Entering incorrect figures
Claiming unsupported expenses
Personal and business expenses
Losing receipts or invoices
Using incomplete bookkeeping records
Making false claims for tax relief
Not maintaining the supporting documents
Failing to verify information given.

Reliable bookkeeping is critical for businesses and self-employed individuals.Bookkeeping should tell a consistent story as you go from transactions to tax return.

What is it that you need to do when HMRC gets in touch with you?

Do not ignore the HMRC compliance letter.It needs to be read in detail and the matter that HMRC wants to examine needs to be identified.After which you would need to get the documents and comprehend the questions.According to HMRC, “taxpayers may be asked to produce documents, discuss their tax affairs or have records or premises examined.”In case you have hired an accountant, HMRC will be able to communicate with your tax agent, if need be.And since the authorization of the tax agent is needed by HMRC, professional assistance may prove useful in such a scenario.

What follows after the HMRC has carried out its tax inspection?

The result will depend on what HMRC discovers.If everything turns out to be right, HMRC may decide to end the inspection. Where you have overpaid your tax, HMRC can make arrangements for you to receive a repayment, which includes interest when appropriate. Where you have underpaid tax, you have to pay the outstanding tax, as well as any interest and penalty.The penalties imposed do not only depend on the amount of tax at issue.HMRC may take into consideration why you made the mistake and your cooperation with them during the tax check.

What happens if you disagree with HMRC?

It does not mean that you must accept HMRC’s decision just because an audit has been conducted.Where HMRC makes a decision, which is capable of appeal, this will be set out in the correspondence.HMRC guidelines suggest that the taxpayer has the right to provide more information, ask for a review, or even appeal to an independent tribunal.The typical period for appealing against HMRC’s decision is 30 days.If you disagree with HMRC, take professional advice before responding if your case is complicated.

How do you minimize the risks associated with Self Assessment?

You cannot ensure that HMRC will never check your form. You can, however, ensure that the quality of your tax records is improved.

Maintain your records all year round

Avoid waiting for January to arrange all your papers. Make record entries all year round.

This will make any missing information easy to notice.

Separate your personal and business spending Whenever possible, make sure you maintain distinct transaction entries for your business dealings.

Double check numbers before submission

Do not automatically assume that your tax return is accurate just because your accounting software generated the numbers. Double check the numbers before submission.Double check income, expense, allowance and other sections.

Maintain proof

It is important to keep invoices, receipts and other documents that support your numbers.Proper documentation may help you show how the numbers were arrived at if questioned by HMRC.

Get help from professionals

Professional help may come in handy if your tax situation is complex or even if you need assurance when submitting your tax return.

When do City Gate Accountants offer help?

For individual taxpayers, self-employed taxpayers, and businesses, ensuring that the numbers are correct begins with proper accounting. City Gate Accountants offers professional accounting and taxation services, including such as Accounting Services, Bookkeeping, Tax Returns, Self Assessment, Corporation Tax, VAT Returns, Payroll Services, CIS Returns, Company Accounts, Limited Company Accounting, Sole Trader Accounting, Partnership Accounts, Business Advisory, Management Accounts, HMRC Support and Tax Planning, depending upon what services are provided by the firm currently. Professional help is not only about filling out a return.Good accounting will allow you to understand your financial situation, keep proper records, and pay your taxes.In this respect, City Gate Accountants concentrates on proper tax filings, HMRC compliant accounting, customized financial advice, and accurate bookkeeping.A customer-focused approach adopted by this firm can come in handy for taxpayers who need understandable explanations rather than complex terminology.For a business owner, it means to have more accurate financial information during the whole year and not only when it is tax time.

A straightforward HMRC compliance checklist

Before submitting your Self Assessment return, consider the following:

Have I included all sources of income?
Are the figures consistent with my accounts?
Am I able to prove my expense claims?
Have I verified my tax relief claims?
Have I made adequate record keeping?
Have I double-checked the return prior to submission?
Am I able to justify how each large figure has been calculated?

Answering yes will give you an edge in case HMRC wants to know more.Your objective here is not to make your return stand out or appear overly cautious.Your objective here is to have it correct and well-supported.

Conclusion

Knowing how your tax return is being reviewed could make Self Assessment less daunting.HMRC might investigate your income, expenditure, any reliefs claimed, and any other documentation in order to find out whether your tax return is valid. A compliance review doesn’t necessarily mean that there is anything to worry about, as well as HMRC may conduct a random investigation.The best way to protect yourself is through good preparation.Maintain accurate documentation, verify all figures, ensure your tax return is reflecting your true financial status, and respond quickly to HMRC’s questions. If you need an accounting firm for individual and business clients to assist you in Self Assessment, bookkeeping, tax returns, or more accounting needs, City Gate Accountants can help.Maintaining accurate documentation today could make tax compliance much simpler in the future.

FAQs

What is the chance that my self-assessment tax return will be checked by HMRC?

HMRC does not review all returns through compliance check. Checks may arise out of various circumstances.

What will happen if HMRC investigates my tax return?

HMRC will usually inform you about the issues it wishes to examine and will require some documentation. It might be necessary to meet with an HMRC official regarding your tax affairs.

Does a compliance check by HMRC mean I have made a mistake?

Absolutely not. There is no need to assume that because you have been selected for a compliance check by HMRC that means they believe you have been up to any dodgy business.

For how long can HMRC look at my Self Assessment tax return?

This would depend on the particular circumstances and nature of the compliance activity that HMRC wishes to undertake. Sometimes HMRC compliance activities look into a number of years of finances.

Could an accountant handle HMRC for a Self Assessment review?

Yes, an authorized tax agent can handle HMRC for a compliance review where the required formal authorization exists.

What documentation do I need for my Self Assessment return?

The documentation you need depends on your situation. This could include income documentation, invoices, receipts, bank statements, and expense/relief documentation.