That means you must’ve done something really wrong, right?

Not so fast.

There are many possible reasons why HMRC might want to take a look at the inner workings of your business, ranging from something minor to the more serious.

It certainly doesn’t help that tax jargon is confusing at the best of times.

Don’t fret, though, as we’ll explain exactly what a compliance check is, as well as why HMRC may have chosen your business specifically.

Let’s get started.

What is an HMRC compliance check?

Simply put, HMRC carries out compliance checks to ensure businesses and individuals are paying the correct amount of tax, at the right time, and claiming the correct reliefs.

They can be completely random, or they might be triggered by something in particular, for example – mismatches in your tax data.

Ultimately, the aim of a compliance check is simply to make sure your records are accurate and up-to-date, and also a true reflection of your business activity.

Why might HMRC ask to carry out a compliance check?

Contrary to what you may have thought, compliance checks don’t only affect those trying to avoid paying tax.

Any business can be investigated at any time, and for any number of reasons.

What are the most probable reasons, though?

Random checks

HMRC will sometimes perform a random check on a business, whether anything has triggered an investigation or not.

With this in mind, it’s important to remain levelheaded, as while it’s obviously scary being contacted by HMRC, it doesn’t necessarily mean there’s cause for concern.

Discrepancies in submitted information

For example, mismatches between your returns and HMRC’s own records, or involving third-party data from banks, employers, etc.

HMRC also look out for potential anomalies, such as low profits despite a high turnover, or a big fluctuation in figures.

Late or inconsistent filings

Frequently submitting your tax returns or accounts after the deadline is another surefire way to get HMRC’s attention, as is making regular mistakes on these.

Industry-specific risk factors

Another way your figures can be inconsistent is if they aren’t consistent with the industry you work in.

Some sectors are more likely to be reviewed, with cash-based businesses generally facing the most scrutiny.

Tips, reports, or external information

HMRC also sometimes receive tip-offs from individuals with inside knowledge.

An example of this could be a tip-off about company directors earning significantly more than employees (and not receiving dividends).

Alternatively, it could simply be noted that you aren’t registered with an accountant, which might raise some eyebrows depending on the size of your business.

What happens during a compliance check?

After initially contacting you, HMRC might request additional documents or ask to arrange a telephone interview.

They may even request access to your home, business, or agent’s office – though this is usually reserved for more extreme cases.

In terms of your records, there are several areas HMRC may want to take a peek at, including your bookkeeping, accounts, payroll/HR data, and your tax returns.

How far back will investigators go?

Generally speaking, HMRC will look over several years of records, but there are limits based on the type of tax and the reason behind the investigation:

• 4 years for genuine mistakes
• 6 years for careless errors
• 12 years for an “offshore matter or offshore transfer”
• 20 years for deliberate tax evasion

This is why it’s recommended that you retain financial records relating to your business for a minimum of five to six years depending on your business structure.

Possible outcomes

In an ideal world, there will be no further action required.

You might even be owed some kind of repayment if you’ve paid more tax than you should’ve.

If you haven’t paid enough tax, however, then you’ll be asked to make up the difference.

HMRC might also issue a penalty, but your own unique circumstances will be taken into consideration (especially if you made a voluntary disclosure, which is where you come forward of your own accord and inform HMRC of a mistake you’ve made).

How to respond to an HMRC compliance check

First and foremost, ensure you communicate clearly and meet any deadlines they set for you.

If your records aren’t already organised, consider investing in good bookkeeping software to help streamline the process.

You may also want to seek professional advice from an accountant, who’ll help you stay compliant and check you’re operating in the most tax-efficient way possible.

What are your rights during a compliance check?

Apart from the obvious, like having a right to be treated fairly, kept informed, etc., you also have a right to representation in the case that HMRC decides to issue a penalty of some kind. The good news is that your accountant can fully represent you (just ensure that’s something you have within your package).

You’ll normally need to make your appeal directly to HMRC, but this can be escalated to a tribunal in some instances.

How to reduce the risk of future compliance checks

Compliance checks aren’t fun, and so it’s worth doing everything in your power to reduce the likelihood of them occurring.

The two main things you can do are to keep accurate and up-to-date records (ideally using MTD-compliant bookkeeping software) and file your returns in plenty of time.

Again, you can also think about seeking professional support where appropriate.

A good accountant will keep you compliant and tax-efficient, and may even be willing to represent you if HMRC do decide to investigate.

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post Why Are HMRC Asking to Do a Compliance Check? appeared first on The Cheap Accountants.

If you’re considering buying into a franchise, there are some key areas to look into before making any sort of investment. In this article we share our top tips, and the warning signs to watch out for during the consultation period. We also have a separate article which goes into more detail about paying tax as a franchisee.

Look into their past

It’s often worth doing background checks on the majority of people you do business with, especially if money is changing hands.

Make sure you’ve researching your potential investments heavily before you sign anything. A good start is to simply search for them online and see what their reputation is like.

Dig deep to see if there have been any legal problems, commonly occurring customer complaints, dodgy PR, or financial struggles. All of these could indicate that you’ll struggle to operate under their brand.

While you’re unlikely to find a company with a perfectly clean record, it’s important that you know what you’re getting into. Customer complaints happen at every business, but is there a pattern that could become a problem for you?

Missing information

If they’re glossing over the fact that important data is missing, or they promise to get it later once the paperwork has gone through, it could be a sign of much more worrying problems.

What are they hiding? You don’t want to find out the answer to that question when it’s too late.

High pressured sales pitch

If the high-pressured sales pitch leaves you feeling a bit uncomfortable or rushed, you wouldn’t be alone. Plenty of people will be turned off a sale if there’s a huge sales pitch.

Surely if the opportunity is that great, it doesn’t need a desperate sounding sales pitch that tries to push you into a quick decision.

Bold claims

Watch out for businesses that have only been running a year or two but already boasting they have hundreds of successful franchisees. There’s something that doesn’t sit right there.

Either they’re exaggerating or something else is going on. If they have so many franchisees, are they likely to have the capacity to support you as much as you’d like?

Training program isn’t great

While negotiating for a franchise, you should ask as many questions as possible. One of the key benefits of having a franchise is the support you (should) receive from the company.

A good franchise business will have a thorough training program to get new franchisees up to speed and a solid support system in place to ensure success.

If it sounds like you’d be dropped in the deep end once you sign the papers, then it might be worth looking elsewhere for something a bit more stable and structured.

Blaming franchisees

If the franchise company is quick to blame their franchisees for poor results, this is a bad sign. It means that franchisees might not be well respected in the company and will not be receiving much help once they sign the papers.

Changing methods

Any franchise company that boasts they’re always changing the methods and concepts of the company is a warning sign. You don’t want to have to change every five minutes to catch up to the latest new idea. It’s good to be adaptable, but not if that means a lack of focus and forward planning.

Whether you decide to open a franchise or not, make sure you research everything you can about the company, how they’re doing, how people react to their brand and how they present themselves.

Are you thinking about opening a franchise? Are there any other clear warning signs you’ve come across? Please let us know what you think.

The post Should You Buy That Franchise? 7 Signs You Should Hold Off appeared first on The Cheap Accountants.

Rotten to the core—or just rotten at the top?

The Big Four certainly haven’t been waving the flag for ethical practices and efficiency. Last year, the Financial Reporting Council (FRC) fined Ernst & Young (EY) £2.75 million for alleged misconduct in relation to a 2011/12 audit of Tech Data and fined PricewaterhouseCoopers (PwC) £5 million for ‘extensive misconduct’ relating to its audit of a professional services group. Overseas, the U.S. Securities and Exchange Commission (SEC) fined KPMG $6.2 million for ‘misinforming’ investors about the value of a certain company.

The scandal has continued this year, with KPMG admitting to misconduct in 2011 dealings and facing tribunal again, and PwC hit with a £10m fine over its auditing of BHS and Taveta Group. Deloitte doesn’t have a stainless record either, fined £14 million in 2013 for its dealings with investors involved in MG Rover and accused of a “persistent and deliberate disregard” of accountancy ethics at the tribunal.

As for the demise of Carillion, all Big Four companies were involved. Deloitte was Carillion’s sole internal auditor; KPMG served as external auditor; EY gave turnaround advice and PwC advised the company, its pension schemes and the Government.

These incidents have not only turned an unwelcome spotlight on the Big Four, but also on the FRC, which has its fair share of Big Four alumni and has been accused of leniency, a lack of thoroughness, painfully slow decision-making and too close a relationship with the Big Four.

The Association of Accounting Technicians, an accounting body with 50,000 full members, has accused the FRC of presiding “over a catalogue of audit failure that has brought its own existence into question,” and Baroness Bowles, former chair of the European Parliament’s economic and monetary affairs committee, is amongst those calling for the FRC to be replaced by a new organisation that actively protects the public interest.

“The FRC can only be fixed by root-and-branch reform that cuts out all the links and individuals that have supported such a flawed and culturally oblivious set-up,” she said.

Of course, big fines and tribunals involving big firms will always attract the attention of the media, and it would be easy to assume that the power of the Big Four and their links with the FRC are responsible for most of the corruption and failures in the accountancy profession. But it may not be so.

Pressurised, misleading, unethical

The line between what is ethical and what is legal as regards tax avoidance has been hot news over the last few years, with revelations about major companies, celebrities including Lewis Hamilton and Jimmy Carr, and even the Queen.

However, recent research by CareersinAudit.com and CareersinRisk.com reveals that some very deliberate ‘cooking’ of the books goes on at all levels.

• More than a third of accountants surveyed for the research admitted they are aware of a senior staff member at their current workplace who has made a decision to deliberately choose a commercial result for the company, even though the decision could be regarded unethical.
• Half of all accountants and auditors surveyed said they had been pressurised by a manager or a partner (or knew someone who had) to ignore an adjustment that should have been made to a set of accounts.
• 22% said they believe that more than 25% of the profession have helped their clients create a set of deliberately misleading accounts.
• 16% believed 10-20% of the profession are involved in shady activity and a further 24% believed between 5-10% of the profession are involved.
• Worryingly, 65% of accountants and auditors believe businesses do not do enough to protect employees against victimisation or dismissal should they report the misconduct of a colleague.

Some respondents gave examples of the dubious dealings they had encountered.

“The bank started lending to low income earners who were left with insurmountable levels of debt.”

“The senior manager advised on how to escape tax authority.”

“Actions [by the accountant] led to misleading reports to board.”

“I pointed out serious accounting/legal violation by senior executive and was penalised for doing it.”

Careers in Audit is calling for changes that mean employees will no longer need to worry about losing their job, clients or career prospects if they speak out when they discover malpractice.

“Rather than let another ticking corporate scandal go off, let’s get to the heart of the issue for the profession – to create enforceable code of practices which ultimately encourages the right working culture to report fairly and without fear,” the company said in its summary of the findings.

The post Are Ethics and Efficiency Under Threat in Accountancy? appeared first on The Cheap Accountants.

The best advice is always to get an accountant to steer you through these unfamiliar waters, making sure you fulfil your obligations and don’t incur fines for late or incorrect tax submissions. Even better, an accountant can ensure you keep as much of your hard-earned money as possible by claiming for allowances and applying for grants you may not even know about.

But if you’re going it alone (or have an accountant but want to understand more about this side of your business yourself), then HMRC provides a wealth of information to help.

You can also see our guide to hiring an accountant for your freelancer business.

Find out about:

Starting out in self-employment

HMRC’s helpful online guide, Starting Your Own Business, contains information on:

• Choosing the right structure for your business, explaining your options for the legal structure of your business and what constitutes ‘self-employment’
• How to inform HMRC about your self-employment, including information on tax registration
• Keeping business records and claiming expenses – what records you need to keep and your options for how to do this
• Filing your tax returns and sending HMRC payments, including understanding your tax bill

There is also a series of videos about starting your own business on HMRC’s YouTube channel.

Business expenses

Also on HMRC’s YouTube channel, you’ll find a series of recorded webinars on Business Expenses for the Self-Employed, beginning with Part 1: What are allowable business expenses?

If you would rather join a live webinar and get some of your questions answered via on on-screen text box, there is a webinar on 24^th July, 11.00 PM to 12.00 PM. about Capital Allowances for the self-employed.

This webinar is aimed at those who use traditional accounting, showing them how to claim for longer life items they buy for their business such as vans, tools or machinery.

Record keeping, tax and self assessment

Another useful upcoming webinar is Record Keeping for the Self-Employed, taking place on Thursday 5^th July, 11.00 AM – 12.00 PM and Wednesday 18^th July, 4.00 PM – 5.00 PM. This is aimed at sole traders and partnerships (but not LLPs nor limited companies) and will give you an introduction to the basic principles of keeping good business records, what HMRC expects from you, how you can get into good habits from the start and about the recording keeping apps available for mobile devices.

If your Self Assessment tax bill is causing you concern, then HMRC’s video, Paying your Self Assessment Tax Bill, might be helpful. There’s also a host of other videos about self assessment, tax, deadlines and payment.

The Government’s website has a self-employment page with numerous links to guides on working for yourself, setting up a business, handling the financial side of your business and sources of further support and information. So start reading (or watching!) and get better informed about running your business – whether that’s founding a business empire or organising yourself and your freelancing. Let us know how you get on!

The post HMRC’s Helpful Hints for Freelancers & Entrepreneurs appeared first on The Cheap Accountants.

This is your chance to get your information straight from the horse’s mouth, as it were, but you must register and login at least 5 minutes before the webinar start time to take part. The links below will take you straight to the relevant registration page.

On 12^th December, 2-3pm, there will be a live webinar on ‘Getting Payroll Information Right: how to give accurate information to HMRC’, which aims to help you avoid making common mistakes when completing your payroll.

There is also a series of webinars entitled ‘Cutting Your Risk’, the first of which can be accessed on the dates and times below. HMRC says the series ‘will cover the essentials you need to know on national minimum wage and national living wage and the common errors made by employers, concentrating on working time and deductions.’

– 30^th November 2016, 1pm to 2pm

– 6^th  December 2016, 11am to midday

– 8^th  December 2016, 11am to midday

Over the next few weeks, there are also many other upcoming webinars on:

– Getting Started as an Employer

– Using Basic PAYE Tools for the First Time

– Expenses and Benefits

– How To Avoid in year Penalties

– Company Directors – Payroll and You

– HMRC and the Health and Safety Executive (HSE) working together for you – growing your business

– Statutory Sick Pay

– Statutory Shared Parental Pay and Leave

You can find links to register for all the webinars above here, together with useful videos and previously recorded webinars on a range of employment and tax topics.

If you want to stay up-to date with new information from HMRC and be informed about new issues of the Employer Bulletin, you can register for HMRC’s employer email alert service. You can also register to receive regular business help and education emails from HMRC.

The post Helpful Webinars from HMRC: Payroll, Minimum and National Living Wage and Employer Responsibilities appeared first on The Cheap Accountants.

The obvious answer is taking payment through cards but until recently the only option has been fixed terminal cards. This option is expensive and often not an option for some business owners. Typically a machine will cost more than £50 a month to rent, needs to be connected to a fixed line and will deduct about 1.5% of all payments. For an SME that wants to receive payment in multiple locations, the systems have been too expensive and also inflexible.

Recently card issuers, banks and technology start-up companies have opened up mobile payments to SMEs through small card readers. These card readers communicate with a typical smartphone or table via Bluetooth. The differences between a fixed card reader and the small card reader is that they are portable, do not require monthly rental fees and typically charge a slightly higher transaction fee of up to or just over 2%.

There are three main concerns surrounding payments for small business: 1. Risk of losing a sale 2. Receiving deposits and 3. Offering a professional service.

Risk of losing a sale

According to Stacey Galfskiy from Chillilicious, if people do not have money on them and you are unable to receive card payments, you will lose a sale. Also, she states that being able to take card payments means people are likely to spend more because they are not eating into their wallet’s cash reserves.

Receiving deposits

Increasing the size of an order, or at least securing a deposit for a large order, is one of the biggest benefits of using mobile payments through small card readers.

Sam Jennings of FlowerGirl London, said that relying on cash alone has downsides “Nobody wants to go to a cash point to get a couple hundred pounds out to secure a wedding date”.

Professional service

Perfect 10, a beauty therapist offer treatments at client’s homes. Its founders wanted their staff to feel safer on the roads. Each therapist now has an iPad and a PayPal Here card reader. As a result the mobile payment system also emails clients a professional receipt – benefitting both client and owner.

 
Check out our accounting support hub for more help and resources, or to ask a tax question.

The post Small Firms are Turning to Digital Transactions appeared first on The Cheap Accountants.

A small number of businesses and individuals intentionally defraud the taxation system, with some of those being involved in falsely claiming repayments and other organised criminal activities. As part of the enforcement strategy of HMRC, criminal investigations are carried out, sometimes resulting in prosecution.

Who at HMRC has the powers to conduct criminal investigations?

There are three business departments that are authorised to conduct criminal investigations: Specialist Investigations, Risk and Intelligence Service, and Criminal Investigation.

Specialist Investigations have a Road Fuel Testing Unit, which has the authority to check and seize vehicles that misuse fuel for vehicles. Criminal Investigations will deal with some aspects of tax avoidance and evasion, as deemed appropriate, while the Risk and Intelligence Service deals with intelligence and profiling work.

What authority does HMRC have?

In order to deal with criminals and those involved in organised crime, HMRC has to have powers that are similar to those in other agencies dealing with law enforcement. These criminal investigation powers include:

• Being able to apply for a search warrant when necessary
• Making arrests
• The searching of premises or individuals following arrests
• Applying for production orders, so that information has to be produced

Only officers in HMRC who have the necessary authorisation can use criminal investigation powers. These officers are given appropriate training and are engaged with specific duties in one of the above directorates. Some powers need authorisation from an officer of a higher grade before they can be used.

The levels of authority that are set for officers at HMRC are based on those of the police ranks. Some officers at HMRC have the authority to make arrests, with some 1,570 staff in Criminal Investigations and 118 in the Road Fuel Testing Unit.

Powers used when fighting serious crime

HMRC has powers of surveillance that are intrusive, but can only be used when dealing with serious crime. The officers can intercept mail and telephone calls, property interference and carry out intrusive surveillance. However, strict regulations have to be adhered to when using these powers, with approval from the Home Secretary being required.

Criminal investigation powers are not used in civil inquiries, like tax return inspections or routine business record checks. If you become the subject of any investigation by HMRC, you may want to consult a professional for advice.

 
Check out our accounting support hub for more help and resources, or to ask a tax question.

The post Does HMRC Have Authority? appeared first on The Cheap Accountants.