The Dreaded HMRC Enquiry

Recent publicity surrounding tax avoidance by Gary Barlow and two other members of the Take That band shows that HMRC can get tough. The misdemeanours are reported to be costing the band members around £20 million, following a prosecution.

Everyone dreads the tax man coming, because if HMRC find deliberate inaccuracies in your returns, the penalties can be severe. They can fine you up to 200% of the tax due, so it clearly isn’t wise to incur their interest.

Some errors are innocent, of course, and if they are satisfied that they were not intended, you won’t be fined, but just cautioned and required to pay your tax promptly with any interest due. Innocent errors, though, are not likely if you have the help of your outsourced bookkeepers.

What to Expect

HMRC has risk assessment and intelligence teams, which analyse company tax returns. If they decide to set up an enquiry, they will write to let you know within 12 months from the date your return was submitted. Their letter should tell you what they are enquiring about, what information they need by when – usually within 30 days. If you fail to supply information requested in the allotted timescale, the standard penalty is £300, plus £60 a day until compliance with the request.

After the initial letter, the way they proceed may vary according to the severity of what they suspect. You may not have done anything wrong, but something about your return is not clear to them. If they are not satisfied with your response, they could ask to see all your accounts and records. Sometimes an error may have recurred from earlier tax periods, which means that there will still be tax due from those years. Occasionally, they may find you have overpaid and issue a repayment, which would be a great relief.

On the other hand, during the enquiry, you may be asked to pay some extra tax on account. This will not be obligatory but it will reduce the amount of interest you have to add to any amounts they find are due. Interest will be charged from the day after the deadline for paying the tax. If it also relates to earlier periods, this can rack up to significant amounts.

Mitigating the Consequences

If any of this does happen, it’s advisable to cooperate by owning up to any mistakes you know about and helping the investigating officer to understand and quantify them. Then you could be rewarded with less heavy penalties.

Knowing your rights as a tax payer can help you decide if any of their questions are not appropriate, so that they could be challenged. Your outsourced bookkeepers may have experience of HMRC enquiries with other clients, and may be able to advise you. Or they may suggest you consult a tax accountant or legal tax expert.

Cash Flow Consistency

Does your business revenue have peaks and troughs? Are you familiar with the self-employed dilemma of feast or famine? Is the demand you experience seasonal? If so, one of your problems may be a lack of consistency in your cash flow.

Don’t Leave it till the Last Minute

To deal with it you need to be spot on with your forecasting. Unless you know what is likely to happen, you cannot make plans to get around it. One of the most common revenue patterns shows highs in November and December, with lows in January and February. This is, of course, because of all the frantic preparations for Christmas and the other holidays at the time. The run up to the holidays can also be very expensive for businesses that traditionally want to show their appreciation of staff and customers at this time.

That is why, for many years, we’ve had the January sales in the UK, as retailers try to boost sales at an expected slow time. It could also be a time for you to offer extra incentives to customers to continue to do business with you when they would rather not be spending. Anything can be better than nothing, so rather than have a dearth of income, could you reduce your margins or find a way to give more added value for a limited period. Depending on your cash flow, generating income may be more important at such a time than achieving high profit margins.

Plan Ahead

If you get in the habit of forecasting your cash flow over coming months, you could choose to spend more in advance of your needs, or set aside and ring-fence cash amounts for specific purposes. Now is the time to be thinking about what you will be needing in six months’ time. Book that office party for December in August and pay a hefty deposit up front, so that you won’t have to find as much money when you are feeling the pinch.

Deal with the debtors

Your bookkeepers will never cease to tell you how important it is to collect your dues from debtors. Not having a good credit control system can wreak havoc with your cash flow at the best of times. When you are coping with a seasonal drop in revenue, it becomes even more crucial. You must try everything you can to get your clients and customers to pay up. When they are clearly in financial difficulties, sometimes suggesting staged payments can help.

Regular discussions with your outsourced bookkeepers will yield other possibilities for dealing with debtors and help you keep on top of the problem. They can also help you with budgeting and forecasting, so you don’t have to do it all yourself.

Official Recognition for Entrepreneurs

November 19^th 2014 is the date of the Great British Entrepreneur Awards ceremony. From now until August 8^th you can enter for one of the awards. All entries are welcome: last year one of those shortlisted was a 9 year old girl. It costs nothing to enter one or more of the various categories, which will all have winners, and the judges will also decide on an overall winner to be named the Great British Entrepreneur of the Year.

Support in High Places

This will be the second year of the awards which are sponsored by some major businesses, including Dell and NatWest. Our outsourced bookkeepers have noted that Sarah Shields, Dell UK’s General Manager and Executive Director for Consumer and Small and Medium Enterprises said, “…Events such as the Great British Entrepreneur Awards are hugely important to us as they not only provide an opportunity for us to show our support for British innovation, they allow us to hear directly from entrepreneurs about their current challenges and what else we can do to help.” Peter Ibbetson, Chairman of Business Banking, NatWest and RBS, said that the awards offer “a great opportunity to inspire future entrepreneurs by hearing the stories of people who’ve made a success of their ideas and built thriving businesses.”

The awards also enjoy government support. The Skills and Enterprise Minister Matthew Hancock said: “…The Great British Entrepreneur Awards are an opportunity to recognise the dedication and successes of those with an entrepreneurial spirit and I hope they will inspire more people to put their business ideas into practice.”

The 30 or so judges come from a wide range of backgrounds. Peter Ibbetson (mentioned above) is among them, as are author Rachel Bridge, author of five books about entrepreneurs; Krill Savin, Managing Director for UK and Ireland, Kaspersky Lab; and Jenny Tooth, Chief Executive, UK Business Angels Association.

Benefits of Entering

Why not confer with your bookkeepers about what categories you should enter? If you are shortlisted, it will be announced on September 18th. Getting involved could bring positive PR and more awareness of your business even though the awards focus on individual entrepreneurs rather than on their businesses. The awards have been featured in articles in newspapers such as The Times, The Telegraph and the Huffington Post, reaching an audience of 19 million people. Associated events also bring networking opportunities: at the 2013 awards ceremony, 3,283 business cards were exchanged.

So don’t be shy. You can only be mentioned alongside the Great British Entrepreneur Awards if you enter, and think how great it would be if you were a winner.