It can be a daunting experience to receive a letter from HMRC proposing a tax inspection; you may be in for an emotional rollercoaster ride. If you are a small company that keeps good records and declares everything, you should survive, but mistakes aren’t tolerated. You have to make sure you take care when completing your returns and ensure that they are on time. Don’t give the taxman any reason for concern.
George Shaw underwent a HMRC investigation about 15 years ago, following an full-page article in the Evening Standard regarding his business. Despite the article referring to him and his wife driving ten-year-old cars, not having had a two-week holiday for years, drinking plonk and not always drawing monies owned by my company, the taxman came after Shaw.
‘It cost me £7,500 in (non-deductable) accountancy fees only to discover the taxman owed me money,’ Shaw says.
It was the time when the dot-com bubble burst. Shaw was a technology specialist and copped a big hit when a major client went down and the credit insurance company found a loophole to avoid settling the claim.
‘I had always thrived on stress before, but I was now commuting for the first time (the trains were a nightmare because of the two fatal rail crashes and a very bad winter), had two kids under two, and became middle-aged,’ he says.
‘Uniquely for me, I suffered a prolonged spell of bad health: cold and sniffles, then ‘flu for the fist time in 20 years, then chicken pox, then pneumonia.’
After having run the company for 20 years, through previous downturns, Shaw put it into voluntary receivership. ‘I was the third-biggest creditor and my ex business partner was the fourth. Seven people (several still good friends) lost their jobs,’ he says.
‘I wouldn’t say a vindictive taxman was responsible for killing a 20-year-old small business (while allowing multinationals to get away with aggressive tax avoidance), but it was a major contributory factor.’
For the past 15 years, Shaw has been working as a one man band, enjoying good health but no longer employing staff or training graduates.
‘I’ve learned to be more careful when doing favours for journalists as the taxman believes everything they read in the papers, or at least the headlines,’ he adds.
Further reading on HMRC
