random tax investigations

[keaton]

I'm in the planning stages of opening a eBay shop, I estimate my turnover will be around 20k per annum, but I've always been a worrier and am really worried about a tax investigation, I hear that hmrc target random people on a regular basis, and if they find something wrong they can go back up to 7 years saying there could be more mistakes. I also read they can go back up to 25 years, even if the business is not that old, checking personal bank accounts.

I'm not sure why they would go back even before the business was started but have read that on a few sites, they look into bank statements apparently.

I have nothing to hide and would be completely honest with my taxes, but I've read if hmrc want to find something, they will.

Just how far back will they go and how likely is a random investigation?

[Generix]

25 years is only in the case of fraud from my understanding? You don't have an obligation to keep records that long as far as I now anyway - so wouldn't be too worried.

Based on their staffing problems I wouldn't be too worried. Online sales remain a worry area for HMRC so are targetted accordingly, however they tend to be targetting those not declaring anything rather than trying to hit those who on are their records making declarations.

For 20k of turnover per annum you won't be on their hitlist.

[wamstax]

Ok random investigations could lead to your case being taken up for investigation however for what you are intending to be involved in I wouldn't be too concerned. Basically as long as you maintain correctly and fully and retain your full business records and either prepare correctly or have your self assessment return prepared for you by a professional on a correct basis then there is not much for you to fear.

It is also worthwhile to keep an entirely separate bank account for your business as against your personal or other financial transactions and in that way unless there is something that they discover about your other personal income and tax matters they would have to find something wrong in your E-bay business and tax liabilities before they could embark onto your other banking accounts.

BTW they can only go back 20 years for deliberate evasion (that might include fraud) and up to 6 years for careless irregularities.

I suggest that you start out in the way you mean to continue:-
Keep yourself right by advising HMRC before the 5th October after the end of the year of assessment(5th April following date of commencement) that you have commenced an ebay business

Maintain full records of all receipts (you won't have much option as the receipts will inevitably go thru a bank account) and only claim deductions for business expenses in arriving at your net profit for tax purposes.

Best of luck

[keaton]

Thank you, how likely is it that I'd get a random tax investigation? I read that if you come up on there computer as a random tax inquiry then they look at it to see what they can yield from that person to see if its worth there while? Is this correct or is it a case of you get picked and they just press ahead with a inquiry?

[wamstax]

There could only be limited reasons for random enquiries not being taken up as they are there to police the system.

Just do your best and don't lose sleep over it. Remember if you engage a tax professional show an interest in the figures that are produced as your profit and be sure that you understand them before submitting your returns (or accounts figures) be and don't worry about what might never happen. You can only do your best - and it should be enough

[keaton]

If you come up randomly does that mean you get a fell tax investigation or just a enquiery?

[wamstax]

I am afraid that there are no hard and fast rules in this connection (and of course you will never know - AS they will not tell you)