Sometimes, HMRC enquiries do not involve any allegation of fraud but are simply challenges as to the way in which a particular item of expenditure or income should be treated for tax purposes.
Although any tax return can be subject to enquiry, most technical challenges relate in practice to the computation of business profits. And with the increasing complexity of tax legislation and the pressures on HMRC to fill the gaps in the Chancellor’s budgeting, this kind of thing is becoming more and more common.
Technical challenges to the tax treatment of a particular receipt or expense are superficially less stressful than a challenge to your honesty. But if the amounts are substantial the effects on a business can be devastating, particularly if the matter relates to a number of years.
Perhaps the most obvious example is a status dispute, where HMRC seek to recategorise sub-contract workers as employees and to collect PAYE tax and national insurance contributions, often for a number of past years: but this is only one example of the kind of challenge that can arise.