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While SMEs may have access to a wider and more innovative range of funding options in the modern age, many are still struggling to source capital through their preferred lender.
In fact, just four out of 10 SMEs have secured funding through a chosen channel or lender in recent times, while a further 34% have claimed that the level of capital available to them was not enough to fund their precise investment plans.
Given this entrepreneurs are having to manage their capital carefully in the current climate, while ensuring that they remain tax compliant and avoid long-term sanctions. In this post, I’ll look at how you can prepare for an external tax audit and ensure that you achieve the best results for your business.
1. Determine Which Type of Audit it Taking Place
While the word “audit” is well known to entrepreneurs, few are aware that there are different types of process that may be conducted by the HMRC.
In fact, there are three types of audit available, namely correspondence audits, office audits and field audits. The former deals with verification and additional documentation in relation to error corrections, while office audits demand that the tax payer meets with a designated official and presents their financial reports.
In the case of the latter, tax officials visit your place of business and undertake a comprehensive audit of your finances. This is the most renowned type of audit, and one that requires the highest level of preparation from business-owners.
2. Get Your Records in Order
This is the most important part of your preparation, as organising your records and refining your reporting processes helps you to avoid any unnecessary sanctions and fiscal penalties.
More specifically, I’d recommend organising your finances by year and type, as you look to distinguish between income, expenses and pension funds. Also, it’s crucial that you make sure that all relevant records are made available to auditors, as this will expedite the process and contribute towards a more positive results.
To help with your preparation, it may be worth engaging the services of firms such as RSM. They can complete comprehensive and objective audits on your behalf, identifying any potential inefficiencies or discrepancies before you present your records to HMRC.
3. Distinguish Between Intentional and Unintentional Failures
This is also an important consideration, as while all compliance failures are likely to be sanctioned by HMRC, the body is far more likely to be lenient if you’re able to distinguish between intentional and unintentional mistakes.
If you can prove that the lack of records for a specific year is an unintentional oversight, for example, you are more likely to avoid heavy fines and punishing sanctions. Conversely, errors that are thought to be intentional will be met with heavy fines, so it’s imperative that you avoid this at all costs.
Understanding the differences between failures is a key part of your preparation for an external audit, as you look to mitigate any potential issues and the impact that they have on your venture.