–This article was last updated on 8 October 2021-
If your business has been selected for an audit by HMRC, you might be worrying what the next few weeks and months have in store for you. Audits are never much fun and can lead to a whole load of stress for financial departments, managers and company owners. The audit process can also be disruptive for workers, and the process often raises workplace stress levels.
However, an audit by the tax inspector doesn’t need to be such a source of consternation for SMEs. If your business is already prepared for the prospect of an audit, you should find it far easier to survive the process when your company is randomly selected for inspection. We talk you through the important aspects you need to know.
Table of Contents
- What is a Tax Audit?
- Preparing for an Audit
- Using Digital Expense Management Software for Audit Preparation
What is a Tax Audit?
Business audits are thorough inspections of a company’s financial information by professional inspectors from HMRC. The auditors go through every account, expense and payment in forensic detail, to determine if the figures presented by the accounting team are correct and to ensure that all taxes and other obligations are met. Audits are quite rare, especially for smaller companies and sole traders, but you should always be prepared for the possibility your company will be selected.
Audits are likely if your financial reporting has errors which are picked up on, or if there appear to be irregularities in the figures you present. Frequent mistakes in tax returns, late filing of accounts or higher than average expenses are all red flags for the auditors. However, you don’t have to do anything wrong to be selected for a spot check: HMRC often pulls out companies at random and orders an inspection.
Preparing for an Audit
If you have been made aware that your company will be audited, you might face an uphill struggle to get your accounts in order and ensure everything is above board. Mistakes and errors are far harder to fix on a tight deadline, you could lose many working hours trying to remedy your accounts before the inspection.
It is always better to be prepared well in advance, so you don’t find yourself scrambling to find lost receipts while the auditors are knocking at the door. SMEs are advised to store a minimum of six years’ worth of financial records, just in case an audit is ordered.
One of the easiest ways to prepare for an audit – even if there is no such inspection on the horizon – is to keep meticulous accounts and expense records. Digital expense management is an increasingly popular way of ensuring that all company expenses are properly tracked and recorded.
Using Digital Expense Management Software for Audit Preparation
Expense management applications are invaluable to business owners because they take the worry and stress out of expense recording, they make the process of a potential audit easier for everyone concerned. Receipts can be stored digitally, so there is no need to locate paperwork from years ago, and managers can be held accountable for the approval of every expense transaction. Those transactions can easily be traced back to the employee. The software will also offer full financial reporting in seconds, so you know you have accurate figures to present to HMRC.