Preparing for a tax audit can feel demanding, but it does not have to disrupt your routine if you plan properly. HM Revenue & Customs (HMRC) may carry out checks to confirm the accuracy of your returns or the validity of tax reliefs. These checks can apply to both personal and business matters, and they remain an important part of the tax audit system. Below, we outline how to prepare for an audit, what to expect, and how to address common issues.

The details in this blog reflect the 2024/25 tax year, where personal allowances and thresholds have largely remained consistent, including the frozen personal allowance of £12,570 and the higher rate threshold at £50,270.

 

Understand the audit process

HMRC usually notifies you by letter, although some initial contact may come by phone or email. Notification letters outline the scope of the tax audit, which can range from a simple check on one aspect of your return to a more detailed examination.

• Scope of checks: HMRC may investigate one issue (for example, business expenses) or conduct a broader review of your records.
• Response times: You will find instructions on how to respond and by when. Quick and organised communication usually leads to a more straightforward review.

According to HMRC’s annual report, they secured around £30.8bn in additional tax revenue in 2021/22 through compliance activities. This highlights the importance of maintaining proper records and addressing any audit requests promptly.

 

Organise your records in advance

Comprehensive and accessible documentation is the strongest line of defence during an audit. You should keep both digital and physical copies of records such as:

• invoices for sales and purchases
• receipts for expenses
• payroll details, including PAYE records
• VAT returns and associated documents (if applicable)
• bank statements and credit card statements.

Avoid waiting until the audit notification arrives to begin sorting files. Instead, develop a consistent process throughout the tax year. If your business uses accounting software, check that data is backed up regularly. If you maintain paper records, confirm you can access them quickly when required.

 

Communicate promptly with HMRC

Respond swiftly to any HMRC correspondence to show that you take the process seriously. When HMRC requests documents, check the exact details and supply accurate information. If you think a deadline is too short, you can contact the officer in charge to see if you can agree on an extension. Clear communication reduces confusion and allows you to maintain a professional relationship with HMRC.

Seek professional guidance

You can handle some audits on your own, but bigger or more technical ones may benefit from expert support. Accountants and tax advisers will have detailed knowledge of HMRC rules and can help you draft a robust response. At Venthams, we offer a range of tax compliance and advisory services. Learn more about our services here. We will be able to advise if you should consider contacting a tax barrister if the matter involves points of law or potential disputes.

Professional guidance is also helpful if you believe that an inquiry might escalate. While most reviews focus on misunderstandings or errors, complex cases may involve higher-level investigations. Having an accountant or lawyer ready to explain your records can prevent unnecessary tension or extended reviews.

 

Avoid common pitfalls

HMRC looks for clarity and consistency in your data. Although every business is different, these mistakes often lead to challenges during audits.

1. Incorrect expenses: Ensure you claim only allowable business expenses. Private use of vehicles or property must be handled carefully, with any personal element excluded from business expenses.
2. Underreported income: If you have multiple income streams – such as consulting, rental income or overseas income – make sure you account for all earnings in your tax return.
3. Overstated reliefs: Double-check that you claim all reliefs accurately. This is especially relevant if your personal circumstances change during the tax year.
4. Weak record-keeping: Missing or illegible records create doubt. If HMRC asks for proof and you fail to supply it, they may make their own estimates or assess penalties.

 

Keep stress levels low

An audit can feel daunting, but there are ways to remain composed.

• Stay methodical: Break the process into manageable tasks. Supply HMRC with information in a logical order. Label documents clearly so you can retrieve them quickly.
• Limit confusion: Reply directly to each of HMRC’s questions. If you are unsure about an item, flag it and seek advice before you respond.
• Stay realistic: HMRC may request extra documents or clarifications, and that is not unusual. Provide what they need or ask for help if you are unsure.
• Keep advice close: If you have an accountant or adviser, stay in touch and discuss any new issues as they arise.

 

Know your rights and responsibilities

You have the right to be treated fairly by HMRC, and you also have the responsibility to supply complete and accurate information. If you suspect an error in your returns, you can disclose it voluntarily to reduce potential penalties. HMRC’s compliance checks factsheet explains how this process works.

 

Stay updated on tax regulations

The 2024/25 tax year has seen minimal changes to the main thresholds, but you should still monitor any announcements that could affect allowances, business reliefs or corporate tax rates. If you are uncertain whether new rules apply to you, seek guidance before your records are called into question.

On the corporation tax side, the main rate stands at 25% for profits over £250,000. A small profits rate of 19% still applies for profits of £50,000 or less, with marginal relief for those in between. Verify how these rates affect your business and keep track of your calculations. If you run a limited company, you can also visit the Companies House pages to learn more about filing requirements, deadlines and updates.

 

Plan ahead with professional support

We help our clients prepare for any HMRC inquiry by reviewing their financial data ahead of time. This includes evaluating record-keeping practices, identifying gaps and suggesting improvements. Our experience in tax matters means we can guide you every step of the way. Contact us at Venthams to discuss how we can support you, whether you are expecting a tax audit or simply want to ensure that your records are in good order.

 

Where do we go from here?

Effective audit preparation boils down to clear record-keeping, consistent communication and a solid plan for seeking expert advice when needed. Although an audit can seem stressful, you can reduce the strain by staying organised and proactive. Complete and accurate records give HMRC the information they need and protect you from misunderstandings that might lead to penalties.

If you would like tailored support in handling a tax audit, speak to our team to see how we can help. Let us handle the technical aspects so you can focus on day-to-day business needs.