Directors Paul Young and Eammon Curley thought they were being clever when they diverted sales revenue from their meat company, E & P Catering Butchers, away from the books to create a tax loss of £125,720.
But the judge at Coventry Crown Court, who sentenced them to 10 months in prison and a confiscation order of £325,084 last year, didn't take the same view. "You used taxpayers' money to fund the growth of the business," he told them.

Only a tiny minority of directors set out to defraud the system. But many more will fall foul of tax inspectors because they've failed to take enough care in making company tax returns. The end of the tax year in April is always a good time to take stock.

"You have to make sure all monies have been taxed appropriately," says Stuart Gerber, a tax investigations partner at accountants BDO Stoy Hayward. "In smaller companies, you often find directors regard the company as their own little moneybox. Monies come out, which slip through the tax system."

Small and medium-sized enterprises (SMEs) are not yet in the same category as the UK's 2,500 largest companies, which are now subject to a stiff, risk-based approach to tax assessment. But even in SMEs, tax inspectors are on the lookout for tell-tale signs that they should open an enquiry into the company tax return. "I am sure they do look at each case and assess the risk," says Richard Proctor, a tax partner at accountants Grant Thornton. "They want to know how much tax is potentially at risk and enquire into the ones they regard as high risk."

There are seven ways directors can reduce the chances of their company being targeted for an investigation by tax inspectors (see: Stay out of trouble: seven ways to keep the tax man happy). But if a company does get an unwelcome knock on the door, Gerber recommends getting professional help straight away.

"Some issues will be black and white but some will be grey—and it's the grey ones that can be interpreted differently," he points out.

A tax specialist can argue the toss with inspectors on questions such as whether a particular cost was a company expense or a "benefit in kind" for directors, and whether a "consultant" was really an employee.
When building a young business, tax often falls down the list of directors' priorities. "They need a professional financial controller who understands tax issues," says Gerber.

It's the best way to ensure a director doesn't become an April tax fool.