HMRC enquiries & investigations - what to expect

What is an enquiry?

An enquiry is the process whereby HMRC carry out a detailed check into the information on a tax return to ensure it is correct and complete. This check is likely to involve HMRC requesting information, documents and details relating to a tax return, with the aim of ensuring that tax-payers are paying the correct amount of tax.

This process will begin with a letter including a notice from HMRC, advising a tax-payer that an enquiry is being undertaken. The normal timeframe in which a notice must be issued is within 12 months from the day on which the return was delivered, provided the return was submitted on or before the filing deadline and not subsequently amended. HMRC do not have to provide a reason as to why the enquiry is being carried out.

The letter will include a suggested deadline for response, generally around 30 days away, and the response must be in writing.

Why would HMRC enquire into your return, and what are they trying to find out?

HMRC do select a number of returns each year at random for an enquiry, with the numbers of these random enquiries increasing recently. If you hold strong financial and accounting records, this will assist in making an enquiry easier to navigate.

Aside from random enquiries, a number of other factors can be triggers:

• Errors, omissions or inconsistencies in tax returns;
• Business results being an anomaly compared with HMRC’s expectations in a certain trade or sector;
• Large changes from year to year;
• Particular types of trade or business;
• VAT returns leading to repayment claims;
• Or corporates, R&D claims, particularly those resulting in repayments.

The enquiry may be a full enquiry, which checks the return as a whole, or an aspect enquiry, which checks the information on one or more specific areas.

HMRC enquiries do not necessarily need to be a reason to panic, they ultimately aim to confirm the correct tax is being paid. With co-operation and transparency, most enquiries can be resolved with minimum disruption.

What happens at the end of an enquiry?

If HMRC is satisfied that your original tax return was correct, the enquiry will be concluded with no further action required.

If HMRC conclude that there is additional tax to pay as a result of errors or omissions there will also be interest to pay on top of the tax, as it was not paid at the correct time. HMRC may also seek to implement a penalty, depending upon the circumstances.

At the end of an enquiry where an adjustment is requested by HMRC, you have 30 days to appeal the decision.

Where there are minor adjustments required, HMRC will advise you of the reasons for the adjustment, and how it has been calculated. The return will be amended using these figures.

With larger adjustments, HMRC may assume that similar errors occurred in earlier years and may use the presumption of continuity to make adjustments in these other years. If the adjustment arose from a careless error, HMRC can go back 6 years, and if the error was deliberate, 20 years, giving rise to significant liabilities with interest and harsher penalties.

The end of a tax enquiry can present an opportunity to reconsider the way in which business profits are reported in the future, allowing you to take steps to avoid similar issues arising going forward.

How we can help

We have a wealth of trusted and experienced professionals who can help you navigate an HMRC enquiry with the minimum amount of anxiety. Our team know the stress that can be experienced by a tax-payer during an enquiry and can provide our clients with comfort that their tax affairs are in capable hands.

Contact us