HMRC Compliance Checks and Tax Enquiries: Frequently Asked Questions

Receiving a letter from His Majesty’s Revenue and Customs (HMRC) explaining that it has opened a compliance check can be worrying. You may be unsure why you have been selected, what information HMRC can request, how long the enquiry will last or whether penalties will be charged.

An HMRC compliance check does not automatically mean that you have done anything wrong. However, how the check is handled from the outset can significantly affect its scope, duration and outcome.

This guide answers some of the most frequently asked questions about HMRC compliance checks and tax enquiries.

What is an HMRC compliance check?

A compliance check is an examination by HMRC to establish whether an individual or business has paid the correct amount of tax.

HMRC may examine:

Self Assessment tax returns;
Company Tax Returns;
Value Added Tax (VAT) returns;
Pay As You Earn (PAYE) and National Insurance contribution records;
business accounts and tax computations;
property income;
capital gains;
employment status;
Research and Development (R&D) tax relief claims;
overseas income, assets and gains; or
claims for expenses, allowances and tax reliefs.

HMRC’s general explanation of the process can be found in its guidance on tax compliance checks.

Is a compliance check the same as a tax investigation?

“Compliance check” is the general term used by HMRC for work undertaken to check a person’s tax position. Depending on the circumstances, it may range from a relatively narrow enquiry into one entry on a return to a detailed investigation covering several taxes and accounting periods.

Although HMRC may call it a compliance check, it should still be treated seriously. The questions asked, the records requested and the wording used by the officer can indicate whether HMRC has wider concerns.

Why has HMRC selected me or my business?

HMRC does not always explain why a case has been selected.

A compliance check may arise because:

figures on a return appear unusual;
information does not match data held by HMRC;
HMRC has received information from a third party;
there are inconsistencies between different tax returns;
the business operates in a sector regarded as presenting a higher tax risk;
HMRC believes income or gains may not have been declared;
a claim, repayment or tax relief requires verification;
HMRC has received information about overseas assets or income; or
the return was selected as part of a random compliance programme.

HMRC receives information from numerous sources, including banks, employers, online platforms, government departments, overseas tax authorities and other individuals or businesses.

Does an HMRC enquiry mean that HMRC suspects fraud?

No. Many compliance checks concern errors, misunderstandings or requests for evidence supporting figures in a tax return.

However, where HMRC suspects deliberate behaviour or tax fraud, the matter may become more serious. HMRC may consider using:

Code of Practice 8, where it suspects deliberate tax avoidance or complex tax loss;
Code of Practice 9 and the Contractual Disclosure Facility, where it suspects tax fraud; or
a criminal investigation in the most serious cases.

You should obtain specialist advice immediately if HMRC mentions deliberate behaviour, fraud, Code of Practice 8, Code of Practice 9 or the Contractual Disclosure Facility.

What should I do when I receive a compliance check letter?

Do not ignore the letter or respond hastily.

The first steps should normally be to:

Check the response deadline.
Identify the tax, return and accounting periods being examined.
Establish the statutory basis for the enquiry.
Preserve the relevant records and correspondence.
Review the return and supporting documents before answering HMRC.
Consider whether there are any errors or wider issues that need to be addressed.
Obtain specialist advice where the matter is material, complex or potentially contentious.

A response should be accurate and cooperative, but it should also remain focused on information that is reasonably required for the check.

Should I contact HMRC by telephone?

A telephone call can sometimes clarify a simple administrative point. However, substantive explanations are usually better provided in writing after the facts and records have been reviewed.

An unprepared telephone conversation can create misunderstandings or lead to incomplete statements being recorded as part of HMRC’s evidence. If HMRC asks to discuss technical or sensitive matters by telephone, consider obtaining advice before agreeing.

Can an accountant or tax adviser deal with HMRC for me?

Yes. You can appoint an authorised tax adviser to correspond with HMRC and represent you during the check.

HMRC’s own guidance confirms that a taxpayer may have an accountant or legal adviser present during a compliance visit. Specialist representation can be particularly valuable where:

HMRC alleges deliberate behaviour;
significant tax is potentially at stake;
several years or taxes are involved;
HMRC requests personal bank statements;
the enquiry concerns overseas assets or income;
penalties may be charged; or
communication with the HMRC officer has become difficult.

The taxpayer remains responsible for ensuring that information supplied to HMRC is complete and accurate.

What information can HMRC request?

HMRC can ask for information and documents that are reasonably required to check the taxpayer’s tax position. This could include:

accounts and bookkeeping records;
invoices and receipts;
contracts and agreements;
bank and credit card statements;
payroll records;
till and point-of-sale records;
mileage and expense records;
calculations supporting claims or reliefs;
property records;
emails and correspondence; and
explanations of particular transactions.

The precise extent of HMRC’s powers depends on the type of check and the legal basis of the request.

A request should be reviewed carefully. It may be appropriate to ask HMRC to explain why particular documents are reasonably required, especially where the request is very broad, relates to another person or covers periods outside the enquiry.

Must I provide personal bank statements?

Not automatically.

HMRC may request personal bank statements where it has a reasonable basis for believing they are relevant to the tax position being checked. For example, HMRC may want to examine whether business receipts were paid into a personal account or whether unexplained deposits represent taxable income.

The relevance and scope of the request should be considered before documents are supplied. Personal transactions that have no bearing on the tax position may require appropriate explanation or careful handling.

Refusing a valid request without proper grounds can escalate the enquiry, so specialist advice should be taken before challenging it.

What is an HMRC information notice?

HMRC may initially request information informally. If the requested information is not supplied, or HMRC considers a formal notice necessary, it may issue an information notice under Schedule 36 to the Finance Act 2008.

Failure to comply with a valid information notice can result in penalties. However, depending on the circumstances, the taxpayer may have a right of appeal against the notice or particular requirements within it.

The validity, scope, relevance and deadline of an information notice should be reviewed promptly.

Can HMRC visit my business premises?

HMRC may ask to visit business premises, a taxpayer’s home or an adviser’s office. A visit may be used to inspect records, understand how the business operates or examine business assets and systems.

You do not have to agree immediately to every proposed visit or meeting. Before the visit, it is sensible to establish:

its purpose;
who will attend;
which records HMRC wants to inspect;
which areas of the premises HMRC wishes to see;
whether attendance is voluntary or based on a formal power; and
the issues HMRC intends to discuss.

A professional adviser may attend and help ensure that the meeting remains relevant and properly documented.

Should I attend a meeting with HMRC?

There can be advantages to meeting HMRC where factual explanations are best provided directly. However, the meeting should be properly prepared.

Before attending, you should understand:

HMRC’s concerns;
the likely questions;
the relevant facts and documents;
any inconsistencies or errors;
who will answer each subject; and
whether a written statement would be more appropriate.

HMRC meetings should not be treated as informal conversations. Answers may influence HMRC’s conclusions about tax, behaviour and penalties.

How far back can HMRC investigate?

The answer depends on the relevant tax, the type of enquiry and the taxpayer’s behaviour.

HMRC normally has a statutory period in which to open an enquiry into a return. If that period has expired, HMRC may still consider making a discovery assessment where the legislative conditions are satisfied.

Broadly, assessment time limits may extend to:

four years where there has been an ordinary tax loss;
six years where the tax loss was caused by carelessness;
twenty years where the tax loss was caused deliberately; and
in certain offshore cases, twelve years even where deliberate behaviour is not alleged.

These rules are subject to detailed conditions and do not give HMRC an unrestricted right to assess earlier years. Any attempt to assess an older period should be checked carefully against the relevant statutory requirements.

How long does an HMRC compliance check take?

There is no standard duration. A straightforward check may be concluded within a few months, while a complex investigation can continue for several years.

The timescale can be influenced by:

the number of taxes and periods involved;
the quality of the available records;
the speed of responses from both parties;
the complexity of the technical issues;
whether HMRC expands the scope of the enquiry;
whether third-party information is required; and
whether the case proceeds to a review, Alternative Dispute Resolution (ADR) or appeal.

If HMRC appears to be delaying matters or repeatedly raising unfocused questions, it may be appropriate to request a clear explanation of the remaining risks and a timetable for concluding the check.

Can I ask HMRC to close the enquiry?

Yes. If you believe HMRC has sufficient information and there is no reasonable basis for continuing, you can ask the officer to close the enquiry.

In some direct-tax enquiries, it may be possible to apply to the First-tier Tribunal for a direction requiring HMRC to issue a closure notice. Whether that is appropriate will depend on the type of enquiry, the information already supplied and whether HMRC can demonstrate reasonable grounds for continuing.

What happens if I discover an error during the check?

The position should be reviewed before making an admission or submitting revised figures.

Where an error exists, a complete and carefully managed disclosure can help establish the correct tax position and may reduce penalties. The explanation should address:

what went wrong;
which taxes and periods are affected;
how the correct figures have been calculated;
whether other returns are affected;
when the error was discovered; and
what steps have been taken to prevent it happening again.

The timing, quality and completeness of a disclosure can materially affect the penalty outcome.

Will I have to pay a penalty?

A penalty is not automatic merely because HMRC has opened a check.

If an inaccuracy has caused tax to be understated or a claim to be overstated, HMRC will consider the taxpayer’s behaviour. The main categories are:

reasonable care;
careless behaviour;
deliberate behaviour; and
deliberate and concealed behaviour.

Where reasonable care was taken, an inaccuracy penalty should not normally arise. If a penalty is due, the amount may be affected by whether the disclosure was prompted or unprompted and by the quality of the disclosure.

HMRC considers the assistance provided under the headings of “telling”, “helping” and “giving access”. Cooperation is important, but it does not mean accepting an incorrect allegation or supplying information beyond HMRC’s proper entitlement.

Can an HMRC penalty be suspended?

Certain penalties for careless inaccuracies may be suspended if suitable conditions can be imposed to prevent a similar inaccuracy arising in the future.

Suspension is not generally available for deliberate inaccuracies. HMRC should properly consider suspension where the statutory conditions are met; it should not be dismissed simply because the case began as a compliance check.

Will HMRC charge interest?

If additional tax is payable, late-payment interest will normally be calculated from the original due date until payment.

Interest is generally intended to compensate the Exchequer for the delay in receiving tax. It is separate from any penalty and can therefore be charged even where no penalty is due.

If HMRC identifies an overpayment, the taxpayer may be entitled to repayment and, where the legislation provides, repayment interest.

Can I appeal HMRC’s decision?

In many cases, yes. Depending on the decision, you may be able to:

appeal to HMRC;
request a statutory review by an HMRC officer who was not involved in the original decision;
use Alternative Dispute Resolution; or
appeal to the First-tier Tribunal.

Strict time limits usually apply. HMRC’s general guidance on appealing a tax decision explains the main routes available.

What is Alternative Dispute Resolution?

Alternative Dispute Resolution (ADR) uses an HMRC mediator to help the parties identify and resolve areas of disagreement. It can be useful where:

communication has broken down;
the parties disagree about the relevant facts;
HMRC has not fully considered the taxpayer’s evidence;
the enquiry has become unfocused; or
progress towards settlement has stalled.

ADR does not remove the right to appeal and is not suitable for every dispute. Further information is available in HMRC’s guidance on applying for Alternative Dispute Resolution.

Should I deal with the enquiry myself?

You are entitled to deal with HMRC directly. For a narrow request that can be answered from clear records, professional representation may not always be necessary.

Specialist advice should be considered where:

the potential tax exposure is significant;
HMRC is examining several years;
the records are incomplete;
undeclared income or gains may exist;
HMRC alleges careless or deliberate behaviour;
personal liability or company director issues arise;
offshore matters are involved;
HMRC proposes penalties;
the officer requests a meeting or business visit; or
you disagree with HMRC’s technical position.

Early advice can prevent an unnecessarily wide enquiry and ensure that important legal or procedural protections are not overlooked.

How GSC Tax Consultancy Can Help

GSC Tax Consultancy Limited provides specialist support to individuals, companies, partnerships and professional advisers dealing with HMRC compliance checks, tax enquiries and investigations.

Led by Gary Craig, a former senior HMRC tax specialist with more than 25 years’ experience, we understand how HMRC identifies risk, gathers evidence and reaches decisions.

We can:

review HMRC’s opening letter and identify the scope of the enquiry;
assess the underlying tax and penalty risks;
manage correspondence and communication with HMRC;
review information requests and formal notices;
prepare clients for HMRC meetings and attend with them;
reconstruct figures where records are incomplete;
prepare voluntary disclosures;
challenge unsupported allegations of careless or deliberate behaviour;
negotiate tax, interest and penalties;
seek penalty suspension where appropriate;
request closure of an enquiry;
advise on statutory reviews, ADR and Tribunal appeals; and
work alongside your existing accountant or solicitor.

Our approach is practical, evidence-led and tailored to the circumstances. Where tax is properly due, we help clients reach a fair and controlled resolution. Where HMRC’s position is technically or procedurally incorrect, we challenge it robustly.

Have You Received an HMRC Compliance Check Letter?

The early stages of an enquiry often shape what follows. Before responding, it is important to understand why HMRC may be asking the questions, whether the information requested is relevant and whether any wider risks need to be addressed.

Contact GSC Tax Consultancy Limited for confidential, specialist advice about an HMRC compliance check, enquiry or investigation.

GSC Tax Consultancy Limited – tax and business experts.

This article provides general information only and does not constitute tax or legal advice. HMRC enquiries are fact-specific, and professional advice should be obtained based on your individual circumstances.

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