What you need to know about HMRC tax investigations

HMRC uses its advanced system to build a complete financial picture of businesses and individuals. If inconsistencies are found, it can trigger a tax investigation. Sometimes, HMRC may contact you or your business randomly. 

Types of HMRC tax investigations 

The two main types of HMRC tax investigations are: 

Aspect enquiry 

An aspect enquiry is when HMRC is concerned about a specific part of your accounts or tax return and needs more detail from you. 

Full enquiry 

A full enquiry occurs when there is a significant risk of error. This prompts HMRC to review your entire tax return or set of accounts. 

What happens during an HMRC tax investigation? 

Here is a step-by-step guide to what happens during an investigation: 

Notification 

First, you will receive a letter explaining the type of investigation and what information they need from you. You can argue against HMRC’s decision to investigate you or your business, but you should not ignore the letter. Responding and co-operating with HMRC, being open and honest, is important. 

Information request 

The letter you receive from HMRC will detail the information it needs from you to examine. Always endeavour to meet HMRC’s deadlines when providing information. We recommend being upfront if there are any unexpected delays. 

HMRC may have asked for all information used to complete your tax return which you should have stored away somewhere. 

Once you provide HMRC with the information it initially requested, it may close the investigation. Alternatively, HMRC may request additional information or liaise with third parties regarding your business operations. 

However, it may be that HMRC needs further information to be satisfied. Communication with HMRC may be via letter, telephone call or it may be easier to have a face-to-face meeting. 

If you do not have the time or ability to cope with the enquiry, you can ask HMRC for extra time to answer their questions. 

Failing to provide the required information to HMRC can result in penalties. These could amount to £300 plus up to £60 per day for each day the information remains outstanding. If you have a valid reason for the delay and provide the information when agreed, HMRC will not charge a penalty. 

What are the outcomes of a tax investigation?

The tax investigation could have one of three outcomes: 

1. No discrepancies found: HMRC may close the investigation with no further action. 
2. Insufficient tax paid: If extra tax is owed, HMRC will request payment of the outstanding amount within 30 days. HMRC may investigate earlier periods, sometimes up to 20 years, to reassess your tax returns. 
3. Too much tax paid: If the taxpayer paid too much tax, HMRC will send the repayment with interest applied. 

To signal closure of the investigation, HMRC will send you a decision notice or contract settlement. You have the right to appeal HMRC’s decision within 30 days of receiving the decision notice. Once a return has been investigated, it cannot be investigated again. 

Duration of tax investigations 

The length of an HMRC tax investigation varies: 

• Aspect enquiry: Typically takes three to six months. 
• Full enquiry: Can take at least one year, often averaging more than 18 months. 

Most communication with HMRC will be via post, email, and telephone. Meetings can also be requested, which, although daunting, can save time and shorten the investigation. 

How TaxAssist Accountants can help 

At TaxAssist Accountants, we have access to an expert in tax investigations should the enquiry be more complex and look as it will be a long and drawn-out investigation.  

This provides peace of mind that the investigation will be dealt with on your behalf, limiting the concern and stress of spiralling additional fees. 

If you wish to learn more about our services,  you can arrange a free initial consultation with us today on 01274 396994. Alternatively, you can use our contact form to outline your position as a self-employed sole trader or business and we’ll do the rest. 

Date published 10 Jun 2024 | Last updated 20 Jun 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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