HMRC Compliance Checks and Tax Investigations

1. What can trigger an HMRC check?

HMRC does not publish a complete risk-trigger list. Checks can arise from information it already holds, third-party data, inconsistencies between returns, unusual movements, sector risks, disclosures or routine compliance activity.

A check does not automatically mean HMRC has concluded there has been deliberate underpayment.

2. What happens when a check starts?

HMRC normally writes to the taxpayer or agent, explains the scope and asks for documents, records or explanations. The letter will usually contain a response deadline.

In some cases HMRC may issue a formal information notice where it has statutory power to require information or documents.

• Bank statements
• Invoices and receipts
• Bookkeeping and payroll records
• VAT records
• Contracts and transaction explanations
• Evidence supporting reliefs or claims

3. Your rights during a compliance check

You can usually appoint a professional adviser to deal with HMRC. You can ask HMRC to explain the scope of the check and why requested information is relevant.

Formal information notices and certain HMRC decisions can carry rights of appeal or review.

4. What happens if HMRC finds an error?

If additional tax is due, the final amount can include tax, interest and potentially penalties. Penalties depend on the facts, including taxpayer behaviour and the quality of disclosure and cooperation.

HMRC broadly distinguishes reasonable-care cases from careless, deliberate and deliberate-and-concealed behaviour, with more serious behaviour potentially leading to higher penalties and longer assessment periods.

5. Can penalties be reduced?

The timing and quality of disclosure can matter. Telling HMRC about an error, helping quantify it, providing access to records and cooperating with the check can affect the penalty position within the statutory framework.

Do not make unsupported admissions simply to appear cooperative; the factual and legal position should be understood first.

6. How long can HMRC look back?

There is no single look-back period for every case. Time limits depend on the tax, behaviour involved and whether certain offshore matters apply.

Careless or deliberate behaviour can result in longer assessment periods than ordinary cases.

7. What should you do when HMRC writes?

Start by understanding the exact scope, preserve records and reconcile the numbers. Respond to the question HMRC asked rather than flooding the case officer with irrelevant material.

If more time is genuinely required, engaging with HMRC before the deadline is normally better than simply missing it.

• Read the letter carefully
• Identify the tax and years involved
• Record every deadline
• Preserve relevant records
• Reconcile the return to source documents
• Consider representation if amounts or behaviour questions are material

8. Common mistakes during an HMRC check

Frequent problems include sending large volumes of irrelevant information, replying before reconciling the figures, missing deadlines, giving inconsistent explanations and treating a formal information notice as an informal request.

Another mistake is assuming every discrepancy automatically creates a penalty. Penalty treatment depends on why the error arose and how the taxpayer responds.