HMRC Tax Enquiry: A Guide to Compliance Checks

An HMRC tax enquiry is a formal examination of a tax return to check that the correct amount of tax has been calculated and paid. If you receive an opening notification letter, you can manage the process by understanding key statutory boundaries, standard procedural timelines, and your legal rights to challenge HMRC decisions. Receiving an enquiry notice does not mean you are accused of fraud, as many compliance checks are selected at random or through risk-based algorithms.

Key takeaways

• Enquiry Triggers and Basis: Compliance checks are opened under statutory provisions such as section 9A of the Taxes Management Act 1970 for individual Self Assessment returns.
• Strict Time Limits: For on-time tax returns, HMRC must open its enquiry within 12 months of the date the return was filed.
• Information Powers: HMRC can issue a formal Schedule 36 notice under the Finance Act 2008, carrying an initial £300 penalty and £60 daily fines for non-compliance.
• Culpability Penalties: Underpaid tax penalties scale relative to behavior, ranging from 0% for simple mistakes up to 100% (or 200% for offshore assets) for deliberate concealment.
• Taxpayer Safeguards: You maintain the right to professional representation, statutory reviews, first-tier tribunal appeals, and formal closure applications.

HMRC has opened an enquiry — what happens during an investigation?

During an HMRC tax enquiry, officials examine your records to confirm you declared the correct tax liability.

The statutory framework for inspecting tax returns is strictly defined. For individual Self Assessment returns, HMRC acts under section 9A of the Taxes Management Act 1970. For partnership tax returns, the authority is governed by section 12AC of the Taxes Management Act 1970.

Receiving a notification letter does not carry automated criminal or fraudulent accusations. Many investigations are initiated due to simple data mismatches, unusual expense claims, or completely random automated choices.

What is an HMRC enquiry?

An HMRC enquiry, formally termed a compliance check, is an official review of tax returns and supplementary documents conducted to assert that a taxpayer paid the correct amount of national insurance and tax. It represents a structured, legal audit used by the state to protect tax revenues and identify accounting errors.

Different types of reviews target specific areas of your financial affairs. The common categories are evaluated below:

What are the 5 stages of an HMRC tax enquiry?

The tax enquiry process moves through five distinct regulatory phases, starting from initial contact through to the final determination of liabilities.

1. The Opening Notice and time limits

Every check begins with a formal written notice advising you that an enquiry is open. If you submitted an on-time tax return, the statutory time limit for HMRC to open an enquiry is 12 months from the exact date the return was filed.

For returns filed late, the rules shift to the next-quarter-day system. The statutory deadline for HMRC to launch its review extends to the first quarter day (31 January, 30 April, 31 July, or 31 October) following the first anniversary of the day the late return was actually submitted.

2. Information gathering and Schedule 36 notices

HMRC will request information, starting with informal requests for invoices, bank statements, or receipts. If a taxpayer does not cooperate voluntarily, HMRC holds statutory power to issue a formal information notice under Schedule 36 of the Finance Act 2008.

Failing to follow a Schedule 36 notice attracts an immediate static financial penalty of #300. If non-compliance persists, HMRC can impose progressive daily fines of up to #60 per day.

3. Review, correspondence and HMRC meetings

Officers examine your documents and may ask to meet in person to discuss business records. Taxpayers should ensure all material responses and general communication remain in writing to prevent verbal misunderstandings.

You are free to decline optional in-person meetings. Keeping written files creates a permanent ledger that protects your arguments from being mischaracterized during discussions.

4. Penalty assessment and negotiating a settlement

If HMRC identifies underpaid tax, they will calculate penalties in addition to the base tax and statutory interest. The penalty percentage is directly correlated with the taxpayer's behavior and whether disclosure was prompted or unprompted.

5. Formal closure under s.28A TMA 1970

An enquiry is finished when HMRC issues an explicit written notice of closure. For individual returns, this is governed under section 28A of the Taxes Management Act 1970.

The closure notice details the final calculation of tax owed, interest due from the original due date, and agreed penalties. If the check concludes that no errors occurred, the closure notice confirms the case is settled with no adjustment needed.

What is the difference between COP8 and COP9 investigations?

Code of Practice 8 and Code of Practice 9 represent specialized, high-level specialist tax investigation tracts used for serious non-compliance.

HMRC applies Code of Practice 8 when there is a suspicion of complex tax avoidance, artificial schemes, or structures designed to reduce tax liabilities. COP8 investigations do not begin with an active suspicion of criminal fraud, but focus on recovering the underlying tax.

HMRC implements Code of Practice 9 when they suspect serious civil tax fraud. Under COP9, the taxpayer is offered a structured Contractual Disclosure Facility which grants protection from criminal prosecution if they make a complete, honest disclosure of all tax irregularities within 60 days.

What are my statutory rights during an HMRC enquiry?

UK tax legislation provides you with clear taxpayer safeguards throughout the examination.

• Right to representation: You can legally appoint a qualified accountant or tax adviser to communicate with HMRC on your behalf.
• Right to appeal notices: Taxpayers can challenge formal Schedule 36 information notices if the requested items are not reasonably required.
• Right to apply for closure: You can apply to the independent First-tier Tax Tribunal for a direction ordering HMRC to close an enquiry under section 28A of the Taxes Management Act 1970.
• Right to Statutory Review: Under section 49A of the Taxes Management Act 1970, you can ask an independent officer within HMRC to review a decision.
• Alternative Dispute Resolution: Taxpayers can initiate ADR to resolve administrative standoffs with a neutral HMRC facilitator.
• Right to complain: You can escalate complaints about unfair treatment to the independent Adjudicator’s Office, and then to the Parliamentary and Health Service Ombudsman.

Practical advice for managing an HMRC investigation

Managing a tax investigation requires proactive risk control to avoid widening the scope of the check.

Instructing an experienced accountant early ensures communications are handled objectively. Do not over-disclose or voluntarily provide additional documents not requested; volunteering extraneous records can initiate extra lines of questioning.

If you realise an error was made on your return, bringing it to light with a voluntary disclosure early lowers potential penalty percentages. Keep all questions and responses strictly in writing to maintain a precise legal record of the discourse.