Updated on 7 February 2019

Tax basics

This guide will help you if you are the subject of an enquiry by HM Revenue & Customs (HMRC). You should be aware that you have rights and must be treated fairly. In this section we will help you understand the process and your rights. We then provide detailed sections, exploring enquiries that can arise from your tax return or from a tax credits claim. In either case, this may result in a further enquiry being opened into your tax credits claim or Self Assessment tax return respectively. 

If you are self-employed, in addition to this section, you should also look at the page in the self-employment section, which includes information on specific issues you might face in relation to information you might be asked to provide, proposed changes to your figures and the costs of an enquiry.

In all your dealings with HMRC, remember that you have rights as well as responsibilities. These are set out in ‘Your Charter’, which you can find on GOV.UK.

Basic information on enquiries

What is an enquiry?

It may be called an enquiry, an investigation, an intervention or a check. Basically, it means that HMRC are going to ask you some questions and possibly look at some of the documents you have used or will use to complete your tax return or tax credits claim. HMRC have the right to ask to see information or documents that they reasonably require for the purpose of checking your tax position. The various steps of an enquiry are explained in more detail below in the section Enquiries in more detail

What is the difference between an aspect and a full enquiry?

An aspect enquiry looks at only one or a few specific areas of your tax affairs whereas a full enquiry reviews all matters.

Can an enquiry happen before I have sent in my tax return?

Not usually.

How can I find out why I have been chosen for an enquiry?

You may have been chosen at random. HMRC believe that carrying out some random checks encourages everyone to deal with their tax affairs properly.

Alternatively, HMRC might believe that there is an error in your tax return or that the income you are showing does not appear to support your lifestyle.

Normally, you will not be told why you were selected for enquiry.

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I do not think I can deal with an enquiry just now

I have done nothing wrong. Can I ignore this?

No, you must deal with it or HMRC may believe you are hiding something and take extra steps to obtain more information.

I do not have time to deal with this just now. Can I ask them to deal with someone else now and look at my records next year?

You can approach HMRC to explain your current circumstances. In most cases they will be prepared to give you extra time to answer their enquiries, but they will still proceed.

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Special rights you have in an enquiry

Article 6 of the European Convention on Human Rights (the Human Rights Act) gives you special rights because although tax errors and penalties are not normally considered to be criminal offences in the UK, they could be so considered in Europe. This is the case where penalties are substantial and are due to dishonest or reckless conduct.

What are these extra rights I am given under the Human Rights Act?

  • You have the right to a fair trial by an independent and impartial tribunal;
  • You have the right to be presumed innocent until proved guilty;
  • You may have the right to free legal assistance by either legal aid or public funding where you have not sufficient means to pay for your own representation, and where the interests of justice demand it. HMRC should provide you with a leaflet on this. You can find this leaflet on GOV.UK.
  • You also have a right to privacy and any intervention by HMRC must be proportionate to the nature of their enquiry. In other words, they must take account of the costs of dealing with any questions they raise during an enquiry.

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Enquiries in more detail

The detailed sections below give information on some of the issues you might face if HMRC enquire into your tax affairs or your tax credits claim.

What is a stand-alone Self Assessment enquiry?

Generally, this is an enquiry into your Self Assessment tax return alone.

It is very important that you do not finalise and agree any figures in a stand-alone enquiry without understanding the possible implications for your tax credits claim that was not part of this enquiry.

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Information you may be asked to provide

HMRC have the right to ask for information and/or documents that may reasonably be required to enable them to check your tax return. This may include bank statements, invoices, receipts etc. If you think you are being asked for records which are unreasonable, for example you run a self-employed business and you are asked for your spouse’s bank statements, you should ask HMRC why they think they are relevant to the enquiry.

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Proposed changes to figures in your tax return

The HMRC officer has changed various figures in my tax return, resulting in a much higher taxable income figure. What can I do?

You should consider whether the figures presented to you are in agreement with your records and memories.

Stay calm and rework the figures yourself, if necessary.

Now that I have reviewed things, I think my taxable income may be significantly understated. What do I do now?

You should consider whether you need to take professional advice. If you decide to do this, make sure you let them deal with HMRC on all matters relating to the enquiry, although you should have input to any responses your advisers make on your behalf. Also be aware that this may lead to enquiry into any tax credits claim you might have made.

Note that any adjustments to your position may affect any claim you have made for tax credits.

Any additional tax due will attract interest and possibly penalties.

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The enquiry is not finished but it looks like there will be extra tax to pay. When should I pay it?

Making a payment on account as soon as possible will minimise any interest charge and also demonstrate your commitment to cooperating fully with HMRC. Any payment you make should be on a voluntary basis and without legal obligation so that it may be repaid if you change your mind. You can pay in any of the ways you would normally pay Self Assessment tax, as described on GOV.UK.

You should also speak, or write, to the HMRC team dealing with your enquiry to let them know you are making or have made the payment so they can note on your records that the payment should be treated as a payment on account towards settlement of the enquiry. Keep a copy of your letter, or a note of the telephone conversation (including date, time, to whom you spoke and what was said).  

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Costs of enquiry

My enquiry has now finished. What about all the costs I have had to pay to let me answer the questions raised by HMRC?

If there is no further tax to pay, then you will not be able to recover your costs from HMRC unless you can show that they acted outside their own guidelines (see below) or made a mistake. If you think this applies, you will need to make a complaint. 

How do I know if HMRC acted outside their own guidelines?

You should refer to HMRC leaflet CC/FS1a, and also Your Charter, both of which are available on GOV.UK.

How do I complain?

You can complain either by telephone or in writing, depending on the type of complaint. Make sure you have all your facts to hand so that your complaint can be presented in a logical way. You can find out more in our complaints section and on the GOV.UK website.

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Unable to agree with HMRC

I cannot agree with HMRC, how do I take the case further?

You could try out HMRC's Alternative Dispute Resolution service.

Alternatively, you must make a formal appeal to the First Tier Tribunal to have the enquiry closed. Before you do this, make sure you are comfortable that you will obtain a better outcome than coming to a compromise agreement with HMRC. You may obtain a worse result at the Tribunal if you have incomplete records and have been unable to satisfy HMRC of the levels of your private income and expenditure.

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HMRC are now opening up earlier tax years to try to make adjustments. Can they do this?

While HMRC are within the period when an enquiry may be opened, normally one year from when the relevant tax return was submitted, they can do so using the normal procedure.

If they are now outside this time limit, they can only open earlier years by means of discovery assessments.

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What is a discovery assessment?

This is an estimate made by HMRC of your profits for earlier years. Such an assessment can only be issued where HMRC have reason to believe you have acted carelessly or have deliberately misstated your accounts. This might be because they have found significant errors in accounts that are already under enquiry. Such discovery assessments may only be issued within six years of the end of the year of assessment where there has been careless behaviour, or within four years if there was no careless behaviour, but can be issued within 20 years if the behaviour was deliberate.

The Government are in the process of legislating for longer time limits (up to 12 years) to apply where the unpaid tax as a result of an offshore matter or offshore transfer, irrespective of whether or not there was careless behaviour. LITRG have campaigned against this and our concerns have been backed by the House of Lords. Please see our response to the Government’s consultation for more information.

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What if HMRC check my tax credits claim?

Read our separate page on tax credits checks.

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