How to survive an enquiry by HMRC
This page gives you practical information about how an enquiry is carried out and what happens at the end of it.
What happens at the start of an enquiry?
I have received a letter asking me questions. What do I do?
First of all, do not panic. HM Revenue & Customs (HMRC) might be asking you a question to clarify something they do not understand or to send them some particular documents. For example, if you had recently inherited a lot of money it would be reasonable for HMRC to ask where the funds came from.
Next, set up a folder that will hold all of the letters between you and HMRC relating to the enquiry, including copies of any documents sent (where possible). You should also include any notes of telephone calls you have made, giving dates and the name of the HMRC officer you spoke to. Try and send any information by recorded delivery so you not only have proof of postage, but also of receipt by HMRC.
HMRC use enquiries to make sure that you are paying the right amount of tax. You should normally try to answer the questions they ask and provide the information they ask for. HMRC should only ask for information or documents that are reasonably required to allow them to check your tax position. You can ask the HMRC officer dealing with the enquiry if you are not sure why they are asking a particular question or why they are asking for a particular document.
I have been asked some questions and I have been sent some HMRC leaflets but need more background information on what rights I have. Can you help?
You can find the HMRC leaflets on GOV.UK.
We have produced our own set of leaflets that you may find helpful as ours concentrate on your rights and the safeguards for you that are built into the system. We summarise some of the information from these leaflets below.
This leaflet outlines your rights and safeguards when HMRC give you a formal notice asking for certain information and documents. This includes information on what HMRC may not ask you for and when you have a right of appeal.
This leaflet outlines your rights and safeguards when HMRC give you a formal notice asking for certain information and documents about someone else. This includes information on what HMRC may not ask you for and when you have a right of appeal.
This leaflet outlines your rights and safeguards when HMRC have asked to visit your business premises to inspect those premises and any assets or documents held there. Note particularly that HMRC cannot normally enter your home, unless you invite them. This includes how much notice they have to give you, your rights if HMRC turn up unannounced and HMRC’s responsibilities if they wish to take documents away with them.
This leaflet outlines your right and safeguards when HMRC give you a formal notice that they are enquiring into your Self Assessment tax return. This includes the time limits that apply to HMRC and your rights of appeal.
This leaflet outlines your rights and safeguards when HMRC charge you a penalty. This includes information on what to do if you disagree. You should also read our page on What penalties might I be given?.
What does HMRC expect from me when dealing with my tax affairs?
You can read their expectations in Your Charter on GOV.UK. This document also explains what you should expect from HMRC.
Generally, you should cooperate with them and provide information and documents within the agreed timescales. But that does not mean that you should agree with everything that HMRC say, nor does it mean that you should not challenge HMRC if you think they are incorrect or abusing their powers.
What should I do if I think my tax returns may not be correct?
I deliberately held back some information when I completed my tax return. What do I do now an enquiry has been started?
You should take professional advice as soon as possible. The rest of this section deals with errors that were not deliberate.
I am not sure if the information I gave to HMRC was right or wrong because my records were incomplete. What do I do now HMRC have started asking questions?
As above, you need to take professional advice as soon as possible.
Can you tell me more about tax fraud?
What is tax fraud?
Tax fraud is an intentional act for personal gain at the expense of HMRC. This can be in relation to either tax itself or tax credits.
It means that your deliberate conduct has brought about a loss of tax. This may include:
- taking illegal steps to reduce your tax bill, such as omitting, concealing or misrepresenting information in your tax return;
- participating in the hidden economy and not declaring a whole source of income;
- smuggling goods or generating repayments of tax fraudulently.
HMRC have suggested that I may have committed fraud. Where can I get help?
You should aim to obtain help from a qualified professional, for example members of the Chartered Institute of Taxation.
Further information on choosing a tax adviser or accountant is given on the CCAB website.
What happens during an enquiry?
I have been asked to provide a document, but now realise I made a mistake in my tax return. What do I do?
You need to provide the document and also tell HMRC that you realise now you made a mistake. If there was a reason for this, tell them that as well. For example, you may have simply misread £360 as £630. Being honest and straightforward will help get things resolved as soon as possible with the smallest penalty. HMRC give information about inaccuracy penalties in the factsheet CC/FS7a, including what you can do to reduce any penalty they charge.
I feel threatened by the tone of the letter issued to me. Can I complain?
It depends on what the letter actually says. Sometimes HMRC have to quote certain legislation when they open an enquiry so that they are properly acting within the law. On the other hand, if the letter is rude or demeaning, you can complain.
My tax affairs are under enquiry but HMRC keep taking weeks to reply to me. What can I do?
You are entitled to complain if you feel there is unacceptable delay in dealing with your affairs.
I have been asked to produce documents relating to my home, even though it is owned by my spouse. What should I do?
You should explain to HMRC that the home belongs to your spouse. It may be in your interest to provide the information anyway, if your spouse agrees, if this is relevant to the enquiry. This might be, for example, because you have charged some home expenses in your accounts.
HMRC have asked me to send them a lot of information, but I am about to go on holiday and will not be able to comply with their timescale. What should I do?
You should contact them right away and explain the situation. Suggest an alternative date by which the documents will be made available. You should ensure that any alternative timescale you agree with HMRC is realistic and that you comply with it.
When can HMRC open an enquiry and when can they carry out a check?
An enquiry can only be opened when you have sent in a tax return. You can check the time limits for opening an enquiry in our leaflet Your rights and safeguards 4 – notice of enquiry into return. Broadly, if you filed your tax return on time and made no changes to it, HMRC have 12 months from the date you filed the return in which to open an enquiry. Do not be afraid to challenge HMRC if you believe they are outside the time limit when an enquiry might be opened.
A check can only take place before a return is lodged. So HMRC should be looking at current records rather than those that have been used to prepare a tax return that has already been lodged. HMRC use checks so that they can check how your business records are being kept and make suggestions to you about these, if necessary.
What are the usual stages of an enquiry or check?
1. You will be sent an opening letter.
a. Check that HMRC are within the time limits for opening an enquiry or check.
b. Is the information HMRC asked for reasonable? If not, challenge them, by asking why they think the information is needed to check your tax position.
c. Check you can comply with any timescale for providing information. If you think you cannot meet the timescale, contact HMRC as soon as possible to agree an alternative timescale.
2. Further correspondence
a. If you do not comply with the original informal request for information, you will normally be sent a formal request. This means a penalty might be charged if you do not send in the information in the required timescale.
b. You may be asked to clarify certain matters. If you are unsure how to respond or have made a careless or deliberate error, seek professional help.
3. A meeting may be requested
a. A meeting can substantially cut down the time an enquiry takes. Remember you can request a meeting if you think that would help.
b. Consider whether you want to attend a meeting. Normally attendance will demonstrate to HMRC more cooperation and so may reduce any penalties that might be sought, but you do not have to attend.
c. If you are having a meeting, you may feel more comfortable being accompanied by a friend or adviser, especially as they may be able to take notes for you.
d. You can request the meeting be held at a place of your choice rather than at HMRC offices.
e. Always ask HMRC for an agenda before the meeting, so you can be fully prepared. And ask how long HMRC think the meeting will take.
f. You have a right to privacy, so you do not have to discuss your tax affairs in front of anyone else unless you choose to do so.
4. During and after the meeting
a. Ask HMRC to set out their concerns at the start. This will help you decide whether you think their questions are reasonable.
b. Keep to the agenda. If further matters are raised that do not arise from items already discussed, point this out and ask to get back to the agenda. If, on the other hand, it is something that you can deal with quickly, you may wish to answer, but point out that you are making an exception in answering a point that was not on the agenda.
c. Do not be afraid to say you cannot remember something – this can be as a result of stress at the meeting. You can send on more information later.
d. If you do not understand anything, ask! You can also ask the officer to explain why they want to know something.
e. You can ask for the meeting to be ended at any time or ask for a break. Do not allow yourself to be intimidated.
f. Ask for a copy of HMRC’s notes of the meeting. Check them carefully and compare them to your own. Ask for any mistakes or misinterpretations to be changed.
g. If you disagree with anything in the notes, put your concerns in writing. Also, if on reflection you think any of the information you gave in the meeting was incorrect or incomplete, this is your opportunity to put it right now. Do not delay in correcting any errors if the HMRC notes are delayed.
h. In a simple enquiry, you should have no qualms about signing notes of a meeting.
5. Closing the enquiry
Hopefully you are now in a position to have the enquiry closed with no adjustments, if HMRC have been satisfied by your explanations, or with some agreed adjustments if errors have been found.
Remember you can ask for the enquiry to be closed at any time if you think HMRC are drawing it out unnecessarily.
You should ask HMRC to confirm you have claimed all of the reliefs and allowances you are entitled to.
If HMRC intend to charge you a penalty, you should read our page on tax penalties.
My enquiry is finished and HMRC have sent me a proposed schedule of adjustments. Do I have to agree with this?
No, but normally this will be made up of adjustments that have each been agreed. If you do not agree then HMRC can issue an assessment based on their figures. You will then have to appeal against that assessment to the First-tier Tribunal.
What if I do agree with the proposed schedule of adjustments?
HMRC will then issue you with a contract settlement agreement. It will show the tax payable and will ask you to make an offer to fully settle the tax together with any interest or penalties that might be charged. Normally HMRC will provide you with a guide of the sum that they expect and they should also issue you with a Penalty Explanation Letter. Although interest will be charged automatically, you should check the penalty charged carefully as you are still able to negotiate the penalty position.
I have been asked to sign a statement of assets and liabilities. Do I have to complete this?
This statement shows all of your assets and liabilities at a particular date. If you are married or in a civil partnership it normally includes those of your spouse or civil partner too. You do not have to sign such a statement, but if you refuse HMRC may well think you have something to hide. Take great care when you sign the statement as if it is later shown to be inaccurate, you could be charged higher penalties in the future.
I have agreed all the figures in the contract settlement. When do I pay the tax?
It will be due 30 days after you sign the offer document. If you will not be able to pay the whole sum in that timescale, you should tell HMRC as soon as possible. They may allow you up to six months to make the payment. Of course, the interest charge will increase slightly if you do not pay within 30 days.