Understanding HMRC enquiries

HMRC can open an enquiry into your company's tax returns to check they're accurate. Some enquiries can develop into more serious investigations.

Understanding the process and your rights helps you respond appropriately and minimise stress and cost.

Types of HMRC enquiries

What triggers an enquiry?

• Random selection - some returns selected for compliance checking
• Risk assessment - HMRC's systems flag unusual patterns
• Third-party data - discrepancies with information from banks, employers and similar sources
• Industry campaigns - targeted sectors identified for checking
• Informants - tips from former employees or competitors
• Previous issues - history of errors or late filing

Time limits for enquiries

Understanding the windows

Normal enquiry window: If you file a Self Assessment or Company Tax Return on time, HMRC usually has 12 months from receipt to open an enquiry. After that, the return is normally final. VAT returns have no enquiry window.

Discovery assessments: Even after the enquiry window closes, HMRC can make "discovery" assessments if they find something was wrong. The time limits depend on behaviour:

• 4 years - innocent error
• 6 years - careless error
• 12 years - offshore matters
• 20 years - deliberate error

Important: HMRC can make a discovery assessment if the error was careless or deliberate. Otherwise, it must show that the information you gave could not reasonably have made it aware of the error.

Penalties for errors

Reducing penalties

Penalties can be reduced based on your behaviour:

• Telling (disclosure) - did you tell HMRC about the error?
• Helping - did you help HMRC calculate what's owed?
• Giving access - did you provide documents and information?

Unprompted vs prompted: Lower penalties if you disclose before HMRC asks. If HMRC discovers the error first, penalties are higher.

Suspension: Penalties for careless errors can be suspended for up to 2 years if you agree conditions (for example, improved record-keeping). If you comply, the penalty is cancelled.

Code of Practice 9 (COP9)

COP9 is HMRC's process for investigating suspected serious tax fraud.

If you receive a COP9 letter

Get specialist advice immediately. COP9 cases are serious - HMRC believes you have deliberately evaded tax and is offering an alternative to criminal prosecution.

The Contractual Disclosure Facility (CDF) offer means:

• If you make a complete and accurate disclosure, HMRC will not pursue criminal investigation
• You'll pay the tax owed plus interest and penalties (up to 100% of the tax, or more where offshore matters are involved)
• If you decline or make incomplete disclosure, criminal investigation may follow

60-day deadline: You have 60 days to accept or decline the CDF offer. Do not delay seeking advice.

Your rights during enquiries

Working with HMRC

• Respond promptly - delays extend the enquiry and may suggest non-cooperation
• Be accurate - double-check responses before sending
• Keep records - document all communications
• Ask for clarity - if you do not understand a request, ask HMRC to explain
• Get advice - consider professional representation for complex enquiries
• Request closure - if HMRC is taking unreasonably long, you can apply to the tribunal for a closure notice

The appeals process

Choosing your route

Statutory review:

• Free - no tribunal fees
• Fresh look by different HMRC officer
• 45 days to complete
• Does not prevent tribunal if unhappy with outcome

Direct to tribunal:

• Independent decision-maker
• Fees may apply (can be recovered if successful)
• Longer process but legally binding

Alternative Dispute Resolution (ADR):

• Neutral HMRC mediator
• Can resolve disputes without tribunal
• Suitable for factual disputes or complex cases

Interest and payment

Managing cash flow

If you cannot pay what HMRC says you owe:

• Time to Pay - negotiate a payment plan with HMRC
• Continue appealing - if you dispute the amount, appeal does not require full payment
• Postponement - request postponement of disputed tax during appeal

Warning: Interest runs on underpaid tax from the original due date, even during appeals. If you lose, you'll pay interest on the whole period.

Practical steps when contacted by HMRC

1. Do not panic
2. Note the deadline - record when you must respond
3. Understand the scope - what exactly is HMRC asking about?
4. Gather documents - locate relevant records
5. Consider advice - for anything complex, consult an accountant or tax adviser
6. Respond on time - meeting deadlines shows cooperation
7. Be honest - do not guess - if you do not know, say so
8. Keep copies - retain everything you send to HMRC