What to expect from a HMRC tax investigation

As kids we’re afraid of things that go bump in the night and the monster that may or may not be lurking under our bed. It’s a basic fear of the unknown. As adults, this fear doesn’t go away but it does take on a slightly different form. One such ‘monster under the bed’ is the threat of an HMRC tax investigation – of particular concern if you haven’t experienced one before.

I dare say most business owners don’t habitually lose sleep over it but it’s not exactly something you hope for. A HMRC tax investigation is expensive and time-consuming, not to mention extremely stressful.

But tax enquires have been on the rise over the past few years and generate a cool £20 billion for HMRC, so they’re unlikely to stop any time soon. With that in mind, here’s a summary of some things you need to know should you be subject to an HMRC tax investigation.

HMRC tax investigation procedure

So how do you know you’re being investigated?

Well first you’ll get an official notification letter informing you that the check has started and asking you for information or supporting evidence. HMRC won’t necessarily tell you the reason why they’ve started an enquiry, but common reasons include:

  • Regular mistakes on tax returns
  • Figures that are inconsistent with industry standards
  • Years of unprofitability
  • A tip off
  • Being in an HMRC target sector

The information they ask for will depend on what they’re investigating, so the letter will state exactly what they require.

However, it’s vital to understand that HMRC will often request documents that you may not actually be required to provide by law. In fact, it has been known for HMRC to ask for documents or records over and above those that you need to retain.

That’s one of the many reasons that you should never attempt to handle a tax investigation without professional assistance.

Any information or supporting evidence that HMRC asks for which the law states you do need to hand over should be provided by the specified date. This is usually 30-35 days from the date of the letter. Fail to comply and you could face hefty penalties. A phone call and/or a meeting may also be requested to clarify certain points but again you would be wise not to agree to meet with HMRC until you have taken professional advice.

If the HMRC investigation uncovers what they consider to be errors in your claim, you’ll receive a letter telling you the outcome and what they think needs to be repaid. This may not be correct or fair though and it’s never a good idea to accept anything at face value without having it checked out by an expert.

What records might HMRC ask for?

As mentioned above, it depends on what exactly they’re investigating but HMRC might require any of the following or more:

  • Bank statements
  • Credit card statements
  • Sales invoices
  • VAT records
  • Payroll records
  • Quotes from third parties
  • Expense receipts
  • Copies of emails and correspondence

How long does a tax investigation take?

Unfortunately for business owners, there’s no time limit for HMRC to complete a tax investigation. A new decision regarding your claim for that tax year signals the end of the enquiry. This could be a matter of a week or two or take years of ongoing investigation.

An Aspect Investigation – where only a part of the return is being investigated –typically takes 3-6 months. Expect a Full Enquiry to last at least a year, probably a lot more in complex cases.

Obviously the longer a tax investigation goes on the more costly it becomes, which is why most wise business owners subscribe to a tax investigation fee protection service to offset potential costs.

Full details of the Tax Investigation Fee Protection Service provided by THP to our own clients can be found here.

HMRC tax investigation time limits

The good news is that there is a time limit on when HMRC can start an investigation. Usually, you can expect an enquiry to take place within 12 months from the given deadline for dealing with your annual review


If an adjustment is needed to your tax or VAT return, a penalty may be charged. The severity of the penalty takes into account the reason for the error. If it is clear that you’ve taken care with your return but made a genuine mistake, the penalty is less severe than if you have deliberately falsified the return.

For an honest mistake, you’ll probably just be asked to pay the remaining tax within 30 days of the decision. Interest may be added too.

If, however, deliberate misconduct is discovered you could face a high penalty. Typically, you’d be looking at another 15-100% on top of your payment but it can be anything up to 300%. In even more serious situations a criminal prosecution might be brought. This is where it pays to be helpful; if you cooperate with the enquiry, or spot the error and disclose it voluntarily, the penalty will in all probability be reduced.

If you don’t agree with a decision you have 30 days in which to appeal.

How far back can your tax affairs be investigated?

If only minor adjustments are necessary, HMRC may not investigate previous returns. With larger adjustments, however, earlier years are likely to be looked at.

In the case of a careless error, a maximum of six previous years can be looked at in the settlement. This is the more common scenario. If the error was deliberate, HMRC have the power to go back 20 years.

HMRC criminal investigation policy

Although HMRC will, where appropriate, deal with suspected fraud with a civil investigation, it has the power to conduct a criminal investigation in a range of circumstances. These include situations where deliberate concealment or corruption is suspected or forged documents are discovered.

Again, if a business voluntarily discloses details of where mistakes were made or offences committed, this is considered favourably when HMRC decides whether it wishes to pursue either a civil or a criminal investigation.

Reducing your chances of an HMRC investigation

While there’s no guarantee of protecting your business against a tax investigation, there are steps you can take to reduce the chances of being subject to one. These include:

  • Ensuring returns are submitted on time
  • Taking care that returns submitted are accurate
  • Provide information on any changes before it’s asked for
  • Keep comprehensive records to support claims where necessary

Getting help

If you have received notice that HMRC is intending to investigate your tax or VAT affairs, contact THP Chartered Accountants for assistance. We’ll liaise with HMRC on your behalf, help you submit the required documentation and ensure everything goes as smoothly as possible.

We also offer a tax investigation service should you wish for extra peace of mind in the event of an enquiry.

Contact us on 020 8989 5147 for more information or start by visiting our web page here

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    About Mark Ingle

    Owner-manager business specialist, Mark Ingle is key to building relationships with clients at the Chelmsford office. “I like to see clients enterprises grow and succeed.” Mark explains, “The team here has a lot to offer and I can see a lot of new businesses responding to that.”

    Having worked for accountancy practices in London and Essex, Mark has worked with a range of companies varying in size. For Mark, THP stands out for its “local firm approach with the resources of a larger practice.”

    Although a keen traveller, Mark is focused on giving his clients at THP the highest service, “Right now, I aim to help the clients we have to the best of my ability which will help me attract more of the right clients in the future.”

    Mark’s specialist skills:

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