HMRC compliance checks: what they are and what to do first
A compliance check is HMRC testing whether a return, claim or set of records is right. Most begin with a letter or a phone call, and the way the first reply is handled shapes everything after it.
A letter from HMRC saying it is checking a tax return is unsettling, but a check is a process with rules on both sides. HMRC has time limits and must follow its own procedures; you have the right to be represented, to ask for more time and to challenge decisions. Knowing how a check works, and what to do in the first few days, puts you in a better position to deal with it.
Our specialist practice, Linx Tax Defence, handles HMRC compliance checks, investigations and voluntary disclosures. Its guide to HMRC compliance checks explains how a check works and what to do first.
What a compliance check is
A compliance check is HMRC’s way of confirming that someone has paid the right tax at the right time and claimed only the allowances and reliefs they are entitled to. It can cover Income Tax, Capital Gains Tax, Corporation Tax, VAT, PAYE and other taxes, and it can be narrow (one figure on one return) or broad (several years of a business’s records). HMRC may raise questions by letter, by phone (you can ask for them in writing instead) or by asking to visit business premises.
Enquiries into a return
For a Self Assessment return filed on time, HMRC can generally open an enquiry up to 12 months after the day it received the return. If the return was late, that window runs to the quarter day (31 January, 30 April, 31 July or 31 October) following the first anniversary of filing. A Company Tax Return filed on time can generally be enquired into up to 12 months from the day it was delivered.
Once that window has closed, HMRC can still issue an assessment for Income Tax or Capital Gains Tax if it finds tax was lost: normally up to 4 years after the end of the tax year, 6 years where the loss was careless and 20 years where it was deliberate.
Information notices
HMRC usually asks for information informally first. If that does not produce what it needs, it can issue a formal information notice, which is a legal requirement to provide information or documents by a set date. A notice can usually be appealed, but not one that asks only for statutory records, or one the tribunal has approved. Failing to comply can lead to a £300 penalty, followed by daily penalties of up to £60.
Why your records matter
Records are how you show that the figures on a return were right. They also go to the question of behaviour: HMRC will not charge a penalty for an inaccuracy where you took reasonable care, and keeping proper records and taking advice when unsure are both part of reasonable care.
The minimum periods are:
- Individuals filing Self Assessment: at least 22 months after the end of the tax year, where the return was filed on time.
- Sole traders: business records for at least 5 years after the 31 January filing deadline for the tax year.
- Limited companies: 6 years from the end of the company’s financial year the records relate to, and longer if a check is under way.
- VAT records: 6 years.
Good bookkeeping during the year is the simplest protection, because it produces the records a check will ask for.
What to do when a letter arrives
- Read it all. Note which tax, which return or period, what HMRC is asking for and the deadline.
- Check that it is genuine. If anything about the letter looks wrong, confirm it using HMRC’s published contact details, not those in the letter.
- Do not ignore it. If the deadline is too short, ask the officer for more time before it passes.
- Gather the records for the period in question and keep them as they are. Do not alter or recreate documents.
- Take advice before replying, particularly if you think something on the return may be wrong. How fully and how early a problem is disclosed affects any penalty.
- Answer what is asked, accurately. If you appoint an adviser, you are still responsible for checking what is sent on your behalf.
How we help
Linx Accounting prepares returns, accounts and VAT returns. If HMRC opens a check into a return we prepared, we can provide the working papers and explain how the figures were reached.
The conduct of the check itself, including correspondence and meetings with HMRC, disclosures, penalties and appeals, is specialist work handled by our sister practice under the same company, Linx Tax Defence. Depending on the situation, its pages on tax investigations, voluntary disclosures and penalty appeals explain what is involved.
Common questions
Does a compliance check mean HMRC thinks I have done something wrong?
Not necessarily. A compliance check is HMRC testing whether the right amount of tax has been paid and the right reliefs claimed. It is a question, not a finding, and at the end HMRC sets out its conclusion in writing. What matters is replying accurately and on time, with records that support the figures, and taking advice early if you think something may be wrong.
How long does HMRC have to open an enquiry into my tax return?
For a Self Assessment return filed on time, HMRC can generally open an enquiry up to 12 months after the day it received the return. For a late return the window runs to the quarter day after the first anniversary of filing. Company Tax Returns filed on time follow a similar 12-month rule. Outside those windows, HMRC can still assess in some circumstances, for up to 20 years where tax was lost deliberately.
Do I have to answer an informal request for information?
An informal request is not a legal notice, but HMRC normally asks informally first and can then issue a formal information notice, which you cannot ignore. Failing to comply with a notice can lead to a £300 penalty and then daily penalties of up to £60. If you need more time to gather what is asked for, contact the officer before the deadline.
Can someone deal with HMRC for me during a check?
Yes. You have the right to be represented and can appoint an adviser to deal with HMRC on your behalf, using HMRC's authorisation process. You remain responsible for the accuracy of what is sent, so you still need to check the information your adviser gives HMRC. Our specialist practice, Linx Tax Defence, acts for people in HMRC compliance checks.
What happens if I disagree with HMRC's decision at the end of a check?
Where a decision can be appealed, there are usually three routes: giving the officer new information, asking for a review by a different HMRC officer, or appealing to the independent tax tribunal. The time limit is normally 30 days from the date of HMRC's decision letter, so it is important to act promptly. Linx Tax Defence handles penalty appeals and disputes.
Related
Self Assessment
Preparing and filing personal tax returns for the self-employed, landlords, partners and anyone with income outside PAYE.
Bookkeeping
Bookkeeping kept current through the year, reconciled to the bank and ready for VAT, Making Tax Digital and the year end.
Year-end accounts
Statutory accounts for limited companies, filed with Companies House, and year-end accounts for sole traders and partnerships.
Talk to us about what you need
Tell us what you have to do and by when. We will explain what is involved and send you a fixed-fee quote, agreed in writing before any work starts.