Help with your Tax Return guide
A tax enquiry is the process by which HMRC check in detail that the information on a tax return is correct and complete. They do this by asking questions about your return, through meetings and a review of your records. HM Revenue and Customs has the right to open an enquiry into any return.
Because any return can be selected for an enquiry, you need to keep all the documents and information you used to prepare your tax return [until the time allowed to HMRC to make an enquiry is past]. HMRC can seek a maximum penalty of £3,000 for not keeping these records, though this is not applied automatically.
Why have they picked my return?
Your return may be one of the small sample of returns which are selected at random for an enquiry. HMRC normally select on the basis of risk which may be because of the type of work you do or your different types of income. There are many sources of information which HMRC can use. These include, for example, returns from employers, from banks of savings interest earned, information from stamp duty land tax about property sales, information from members of the public, information arising from enquiries into other businesses. So HMRC may have information which makes it think that your return may not be correct or complete.
HMRC uses software called Connect (which includes social network analysis) to identify anomalies between a taxpayer’s income as declared to HMRC and other sources of information.
What are they trying to find out?
The enquiry may be
- a full enquiry, which checks the return as a whole; or
- an aspect enquiry
An aspect enquiry checks the information on one or more specific points. For instance, HMRC may have information perhaps about interest from a building society which is not consistent with the information on your return. It will ask for more information or explanations specifically about this.
What happens during an enquiry?
HMRC must follow detailed procedures under the law in conducting an enquiry. For example, it must write to you to tell you that your return has been selected for an enquiry. It must do this within the time allowed by law. HMRC normally has 12 months from the date you filed your return to notify you it is enquiring into your tax return. If you file your return after 31 January, HMRC may have up to 15 months from the date of filing to start the enquiry.
HMRC must also follow the rules set out in its free leaflets on compliance checks. These describe what you may expect to happen during and after an enquiry, as well as explaining your rights and duties.
The enquiry is likely to involve asking you for information, documents and explanations in relation to the information given in your tax return. You may also be asked to attend a meeting, as HMRC is likely to say that this offers a good way for you to explain anything that is unclear.
You are not legally obliged to attend a meeting, and cannot be compelled to do so if you do not want to go. A meeting can be a very good way of sorting things out, and of satisfying HMRC of the accuracy of figures given on your tax return. If you are unsure about attending a meeting, you should take professional advice. HMRC has legal powers to compel you to produce information it may want, but it is far better to provide this voluntarily. This should help to ensure that the enquiry is completed quickly. It will also demonstrate you are being cooperative and, if anything is found to be wrong, should help to keep penalties to a minimum.
If you are going to a meeting, you should understand your rights. You are entitled to know what HM Revenue and Customs wants to discuss. You may ask for a written agenda in advance of the meeting. If HM Revenue and Customs then strays from the agenda, you are entitled to insist that the meeting be brought to an end. Ensure that any information you give to HM Revenue and Customs is accurate, as you may be penalised for giving false information. If you are asked a question – in a letter or a meeting – to which you do not know the answer, do not guess. Say that you do not have the answer and ask for whatever time you may need to find it.
If HMRC is making unreasonable demands or not following its Code of Practice, you are entitled to say so, and to make a formal complaint if necessary.
Consider whether you should get professional advice on how to deal with the enquiry. If you cannot afford to pay an accountant or tax adviser, you can contact TaxAid for advice.
If you receive an indication that HMRC consider that they are making an investigation for fraud, you should seek professional advice at once. This might be indicated by mention of ‘Code of Practice 9’, the Civil Investigation of Fraud team, or the Criminal Taxes Unit.
The end of an enquiry and dealing with the results
If you think you have provided all the information HMRC has asked for, but the enquiry is still dragging on, you can ask the First Tier Tax Tribunal to direct HMRC to finish the enquiry. They will do this if they do not think there are reasonable grounds for continuing.
At the end of an enquiry HMRC will write to tell you the enquiry is finished. They will tell you if they can accept the return you made.
If HMRC considers that it has found something wrong with your tax return, but does not think that you have been negligent, they will write to tell you how they think your tax return needs to be corrected. If you do not amend the return within 30 days, HM Revenue and Customs will amend it themselves. You can appeal against this to the First Tier Tax Tribunal. The amendment will revise your tax liability for the year concerned, with an interest charge on any resulting underpayment (or interest payable to you on any overpayment).
If HMRC considers that you have been guilty of neglect or fraud, it will want to charge penalties as well as the extra tax and interest. This is normally done by asking you to enter into a contract settlement (i.e. a formal signed contract to pay the tax). Under this, you promise to pay an agreed sum to cover the tax, interest and penalties in exchange for HMRC giving up its legal rights to pursue you for income tax and class 4 national insurance for the years concerned. If you are asked to sign a contract settlement, make sure you understand exactly what you are agreeing to and how soon you will have to pay, since like any other contract, it is legally binding and if you decide afterwards that a mistake has been made it may be very difficult to change the situation.
If you cannot reach an agreement, then HM Revenue and Customs will use its legal powers to make tax assessments as it thinks best. This is usually less favourable to the taxpayer. So it is worth trying to reach an agreement if at all possible. However, if you feel that you are being unfairly pressured to agree a figure which is unreasonable, you should consider making a complaint.
If you are unable to agree with HMRC about the amount due and they use formal powers to raise additional tax bills, you can appeal against these tax bills. It may then be appropriate to ask for an ‘internal review’. This is a procedure where a different HMRC officer who has not been involved at all before will look through your case and may reach different conclusions. It avoids the cost and complexity of a formal appeal. You can accept the outcome of the review, or take the matter to the First Tier Tax Tribunal.
There is a useful guide ‘How to survive an enquiry by HMRC’ on the Low Incomes Tax Reform Group website at