Tax investigations

How to be carried out HMRC Tax investigation?

How to be carried out HMRC Tax investigation?


This article gives you practical information about how an HMRC investigation is carried out and what happens at the end of it.

What triggers personal tax account investigation?

In most case, HMRC personal tax account claims compliance checks are usually triggered when figures submitted on a return appear to be wrong in someway. If a small company suddenly makes a large claim for VAT, or a business with a large turnover declares a very small amount of tax, this will likely be flagged-up by HMRC account.

When you submit your tax return, please be careful to fill in any details to avoid deviations to reduce the risk of being checked to a certain extent.

However, there are some other things that experience has told us may make a business become the target of an investigation:

  • Continually tax filing late
  • Costs are above the industry norm
  • Tax returns are inconsistent with your standard of living
  • A sector that HMRC has decided to target.
  • Consistently submitting tax returns with errors
  • HMRC receives a tip-off
  • Work in a high-risk industry, for example one that routinely takes cash payments
  • Costs or expenses are unusual and may be above the industry
  • Report a large increase or decrease in income
  • Someone reports you to HMRC tax Account 

Although, it is important to mention that investigations can be completely random.

How do I know if HMRC is investigating me?

Every tax investigation starts with a brown envelope marked HMRC tax filing falling through your letterbox. Your company records will face varying degrees of scrutiny, depending on the reason the investigation has been launched. The letter will tell you whether the investigation is into a particular aspect of your tax return, or a more comprehensive investigation into your wider tax affairs. Ask your tax accountant to give you their view on why the investigation is being launched.

At minimum, HMRC will be looking to clarify a specific aspect of your tax return. However, if they want to conduct a full investigation you’ll need to submit your financial records. These will probably include:

  • Bank and credit card statements
  • Sales invoices or records
  • VAT records
  • Chequebooks and paying slips
  • Job quotes or pricing estimates
  • Payroll records
  • Purchase invoices and expense receipts

If your records are stored digitally, HMRC can request access to the software system you use as well as copy of your records.

How long the tax investigation process takes will depend largely on how much information HMRC wants to look at. Smaller tax investigations usually take between three and six months, while a full-scale investigation can sometimes take up to 16 months to complete.


What business taxes does HMRC investigate?

Many different types of business taxes can be investigated, it is not – as many seem to think – limited to income tax. Other areas of taxation that can be investigated are as follows:

  • Any taxes you pay
  • Accounts and tax calculations
  • Self-Assessment tax return
  • PAYE records and returns, if you employ people
  • Landfill tax
  • Capital gains tax
  • Climate change levy
  • Construction industry scheme
  • Corporation tax
  • VAT

What type of HMRC investigation?

The letter will also give you more information as to what type of investigation HMRC are conducting:

  • A random check– these still occur and can cover any aspect of your tax history and current status. If HMRC carry out a random check, this does not automatically mean they believe you have done something wrong, but that they are simply carrying out standard procedures as part of their overall crackdown on tax avoidance.
  • An aspect enquiry– this is where HMRC are only concerned with a certain part of your tax position. For example, they may only want to look into your PAYE records and are not interested in your company tax returns. Often, the most common outcomes to these enquiries are a discovery of genuine mistakes as opposed to intentional tax fraud.
  • A full enquiry– during a full enquiry, HMRC will look into all aspects of your tax affairs. This can include both personal taxes as well as any business taxes if applicable. A full enquiry should be taken seriously as HMRC are likely to believe there are significant errors in your tax returns.

What should I do if I am subject to a tax investigation?

Usually the tax investigation process starts with receiving a letter informing the merchant or business that a specific section of the tax return or that it will undergo a comprehensive HMRC corporation tax inspection.

If you are not sure if this is from a real motive (such as impersonating the tax office to commit fraud), please contact your accountant immediately.

Usually accountants need to check the company’s accounting records to better analyze the problem, which can save a lot of time during tax review.

Some mistakes are often caused by inadvertent negligence, and as long as the inspector provides true and accurate information, the tax inspection will be concluded sooner.

Finally, never lie or destroy evidence. Doing so will face heavier penalties and multiply the time and experience it take.