An HMRC compliance check is a review of your tax affairs to verify that the right amount of tax has been declared and paid. They range from simple queries about a single line in your return to formal full enquiries covering multiple years of records. Around 100,000 compliance checks open each year across all taxpayer types.
What is a compliance check?
HMRC uses the term compliance check to cover a broad range of activity, from informal letters asking about a specific item, to formal enquiries opened under Section 9A of the Taxes Management Act 1970. A formal enquiry has specific timescales and legal consequences. An informal query does not have the same legal weight but should still be responded to promptly.
How HMRC selects taxpayers for checks
HMRC uses a sophisticated data analytics system called Connect to cross-reference information from multiple sources. Connect compares what taxpayers declare with data from:
- Banks and financial institutions
- Land Registry and property transaction records
- Companies House filings
- Online marketplaces and payment processors
- PAYE data from employers
- Pension providers and investment platforms
Where Connect identifies a discrepancy, for example where declared income appears inconsistent with known assets or transactions, a compliance check may be triggered. HMRC also selects a proportion of returns at random each year.
HMRC's Connect data system
Connect holds data on over 55 million individuals and businesses in the UK. It has the ability to identify taxpayers who may be earning income that has not been declared, including rental income, self-employment income, and capital gains on property or investments. HMRC receives automatic data sharing from hundreds of third-party organisations.
Types of compliance check
HMRC distinguishes between different types of compliance work depending on the level of risk identified:
- Compliance checks by letter: HMRC writes to ask about a specific item. No formal enquiry is opened. You should still respond fully and within the requested timescale.
- Aspect enquiry: A formal enquiry into a specific part of a return, such as a particular category of income or expenses.
- Full enquiry: A comprehensive review of the entire tax return and associated records, sometimes covering more than one tax year.
- Serious fraud investigation: Handled by HMRC's Fraud Investigation Service. Involves potential criminal proceedings.
HMRC's enquiry window
HMRC must open a formal enquiry within a specific window after a return is filed.
| Scenario | HMRC enquiry window |
|---|---|
| Return filed on time | 12 months from the date of filing |
| Return filed late | 12 months from the end of the quarter in which it was filed |
| Careless error | Up to 6 years |
| Deliberate error or fraud | Up to 20 years |
How to respond to a compliance check
If HMRC contacts you for a compliance check, respond promptly. Late or incomplete responses increase the risk of HMRC escalating from an informal query to a formal enquiry. Key steps:
- Read the letter carefully and identify exactly what HMRC is asking for.
- Inform your accountant or tax adviser immediately.
- Gather the documents requested and check them for accuracy.
- Respond within the stated deadline or request an extension in writing.
Penalties arising from compliance checks
If a compliance check identifies underpaid tax, HMRC will calculate the amount owed plus interest. If the underpayment resulted from an error in your return, HMRC may also charge an inaccuracy penalty. The penalty rate depends on whether the error was careless, deliberate, or deliberate and concealed.
Voluntary disclosure before HMRC identifies an error significantly reduces the penalty rate. See our full penalties guide for the current rates.