An HMRC investigation, also called a compliance check or tax enquiry, is a formal review of your tax affairs. HMRC opens investigations to check that the right amount of tax has been paid. Some are triggered by specific risk factors, others are selected randomly. Most enquiries are resolved without penalty if the taxpayer cooperates and their records are accurate.
What is an HMRC investigation?
HMRC has legal powers to open a formal enquiry into any tax return within a set window after it is filed. For standard returns filed on time, HMRC generally has 12 months from the date of filing to open an enquiry. Where there is suspected fraud or deliberate underreporting, HMRC can look back as far as 20 years.
An investigation is separate from an informal query. A formal enquiry is opened in writing and confers specific legal obligations on both parties.
What triggers a compliance check?
HMRC uses a combination of data analysis, risk profiling, and intelligence from third parties to identify returns for investigation. Common triggers include:
- Large or unexplained changes in income between tax years
- Declared income that appears inconsistent with lifestyle or assets
- High levels of expenses relative to turnover
- Discrepancies between information reported to HMRC and data from employers, banks, or Companies House
- Operating in a sector HMRC considers high-risk for cash or non-reporting
- Random selection as part of HMRC's compliance programme
Being selected does not mean HMRC suspects wrongdoing. Random enquiries are a routine part of HMRC's approach to maintaining tax compliance across the population.
Aspect enquiry vs full enquiry
HMRC investigations fall into two main categories.
An aspect enquiry is limited to one or more specific parts of a return, such as a particular expense claim or a declared source of income. These are more common and are generally resolved faster than full enquiries.
A full enquiry covers the entirety of a tax return and all related records. Full enquiries are more intensive and typically arise where HMRC has identified a significant risk or pattern of concern.
What HMRC can request
During an investigation, HMRC can formally request documents and information using a statutory information notice. Commonly requested items include:
- Bank statements (personal and business) for the period under review
- Invoices, receipts, and purchase records
- Business accounts, profit and loss statements, and balance sheets
- Employment contracts and payroll records
- Details of property transactions, investments, or loan repayments
You are legally required to comply with a statutory information notice. Failing to provide information, or providing false information, can result in additional penalties.
Your rights during an investigation
You have the right to be treated fairly and professionally throughout the process. You also have the right to:
- Appoint a tax adviser or accountant to communicate with HMRC on your behalf
- Request reasonable extensions to gather records
- Challenge requests you believe to be unreasonable, using the statutory review process
- Appeal any penalties HMRC charges during or after the enquiry
How long does an HMRC enquiry take?
Simple aspect enquiries can be resolved within a few weeks to a few months. Complex full enquiries involving multiple tax years or significant sums can take 12 months or more. HMRC is required to progress an enquiry within a reasonable timeframe, and taxpayers can apply to the tribunal to compel HMRC to close an enquiry if it has been unreasonably delayed.
How to prepare for an investigation
The best preparation is maintaining clear, organised records throughout the year. If HMRC opens an enquiry:
- Appoint a tax adviser promptly if you do not already have one.
- Review the documents HMRC has requested and gather them systematically.
- Do not volunteer information beyond what HMRC has requested.
- Respond to all communications promptly and within the stated deadlines.
- If you identify an error in your return, discuss a voluntary disclosure with your adviser.