Handling HMRC enquiries & investigations

In this excerpt from the brand new report 'How To Master A Tax Enquiry Or Investigation', Salman Anwar goes through how to handle HMRC enquiries and investigations

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Understanding the (statutory) enquiry process

When HMRC initiates an enquiry, it is essential to understand the type of enquiry being conducted, the scope of the request, and the potential implications for the taxpayer. To recap, there are two main types of enquiries: 

• Full enquiry – HMRC reviews all aspects of a taxpayer's return when they suspect significant errors. 

• Aspect enquiry – HMRC investigates specific elements of a tax return where anomalies have been identified. 

Responding to an HMRC enquiry 

Once an enquiry notice is received, the taxpayer and their adviser should take the following steps: 

1. Review the enquiry letter – This should be done from two perspectives: (i) ensuring HMRC has complied with the legislative requirements and has therefore opened a valid enquiry, and (ii) understanding the specific areas HMRC is questioning will help in formulating a structured response. It is also important to ensure that HMRC’s requests are in line with the powers given to it by parliament. For example, is HMRC asking about information or documents for historical years when the enquiry is into the most recent tax year?  

Example 8 

HMRC writes to Derick to enquire into their 2023/24 self-assessment tax return, which was submitted on 5 January 2025. The enquiry notice must be received by Derick on or before 5 January 2026.  

2. Gather supporting documents – This may include tax returns, business records, bank statements, receipts, and any other relevant financial documentation. 

3. Engage a tax professional – Tax advisers can provide expert guidance and negotiate with HMRC on behalf of the taxpayer and their accountant. 

4. Prepare a clear response – Responses should be factual, concise, and address the specific queries raised by HMRC, and care should be taken not to provide excessive information. 

5. Meet deadlines – It is important to establish and maintain a mutual understanding of timeframes and deadlines with the HMRC caseworker. While missing the initial deadlines may not lead to any penalties, unless HMRC has also issued a formal information notice, it can lead to a breakdown in trust and possible further scrutiny. 

Common HMRC requests during an enquiry  

HMRC may request a range of documents and explanations during an enquiry, including: 

• business accounts and records; 

• personal and business bank statements – any requests for personal bank statements should be dealt with very carefully; 

• receipts and invoices supporting deductions; 

• details of investments, assets, and liabilities; and 

• information on offshore income or foreign transactions. 

Failure to provide requested information can lead to HMRC turning to its information powers to formally request the information or documents. This can, if additional liabilities are later found to be due, lead to higher penalties if HMRC is able to demonstrate that the taxpayer or their agent was not as cooperative as they could have been.  

However, this does not deter me or my clients from challenging any liberties taken by HMRC or any over-extensions of their reach and powers.  

Co-operating with HMRC while protecting your rights 

While it is important to comply with HMRC’s requests, taxpayers must also protect their legal rights. This includes: 

• Ensuring requests are reasonable – HMRC must be able to justify its need for certain information, and taxpayers can challenge excessive requests. The test that is applied across legislation is whether the information or documents being requested are reasonable for the purpose of checking the taxpayer’s tax position.  

• Requesting clarification when needed – If a request is vague or unclear, seeking clarification can prevent unnecessary disclosures. 

• Avoiding unnecessary disclosures – Providing more information than requested can lead to further questioning and prolong the enquiry. Balance needs to be adopted as sometimes it is in the interest of the taxpayer to explain in greater detail but this is generally the exception, not the norm.  

• Appealing unfair requests – Taxpayers can challenge HMRC’s formal requests if they believe the requests are unreasonable or disproportionate. For informal requests, you can enter into dialogue with the officer to ward off any further formal requests and agree an alternative route. 

Attending a meeting with HMRC 

Often, officers conducting any type of compliance check, like to request a meeting with the taxpayer. An impression is usually given that this is a must but there is no statutory requirement nor formal powers which can compel a taxpayer to attend a meeting with HMRC.  

In more serious cases, such as a COP9, it is usually part of entering into the CDF agreement that a taxpayer will attend a meeting with HMRC.  

Practical point 

However, in all other cases, any such request should be handled with a great degree of caution. In my experience, it is very rarely in a client’s best interest to attend meetings with HMRC. Any fact-finding can and should be addressed in writing with the requisite thought and care taken.  

Dealing with questions and queries via correspondence can draw out the enquiry and usually leads to professional costs. Whether this is more or less than the cost of preparing for and attending a meeting usually depends on a case-by-case basis. For example, after the meeting, if HMRC misconstrues something or misunderstands what the taxpayer has said, then the questions that follow can take many rounds of correspondence to answer.  

While we would expect HMRC to act in good faith at these meetings, and most officers do, in the author’s experience, in many cases HMRC can and does take liberties with what it is told at a meeting. 

Requests for meetings should be distinguished from requests for visits to carry out an inspection, which HMRC has a legal right to do under the powers granted to it by Schedule 36.  

Following any meetings, HMRC generally follows up by providing their notes of the meeting. This is usually accompanied by a request for return of a signed copy.  

Practical point 

Again, there is no legal requirement to do so and this should be avoided. However, the notes should be scrutinised and any discrepancies between what was said and what has been recorded should be pointed out.  

HMRC can and will use these notes and its records of the meeting against the taxpayer if discrepancies are discovered that lead to additional tax.  

At times, what is said can also be misconstrued and used to justify the presence of errors where there might be none.  

Possible outcomes of an enquiry 

After reviewing the provided information, which usually involves multiple exchanges of correspondence, HMRC can conclude an enquiry in different ways: 

• No further action – If HMRC finds no discrepancies, the case is closed without further action. 

• Tax adjustments – If errors are identified, HMRC may require amendments to tax returns or assessments for historic years and additional tax payments. 

• Penalties imposed – If discrepancies arise due to careless or deliberate behaviour, penalties may be applied. 

• Escalation to a full or more serious investigation – If serious concerns emerge, HMRC may escalate the enquiry, for example, into a fraud investigation. 

We discuss in section 11 below the various ways an enquiry or investigation may be concluded.  

Best practices for minimising the risk of enquiries 

While it is not always possible to avoid an HMRC enquiry, the following steps can reduce the likelihood: 

• Maintain accurate and up-to-date records – ensure all financial documentation is well-organised and readily accessible. 

• File tax returns correctly and on time – avoid careless mistakes and meet filing deadlines to prevent red flags. Take advice from competent professionals with regard to areas of uncertainty. 

• Use professional tax advice – accountants and tax advisers can help ensure compliance and provide guidance on complex tax matters. 

• Monitor financial transactions – large or unusual financial movements should be well-documented and justifiable. 

• Respond promptly to HMRC requests – a cooperative approach, within reason, can often prevent an enquiry from escalating. 

By following these guidelines, taxpayers can handle HMRC enquiries more effectively and reduce the potential impact on their financial and legal standing.