How To Master A Tax Enquiry Or Investigation

**Brand New Edition - Releasing Thursday 26th February **

HMRC Enquiries and Investigations for Advisers and Taxpayers

By Salman Anwar

HMRC enquiries and investigations range from a statutory enquiry into a single tax return to a nudge letter, an inspection visit or a Code of Practice 9 investigation into suspected serious tax fraud. The key point is to recognise which one you or your client faces and what HMRC can and cannot ask for, and to act accordingly.

This comprehensive guide is designed to help professionals and individuals handle tax enquiries or investigations effectively. Written by former HMRC Inspector of Taxes Salman Anwar, it provides clear, actionable strategies for dealing with HMRC, from checking that an enquiry notice is valid and challenging excessive information requests to choosing the right disclosure route and appealing decisions, so you are well prepared to protect your interests.

What Is an HMRC Enquiry or Investigation?

HMRC mainly refers to its investigative activities as compliance checks, although the terms enquiry and investigation are also used. Broadly, a compliance check is any activity where HMRC is looking to check a person's tax position, past, present or future, and it may be an enquiry, an investigation, a visit, an inspection or an information request.

An enquiry is a formally initiated process, usually opened by a notice under a specific statutory provision, such as section 9A of the Taxes Management Act 1970 for individuals, to check whether a taxpayer's returns and records are accurate. HMRC may carry out a full enquiry into all entries in the return or an aspect enquiry into one part of it. An investigation can be far more extensive, covering multiple years, including years HMRC has no right to open a statutory enquiry into, and may be conducted under Code of Practice 8 or 9, informally, or using HMRC's formal information powers.

Why HMRC Enquiries Need Careful Handling

Tax investigations are not limited to those who deliberately evade tax. Honest taxpayers can find themselves under enquiry because of administrative errors, misinterpretations of tax law or inconsistencies in their returns, and an enquiry can also be triggered by third-party reports or a sector-wide focus. Recent budgets have tasked HMRC with collecting more tax, with a greater focus on small business non-compliance.

Failure to handle an enquiry properly can result in additional tax assessments, penalties, interest and professional costs, in some cases seriously jeopardising the financial viability of a business, and it can also lead to reputational damage or even criminal prosecution. Penalties for deliberate and concealed errors can reach 100% of the unpaid tax, and HMRC can go back up to 20 years in cases of deliberate behaviour.

Properly managed, however, an enquiry can conclude without additional tax or penalties where adequate records and justifications are provided. HMRC's powers are extensive but not unrestricted, and taxpayers can contest excessive information requests and appeal against assessments they consider incorrect.

What This Report Covers

In 14 chapters and over 50 pages, with 13 examples and practical points drawn from the author's own experience, this guide covers:

• Introduction - Understanding HMRC Enquiries + Common Misconceptions
• An enquiry, investigation or a compliance check?
• Other types of HMRC compliance checks
• What are 'nudge' letters and HMRC's 'one-to-many' campaigns?
• Voluntary disclosure and settlement options
• HMRC's information and inspection powers - Schedule 36
• Handling HMRC enquiries & investigations
• Penalties, interest and other consequences
• What constitutes a 'reasonable excuse'?
• How a compliance check may conclude
• Appeals, reviews and tribunal
• Tax planning, evasion and avoidance
• Compliance best practices - How to reduce the risk of investigation
• What to do if HMRC contacts you?

Compliance checks, COP8 and COP9 investigations

The difference between full and aspect enquiries, inspection visits and informal requests, and the legal framework behind HMRC's powers. The guide walks step by step through a Code of Practice 9 investigation under the Contractual Disclosure Facility, from the 60-day deadline for the outline disclosure to the disclosure report and settlement. It also explains how COP8 investigations differ, which sectors HMRC's taskforces focus on, and what to check as soon as a compliance check is opened.

Nudge letters and voluntary disclosure

What nudge letters and HMRC's 'one-to-many' campaigns are, where HMRC gets its data, including the Common Reporting Standard and Virtual Street Sweep, and why there is no statutory requirement to sign the Certificate of Tax Position that often comes with them. The guide then sets out the disclosure routes, from the Digital Disclosure Service and the Worldwide Disclosure Facility to the Contractual Disclosure Facility and VAT disclosures, and how Time to Pay arrangements work.

HMRC's information and inspection powers under Schedule 36

The five types of information notice, when HMRC needs tribunal approval, and how to test whether a request is 'reasonably required' and challenge requests that are excessive or unclear. It also covers the £300 initial penalty for failing to comply with a notice, the four inspection powers, the rules on unannounced visits and the safeguards that limit them.

Responding to an enquiry, HMRC meetings and penalties

How to check that an enquiry notice is valid and in time, prepare a clear response without providing excessive information, and why there is no statutory requirement to attend a meeting with HMRC or to sign HMRC's notes of it. The guide sets out late filing, late payment, inaccuracy and failure to notify penalties, how prompted and unprompted disclosures affect them, and the Upper Tribunal's four-stage test for a 'reasonable excuse' in Perrin.

Closure notices, discovery assessments and appeals

How a compliance check concludes, including closure notices and how to ask the First-tier Tribunal to direct HMRC to issue one, partial closure notices, contract settlements and certificates of full disclosure. It explains the conditions and the four, six, 12 and 20-year time limits for discovery assessments, protective assessments, and the appeals process, from the 30-day time limit and statutory reviews to the First-tier and Upper Tribunals.

Avoidance, evasion and reducing the risk of investigation

The difference between tax planning, tax avoidance and tax evasion, and the role of the General Anti-Abuse Rule. The final chapters cover the record-keeping and filing practices that reduce the risk of an investigation, common triggers for HMRC scrutiny, such as large unexplained changes in income or consistently declaring losses while maintaining a high standard of living, and the key steps to take if HMRC contacts you.

Who Will Benefit From This Report?

This guide is essential for anyone involved in the management or resolution of tax enquiries and investigations. It is particularly beneficial for:

• Tax Advisers and Consultants: Gain the latest strategies to effectively manage and navigate tax investigations on behalf of clients.
• Accountants: Learn how to protect your clients from costly errors and safeguard their financial interests during a tax enquiry.
• Business Owners: Understand the key steps to take when faced with an investigation and ensure you are fully prepared to respond.
• Individuals Facing Tax Investigations: If you’re personally undergoing a tax enquiry, this guide will provide invaluable insights to help you defend your position.
• Legal Professionals: Stay updated on the latest procedures and best practices in handling tax-related legal matters.

By mastering the strategies outlined in this guide, you’ll be equipped to confidently tackle any tax enquiry or investigation that comes your way.

About Salman Anwar

Salman Anwar is an ex-Inspector of Taxes, having worked in HM Revenue & Customs' Large Business and Fraud Investigation Service directorates. He set up his own tax practice, ADL TAX, in April 2024, having previously worked at BDO LLP and Mazars LLP (as it was then), leading their respective Tax Dispute Resolution teams in the Midlands.

Salman has advised clients of all types on resolving tax disputes with HMRC in the most amicable and cost-effective manner, from simple enquiry cases and property disclosures to high-value, multi-million-pound disputes for large international corporations. His specialism lies in understanding and applying the tax administration framework and HMRC's powers to achieve the best outcome for his cases, and over his 11-year career he has worked on a wide range of taxes, including customs and VAT, as well as the direct tax disputes practitioners more commonly deal with.

Salman has spoken on his specialist topic on radio shows, podcasts and at events, and has written for various publications.

Read an excerpt from this report: Handling HMRC enquiries & investigations.