Even if you have all your tax affairs in order, HMRC investigations can be stressful. Nobody likes it when that brown envelope drops through their letterbox.

But if you or your business comes under investigation, there’s no need to panic. Keep reading to find out what to expect from HMRC investigations and how to survive yours.

What triggers HMRC investigations?

Becoming the subject of an HMRC investigation doesn’t necessarily mean you’ve done something wrong.

If you’re a business owner, unusual business activities such as submitting an unusually large VAT claim, reporting a low tax bill or routinely taking cash payments from customers could set alarm bells ringing. You’re also more likely to face scrutiny if HMRC targets tax avoidance in your specific sector.

Individuals may need to answer HMRC’s questions and provide relevant documentation if they receive a large inheritance. Failing to meet your tax obligations by consistently filing late tax returns or returns with major inconsistencies can also trigger an investigation into your tax affairs.

In rarer cases, HMRC may place you under investigation because it suspects deliberate tax avoidance or other wrongdoing. If you have knowingly provided incorrect information, you should seek legal counsel as soon as possible.

What are the types of HMRC investigation?

There are three levels of inquiry – random, aspect and full.

Random inquiries: These do exactly what they say on the tin. HMRC can investigate you or your business entirely at random, and often on the back of a tip-off.
Aspect inquiries: Second-level inquiries usually relate to misunderstandings or genuine mistakes that HMRC wants more detail on, although these can be upgraded to full inquiries.
Full reviews: If HMRC believes there’s a significant risk of error in a tax return, you can be subjected to a comprehensive review of your records as part of a full inquiry.

How does the HMRC investigations process work?

While each case can vary, here’s what you can generally expect from your HMRC investigation.

Notification

First things first, HMRC will write to you or call you with a query about your personal or business tax affairs, notifying you of what they intend to investigate. At this point, they’ll usually ask you to provide information to assist with their inquiry.

Information request

The documentation you’ll need to provide will depend on the nature of the inquiry and the degree of scrutiny it requires. This can include (but is not limited to):

personal and business bank statements
sales records and invoices
VAT records
payroll records
purchase invoices
expense receipts.

HMRC may also ask for access to your accounting software if you store your records digitally. Promptly fulfilling all these requests can help speed up the process and demonstrate your willingness to cooperate with the tax authority.

You may notice errors in your accounts while you’re compiling this information. If this happens, honesty is the best policy, and you should immediately inform HMRC.

The investigation begins

Once it has all of the records it needs, HMRC will begin its investigation. Sometimes, you may be asked to attend an in-person meeting to discuss your case.

In our experience, it’s always better to accept these invitations, as speaking to an HMRC official face-to-face can give you a better opportunity to address the tax authority’s concerns. You can also ask your accountant to attend these meetings with you.

Verdict

HMRC will reach a verdict after reviewing all the evidence. Some of the most common outcomes of HMRC investigations are:

Underpaid tax: If the tax authority determines that you have underpaid your tax bill, you’ll usually be required to pay the difference (plus any interest) within 30 days of this decision.
Overpaid tax: Some HMRC investigations reveal that a taxpayer has overpaid their tax bill. In this instance, you’ll receive a tax rebate (plus any interest).
Deliberate wrongdoing: In rare cases of deliberate wrongdoing or tax avoidance, HMRC will issue more severe penalties or even initiate criminal proceedings.

If you disagree with HMRC’s verdict, you will usually have 30 days to appeal the decision.

Our top tips for surviving HMRC investigations

Now you know how the process works, here are some practical steps you can take to survive an investigation into your tax affairs:

Keep accurate records: Ensuring your records are accurate throughout the year is essential. The more organised you are, the easier it’ll be to provide information to HMRC when it requests it. Good bookkeeping habits also help reduce errors in your accounts or tax returns, making investigations into your affairs less likely.
Understand your obligations: Staying up-to-date with the latest tax legislation and regulatory requirements can help you meet your obligations, making it less likely that HMRC will reach a verdict of wrongdoing or underpaid tax.
Cooperate with HMRC: HMRC investigations can be disruptive, but complying with the tax authority’s requests and demonstrating your willingness to cooperate can help speed up the process.
Work with experts: You don’t need to face investigations by yourself. A professional tax adviser can act as your agent, using their expertise to communicate with HMRC on your behalf and ensure you get the best outcome possible.

Get in touch

If you receive a brown letter through the post, don’t worry. As tax investigation specialists, we’re happy to guide you through the process and liaise with HMRC on your behalf. We’ll find out the severity of the inquiry and the information required to resolve its investigation.

Get in touch to find out how we can help with your HMRC investigations.

HMRC investigations: what to expect and how to survive one