What you need to know about tax enquiries

Routinely the HM Revenue & Customs (HMRC) selects a portion of returns to randomly scrutinize. For others, an entry may alert HMRC to an error or falsehood.

Compliance checks are initiated when there is suspicion of risk. The tax office must give written notification of the enquiry, which provides the reason for, and the extent of, the compliance check, as well as the time in which to respond and produce requested documents.

There are frauds and those who offer services for a fee that HMRC provides without charge. If the tax payer has questions or requires assistance after being notified of the enquiry, understand that:

• Tax agents must be registered with HMRC in order to represent the department on behalf of a client and

• If HMRC becomes aware of misleading claims or advertising using the HMRC logo, the department will take legal action. Agent self-promotion is inappropriate.

HMRC General Enquiry Procedure

HMRC enquiries typically begin within 12 months of the tax filing date, regardless if the return is an individual’s, corporation’s, or organisation’s. If the tax return was amended or filed late, the enquiry deadline may be extended to one year from the end of the calendar quarter in which the return was sent. The enquiry window may also be extended if insufficient information was received.

Individual Enquiries

HMRC notifies the individual in writing when it is starting a compliance check. They include what they are checking, such as a claim that was made, requested information you must provide, and the date by which you must provide it.

If the return was prepared by a professional advisor, HMRC will notify them at the same time the tax payer is notified. The individual may seek a professional adviser’s help anytime during the compliance check. The professional adviser must have the tax payer’s authority to act on their behalf. Form 64-8 must be completed to give the adviser authority to speak to HMRC about the individual’s tax affairs.

A professional advisor cannot relieve the individual from being personally responsibility for their tax affairs. All information provided to the advisor which will, in turn go to HMRC, must be complete and accurate.

HMRC gives the individual reasonable time to produce requested documents. The tax payer may appeal HMRC’s written notification to produce such documents within 30 days of receiving the initial notice. Failure to produce the documents may result in penalty. Therefore, it is imperative HMRC is immediately notified of any reason why the documents cannot be produced.
You may be asked to meet with the tax agent at a local office. If you are self-employed, the tax agent may visit your business in order to answer questions.

The enquiry may be stopped if you become seriously ill or there is a death in the immediate family.

The tax payer may appeal to the First-Tier Tribunal when they feel an enquiry is unjust, should not have been opened, or is continuing unnecessarily. After consideration, the tribunal may issue a notice to the Revenue to close the enquiry.

The enquiry may result in nothing, in which case you will receive a letter stating no changes are necessary. You may find you are owed money. Or you may find you must pay more tax. A payment schedule may be devised, which includes interest and stated penalty for delinquency. Small amounts of owed tax may be added into the next Self Assessment statement.

Corporate Enquiries

Enquiries into corporate tax returns begin with HMRC opening an enquiry and notifying the company in writing. HMRC requests corporate documents such as company accounts, tax computations, separate claims or elections, and amendments made to the return, claim or election. HMRC informs the company of the deadline in which to provide the documents, as well as the company’s rights and responsibilities. Information requested will depend on what HMRC’s compliance check is targeting.

Any questions about a personal tax return of a director, trustee, member, etc. must be filed separately.

HMRC will issue a formal legal notice requiring the documents be provided when the company chooses not to comply within the deadline. Failure to respond to the legal notice results in a standard penalty of £300, with the possibility of added penalties up to £60 per day.

The company or organisation can always appeal against the notice or any penalty charged

Follow Up

Your tax office will issue a formal notice when the enquiry is complete. The notice will include details relating to how much tax is owed, if any, penalty, if any, and request to amend your self-assessment. Claimed tax credits may be revised as a result of the enquiry. You may appeal this final decision if you disagree with HMRC’s conclusions.

No further enquiry can be made into the same tax return once it is closed. However, a discovery assessment is possible. For example, HMRC can make a discovery assessment to correct an error up to six years after the Corporation Tax accounting period ends. If it is concluded the error was deliberate, HMRC may make a discovery assessment to correct it up to 20 years after the accounting period has ended.

HMRC general enquiry procedure

HMRC enquiries typically begin within 12 months of the tax filing date, regardless if the return is an individual’s, corporation’s, or organisation’s. If the tax return was amended or filed late, the enquiry deadline may be extended to one year from the end of the calendar quarter in which the return was sent. The enquiry window may also be extended if insufficient information was received.

Individual enquiries

HMRC notifies the individual in writing when it is starting a compliance check. They include what they are checking, such as a claim that was made, requested information you must provide, and the date by which you must provide it.

If the return was prepared by a professional advisor, HMRC will notify them at the same time the tax payer is notified. The individual may seek a professional adviser’s help anytime during the compliance check. The professional adviser must have the tax payer’s authority to act on their behalf. Form 64-8 must be completed to give the adviser authority to speak to HMRC about the individual’s tax affairs.

A professional advisor cannot relieve the individual from being personally responsibility for their tax affairs. All information provided to the advisor which will, in turn go to HMRC, must be complete and accurate.

HMRC gives the individual reasonable time to produce requested documents. The tax payer may appeal HMRC’s written notification to produce such documents within 30 days of receiving the initial notice. Failure to produce the documents may result in penalty. Therefore, it is imperative HMRC is immediately notified of any reason why the documents cannot be produced.
You may be asked to meet with the tax agent at a local office. If you are self-employed, the tax agent may visit your business in order to answer questions.

The enquiry may be stopped if you become seriously ill or there is a death in the immediate family.

The tax payer may appeal to the First-Tier Tribunal when they feel an enquiry is unjust, should not have been opened, or is continuing unnecessarily. After consideration, the tribunal may issue a notice to the Revenue to close the enquiry.

The enquiry may result in nothing, in which case you will receive a letter stating no changes are necessary. You may find you are owed money. Or you may find you must pay more tax. A payment schedule may be devised, which includes interest and stated penalty for delinquency. Small amounts of owed tax may be added into the next Self Assessment statement.

Corporate enquiries

Enquiries into corporate tax returns begin with HMRC opening an enquiry and notifying the company in writing. HMRC requests corporate documents such as company accounts, tax computations, separate claims or elections, and amendments made to the return, claim or election. HMRC informs the company of the deadline in which to provide the documents, as well as the company’s rights and responsibilities. Information requested will depend on what HMRC’s compliance check is targeting.

Any questions about a personal tax return of a director, trustee, member, etc. must be filed separately.

HMRC will issue a formal legal notice requiring the documents be provided when the company chooses not to comply within the deadline. Failure to respond to the legal notice results in a standard penalty of £300, with the possibility of added penalties up to £60 per day.

The company or organisation can always appeal against the notice or any penalty charged.

Follow up

Your tax office will issue a formal notice when the enquiry is complete. The notice will include details relating to how much tax is owed, if any, penalty, if any, and request to amend your self-assessment. Claimed tax credits may be revised as a result of the enquiry. You may appeal this final decision if you disagree with HMRC’s conclusions.

No further enquiry can be made into the same tax return once it is closed. However, a discovery assessment is possible. For example, HMRC can make a discovery assessment to correct an error up to six years after the Corporation Tax accounting period ends. If it is concluded the error was deliberate, HMRC may make a discovery assessment to correct it up to 20 years after the accounting period has ended.