Received an HMRC compliance check letter?

The vast majority of HMRC compliance checks begin because there are concerns about the integrity of a tax return and/or accounts submitted by an individual, partnership or business. If you receive a HMRC compliance checking letter informing you that HMRC wishes to check your tax position then it is safe to assume that HMRC feels that you or your business has underpaid tax, either due to negligence or fraud. Essentially this is a tax investigation in another guise.

Your case will likely be managed by HMRC Local Compliance. HMRC Local Compliance deal with the vast majority of compliance checks via a  check of self assessment. They will write to you informing you that a check of self assessment tax return has commenced. The check of self assessment will usually focus on one year. However, because of the sophisticated way that HMRC select case suitable for tax investigation; you can be assured that their intention will be to establish tax irregularities for the year of enquiry, before scaling these back across earlier years.

SELECTION

HMRC teams will consider several factors including risk, means, industry knowledge, business economics and perhaps the results received by similar businesses in your geographical area. The inspector is also likely to hold a file of information obtained from third parties such as banks, local authorities and in some circumstances informants. An interrogation of the internet will also be conducted in virtually every case. HMRC compliance checks are expensive and the department has a limited pool of resources investigative resources available to them, so if an HMRC compliance check is opened you can assume 3 things:

  1. That HMRC have performed a thorough analysis of risk; including the searches referenced above
  2. That HMRC will strongly suspect that tax has been underpaid
  3. That HMRC are seeking to extend the final settlement across 6 years

This is a tax yield based exercise; far more than it is a helpful check of your tax position.

HUMAN RIGHTS ACT

HMRC will always provide you with a booklet explaining your Human Rights during any tax investigation of compliance check.

Many people do not read this document. It is very important that you do so. It is very easy to be complacent and assume that the investigator will always treat you fairly and just naturally consider your rights the during the HMRC compliance checks process. That is simply not the case; well at least not always. Mistakes are made; whether they be well meaning or otherwise. HMRC can realistically ask for anything during a check of self assessment tax return; but you should ask yourself some key questions:

  • Is the request being made for information or documents reasonable?
  • Do HMRC require this information in order to check my tax position
  • What are the potential implications of providing information or documents to HMRC that are not reasonably required when checking your self-assessment or tax position

Please always take professional advice from a tax investigation specialist before responding to any HMRC compliance check of information notice.

REASONABLY REQUIRED

We use this term regularly throughout various pages and articles throughout this website. Furthermore; it is terminology used by the department themselves as part of the HMRC compliance checks process.

It is key to consider the term and its application in context. There are two factors to consider:

  • The legal obligation on the individual or business to provide the information or documents being requested.
  • The necessity of the information or documents being requested to accurately check the tax position of the individual or business concerned.

You must always take advice before responding to any information notice issued as part of the HMRC compliance checks process. Mistakes can be costly and compromise your fundamental human rights.‍

HMRC COMPLIANCE CHECKS PROVIDING RECORDS

If you receive a notice informing you that HMRC wish to check your tax position, you should seek specialist advice immediately. HMRC will ask for information and records as part of their check. It may be that the Inspector is stepping outside of the statutory limitations or asking for information or documents that they are not reasonably entitled to. We have written further detailed articles on HMRC compliance checks which you may find useful.

These can be found by clicking on the link below:

HMRC COMPLIANCE CHECK ADVICE

Admiral Tax are HMRC compliance checks specialists. We have a former senior tax inspector; experienced in the entire compliance checks process, at your disposal. When you combine that internal departmental experience with a proven track record of success within private practice there is simply no tax investigation service available in the UK.

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Further reading

Please take some time to read through these additional pages which contain more important information and advice: