What is the difference between an HMRC informal check and a formal investigation?

Full answer

HMRC uses several types of contact to check tax returns and gather information. Understanding which type you are dealing with affects your rights and obligations. Informal compliance check HMRC may write a letter asking you to clarify or confirm specific items on your return -- for example, a large expense claim or a discrepancy between reported income and third-party data. This is not a statutory enquiry. You are not legally obliged to respond in a prescribed way, but failure to co-operate can prompt HMRC to open a formal enquiry. Most checks are resolved at this stage. Formal enquiry -- s9A TMA 1970 A formal enquiry (or compliance check) under section 9A of the Taxes Management Act 1970 (for income tax) or equivalent corporation tax provisions is a statutory process. HMRC must issue the enquiry notice within 12 months of the filing date of the return (or within 12 months of actual filing if filed late). Once the window closes, HMRC can only raise a discovery assessment if it discovers a loss of tax. Key rights in a formal enquiry: -- HMRC must issue a formal closure notice when the enquiry is complete -- The taxpayer can apply to the First-tier Tribunal for a direction that HMRC close the enquiry if it is taking too long -- Information requests must be proportionate; if HMRC issues an information notice under Sch 36 FA 2008, the taxpayer can appeal the notice to the Tribunal COP8 and COP9 -- Code of Practice 8 (COP8): used for suspected tax avoidance arrangements. HMRC investigates whether the arrangement works as intended. Typically civil. -- Code of Practice 9 (COP9): used where HMRC suspects serious tax fraud. It offers the Contractual Disclosure Facility (CDF) -- the taxpayer makes a full disclosure of all deliberate conduct in return for HMRC not pursuing criminal prosecution. Voluntary disclosure If you have made errors or omissions, making a voluntary disclosure before HMRC contacts you results in lower penalties -- typically 0-30% for prompted or unprompted disclosure of careless errors, compared with up to 100% for deliberate concealment. Discovery assessments Outside the formal enquiry window, HMRC can still raise a discovery assessment if an HMRC officer discovers a loss of tax. The time limit is 4 years for careless errors, 6 years for deliberate underpayment, and 20 years for offshore matters or fraud.

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