What happens during an HMRC compliance check in the UK?

Full answer

What Is an HMRC Compliance Check? HMRC uses compliance checks (formally called 'enquiries' under Section 9A TMA 1970 for Self Assessment) to verify that individuals and businesses have paid the correct amount of tax. HMRC selects cases based on risk profiling, data-matching (including third-party reports from platforms under DAC7), random selection, and specific campaigns targeting sectors or income types. Types of Compliance Check Aspect enquiry: HMRC focuses on one specific area of your return -- for example, a single expense claim or a reported loss. This is the most common and usually least disruptive type. Full enquiry: HMRC examines the entire tax return and underlying records. These are more time-consuming and may involve detailed requests for bank statements, invoices, receipts, and contracts. Code of Practice 8 (COP8): Used where HMRC suspects tax avoidance arrangements. Code of Practice 9 (COP9): Used where HMRC suspects serious fraud -- the Contractual Disclosure Facility (CDF) process applies. The Process Step by Step 1. Opening letter: HMRC sends a formal notice of enquiry specifying what they want to review and requesting information or documents by a set date. 2. Information requests: You (or your accountant or tax adviser) respond with the requested records. 3. Correspondence or meetings: HMRC may ask follow-up questions. In complex cases, face-to-face meetings may be requested. 4. Settlement: If HMRC finds additional tax due, they issue an assessment and demand payment of the tax, interest (at the official HMRC rate), and a penalty (which varies by behaviour: careless, deliberate, or concealed). 5. Closure notice: Once HMRC is satisfied, they issue a closure notice confirming the enquiry is complete. Your Rights You have the right to be represented by an accountant or tax adviser at no requirement to deal with HMRC directly. You can appeal HMRC decisions to the First-tier Tribunal (Tax). If HMRC issues an information notice and you disagree, you can also challenge the notice. Time Limits HMRC has 12 months from the filing date to open an enquiry into a return filed on time. For returns filed late, or where HMRC discovers a loss of tax due to careless error, the limit extends to four years. For deliberate errors, HMRC can go back 20 years. Reducing Risk Keeping clear, well-organised records for at least six years significantly reduces the impact of any compliance check and strengthens your position if errors are disputed.

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