What is HMRC Compliance Check?

Full Definition

An HMRC compliance check (sometimes still called a tax enquiry or tax investigation) is a review HMRC can open into a Self Assessment return, a company's Corporation Tax return, VAT records, PAYE records, or a specific claim (such as R&D tax relief) to check that the figures declared are correct and that the right amount of tax has been paid. Checks range from a simple written query about one entry on a return to a full, multi-year investigation of a business's records, and HMRC can select cases either because something looks unusual (a risk-based selection, for example a sudden drop in declared income or a mismatch with third-party data) or entirely at random. For most Self Assessment and Corporation Tax returns, HMRC must normally open a formal enquiry within twelve months of the return being filed (see Discovery Assessment for the separate, longer-window power HMRC can use once that window has closed, typically where income was under-declared). During a check, HMRC can request business records, contracts, and bank statements, and the taxpayer has the right to have an accountant or tax adviser represent them, to ask HMRC to explain why the check was opened, and, once it concludes, to appeal against any resulting assessment or penalty, including relying on a "reasonable excuse" defence where applicable. Many accountants recommend fee protection or tax investigation insurance precisely because responding properly to a compliance check can generate substantial professional fees even where no extra tax is ultimately due.

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