HMRC Enquiry and Compliance Check 2026/27: Your Rights and How to Respond

What Is an HMRC Enquiry?

An HMRC enquiry (also called an "investigation" or "compliance check") is a formal review by HM Revenue & Customs into your Self Assessment return, corporation tax return, VAT records, or other tax affairs. HMRC may want to verify that you have declared all your income, claimed relief correctly, and complied with your tax obligations.

Most enquiries are routine and resolved within months. However, some investigations uncover serious discrepancies or fraud and can take years to settle. The key thing to understand is that you have rights throughout the process, and you are entitled to professional representation.

HMRC issues enquiry notices in writing (a "Regulation 3 information notice" or "Schedule 36 notice"). You must comply with the notice within the specified time (usually 30 days) or face penalties.

Types of HMRC Enquiry

Aspect Enquiry

An aspect enquiry focuses on a specific part of your return: a particular source of income, a relief claimed, expenses, or a transaction. For example, HMRC may enquire into your claim for a home office allowance or your partnership income. Aspect enquiries are the most common and typically the quickest to resolve (3--6 months on average).

Full Enquiry

A full enquiry covers the entire Self Assessment return. HMRC examines all your income sources, reliefs, deductions, and transactions. These are rarer and often indicate HMRC has more serious concerns about the overall accuracy and completeness of your return. Full enquiries take longer and are more intrusive.

Compliance Check

A compliance check is routine and non-intrusive. HMRC may ask you to verify specific items or provide documentation to support claims. Compliance checks are often conducted by post and do not imply HMRC suspects wrongdoing.

Code of Practice Investigation

If HMRC suspects you have not declared a source of income deliberately, they may open a Code of Practice 8 or 9 investigation. These are more serious and indicate HMRC believes there is deliberate tax evasion or a substantial underpayment. You should seek professional advice immediately.

How HMRC Selects Cases for Enquiry

HMRC uses a mix of automated data matching and human review to identify returns for enquiry:

• Automated data matching: Computer systems compare your tax return to third--party data (employer reports, bank records, RTI PAYE data, property registers)
• Unusual claims: Large reliefs, high expense claims, or losses relative to turnover trigger automated flags
• Random sampling: HMRC randomly selects a small percentage of returns for routine checks
• High--risk profiles: Self--employed individuals, partnerships, and certain industries (e.g., hospitality, construction) face higher selection rates
• Third--party reports: Whistleblowers, informants, or failures to file can prompt enquiries
• Data gaps: Missing invoices, inconsistent records, or failure to respond to previous requests can lead to new enquiries

Being selected for an enquiry does not mean you have done anything wrong—it may simply be random or routine verification.

Time Limits for HMRC to Open an Enquiry

HMRC must open an enquiry within certain time limits, depending on the suspected type of error:

Once HMRC opens an enquiry, the "enquiry period" can extend beyond these limits. The enquiry can remain open as long as HMRC is actively pursuing it, but HMRC must close it and issue a closure notice within a reasonable time (ideally 12 months, though delays are common). If an enquiry remains open more than 2 years, you can apply to the First--Tier Tribunal for closure.

What HMRC Can Ask You for

When HMRC opens an enquiry, they issue an information notice (usually a "Schedule 36" notice under the Finance Act 2008). Under this notice, HMRC can require you to provide:

• Bank statements, building society accounts, and financial records
• Invoices, receipts, and purchase records
• Contracts, agreements, and correspondence
• Books of account, ledgers, and reconciliations
• VAT records, P11D forms, and payroll records
• Explanations of specific transactions or claims
• Anything else reasonably needed to verify your tax position

You must provide the information within 30 days (or 60 days if HMRC gives you less than 30 days' notice). Failure to comply is a criminal offence and incurs substantial penalties (up to GBP 300 per day).

Your right to object: You can object to a Schedule 36 notice on grounds that (1) the documents are not relevant or proportionate, (2) the request is oppressive, or (3) the notice has not been served properly. However, objections must be made in writing within 30 days and are rarely upheld. You should seek professional advice if HMRC asks for something you believe is unreasonable.

Your Rights under the HMRC Charter

The HMRC Charter sets out your rights as a taxpayer. Key rights during an enquiry include:

• Fair treatment: HMRC must treat you fairly and respectfully
• Clear information: HMRC must explain what they are doing and why
• Representation: You can have an accountant, tax adviser, or solicitor represent you
• Time to respond: You should be given reasonable time to gather documents and respond
• Openness: HMRC must be open and transparent about the issues under investigation
• Appeal rights: You have the right to appeal against HMRC's conclusions to the First--Tier Tribunal
• Proportionality: HMRC must ensure any penalties are proportionate to the level of culpability

If you believe HMRC has breached the Charter, you can complain to HMRC, then to the Financial Ombudsman Service, or seek a judicial review.

Getting Professional Representation

You are entitled to be represented throughout an enquiry by a tax accountant, tax lawyer, or HMRC--authorized representative. Professional representation can:

• Manage all correspondence and documentation
• Attend meetings and conferences with HMRC
• Negotiate on your behalf to reach a settlement
• Advise you on disclosure options (see below)
• Represent you before the Tribunal if needed

Professional fees typically range from GBP 2,000--10,000+ depending on complexity, but can save far more in reduced penalties and negotiated settlements. Many professionals also offer tax investigation insurance as part of their service.

Solicitor--client privilege: Communications between you and your solicitor (or tax adviser in certain circumstances) are confidential and HMRC cannot compel disclosure. This is a key protection.

Discovery Assessments

If HMRC discovers during an enquiry that you have underpaid tax in a previous year (outside the normal enquiry period), HMRC can issue a "discovery assessment" to recover the unpaid tax.

A discovery assessment is only valid if HMRC can prove it had no prior notice of the underpayment and could not have discovered it through reasonable enquiry. Since 1 April 2016, discovery assessments have been limited: HMRC can only assess beyond the normal enquiry period (12 months from filing) if it suspects carelessness (4 years) or deliberate fraud (20 years). The courts have also restricted HMRC's power to issue discovery assessments if the issue was already open to enquiry.

If HMRC issues a discovery assessment, you can appeal to the Tribunal on the grounds that HMRC had prior notice or could have discovered the underpayment through reasonable enquiry.

Penalties and Disclosure

The modern penalty regime (introduced in 2009) is based on culpability and disclosure. The amount of penalty depends on:

• The reason for the error: Carelessness, lack of reasonable care, deliberate withholding
• When you disclose: Unprompted disclosure (you voluntarily tell HMRC before they ask) or prompted disclosure (they discovered it)

Penalty Bands (2026/27)

Percentages are applied to the "tax at risk" (the unpaid tax amount). For example, if you underpaid by GBP 10,000 and the penalty is 25%, you pay GBP 2,500 in penalties plus the original GBP 10,000 tax plus interest.

Unprompted vs. Prompted Disclosure

Unprompted disclosure: You voluntarily tell HMRC of an error before they ask or open an enquiry. Penalties are minimal (0--40% depending on culpability). Unprompted disclosure also carries no admission of criminal intent.

Prompted disclosure: HMRC has already opened an enquiry, issued an information notice, or has told you they are investigating. You then disclose the error. Penalties are higher (15--100%). If HMRC discovers the error before you disclose, penalties can be at the maximum.

Key point: Making an unprompted disclosure is almost always preferable and can reduce penalties dramatically. If you suspect an error, contact a professional adviser immediately to arrange a disclosure.

The Settlement Process

If HMRC opens an enquiry and finds errors, the settlement process typically follows these steps:

1. Initial information: HMRC sends a detailed letter explaining the issues and requesting further information
2. Response and negotiation: You (or your adviser) provide documents, explanations, and counter--arguments
3. Examination of records: HMRC may visit your home or office to examine original records
4. Opening position: HMRC sets out its opening assessment of the additional tax due
5. Discussion and settlement: Your adviser negotiates with HMRC to agree on facts and figures
6. Closure notice: HMRC issues a Closure Notice (Form COP) setting out the final agreed position
7. Payment: You pay the agreed additional tax, penalties (if any), and interest (if applicable)

Settlement is binding and final for that year. You cannot reopen it later. The settlement protects you from further enquiry into the same issue, but other tax years may still be subject to enquiry.

Interest on late payment: If you owe additional tax, HMRC charges interest from the original due date (usually 31 January following the tax year) until the date of payment. The rate is HMRC base rate + 2.5% (roughly 8.25% in June 2026).

Appeals and the Tribunal

If you disagree with HMRC's Closure Notice and the amount of additional tax or penalties, you can appeal to the First--Tier Tribunal (Tax Chamber). You must submit your appeal within 30 days of the Closure Notice.

The Tribunal is independent and hears oral evidence from both sides. You can represent yourself, but professional representation is strongly recommended. The Tribunal has power to:

• Increase, decrease, or confirm HMRC's assessment
• Adjust penalties based on culpability
• Award costs if HMRC's conduct was unreasonable

If you lose at the Tribunal, you can appeal to the Upper Tribunal on points of law, but this requires permission and is rare.

Alternative dispute resolution: HMRC offers an alternative procedure before the Tribunal, sometimes called "Early Neutral Evaluation" or "Judicial Review Protocol", which can speed resolution and reduce costs.

Tax Investigation Insurance

Tax investigation insurance (TII) is an optional insurance policy that covers your legal and accountancy fees if HMRC opens an enquiry. Policies typically cover:

• Professional fees for representation during an enquiry
• Accountancy and bookkeeping costs to gather documents
• Tribunal representation and appeals
• Tax advice in relation to the enquiry

Premiums range from GBP 100--500 per year depending on turnover and risk profile. Many accountants include TII as part of their service or offer it at a discount.

Is it worth it? TII can save thousands if a serious enquiry arises. However, if you have straightforward accounts and no major risk areas, TII may not be necessary. Higher--risk businesses (hospitality, construction, cash--based) and higher earners should seriously consider it.

Check policy exclusions carefully. Many policies exclude enquiries that have already been opened or circumstances that were known at the time of purchase.

Careless vs. Deliberate: How HMRC Proves Culpability

HMRC often distinguishes between honest errors, carelessness, and deliberate tax evasion. Understanding these categories is crucial because penalties differ dramatically:

• Honest error (no penalty): You made a genuine mistake due to complexity, misunderstanding, or bad advice, and you took reasonable care
• Carelessness: You failed to take reasonable care to ensure accuracy (e.g., not checking information, failing to keep records, ignoring warnings)
• Deliberate conduct: You intentionally provided false information or withheld information knowing it was wrong

HMRC must prove the reason for the underpayment and the level of culpability. The burden is on HMRC, not you. However, once HMRC establishes culpability, you can reduce penalties by disclosing the error unprompted.

Reliance on professional advice: If you relied on advice from an accountant or tax adviser, you may have a defence against a carelessness penalty, provided the advice was genuinely followed and the adviser was competent. However, this is not an absolute defence if you ignored obvious warning signs or failed to check the advice.

Summary: Key Steps if You Receive an Enquiry Notice

1. Do not panic: Being selected for an enquiry does not mean you are under criminal investigation or suspected of fraud
2. Seek professional advice immediately: Contact an accountant or tax lawyer, especially if the enquiry is full or relates to significant sums
3. Gather your records: Find all documents, invoices, bank statements, and correspondence relevant to the enquiry
4. Respond on time: Meet HMRC's deadline for providing information (usually 30 days). Request an extension if needed
5. Disclose any errors unprompted: If your adviser identifies an error, disclose it immediately to minimize penalties
6. Negotiate in good faith: Work with your adviser to discuss issues with HMRC and reach a settlement
7. Keep records of all communications: Maintain copies of all letters, emails, and notes of meetings with HMRC
8. Agree a settlement or appeal: Either settle the enquiry with HMRC's Closure Notice or appeal to the Tribunal if you disagree