What you need to know – HMRC tax investigations

Jul 12, 2022 | Tax Tuesday

It can be daunting when an enquiry letter from HMRC drops through the letterbox.

However, it should be noted that not all enquires are targeted and many still result from random selection (a bit like an unpleasant version of the lottery!)

While no taxpayer enjoys being enquired into (at least your author has not found one to date!) there are certainly right and wrong ways to go about dealing with HMRC in the event of an enquiry.

Here we look at some pointers.

Check HMRC’s letter

The first thing to check when the letter hits the doormat is that any enquiry notice has been validly raised and is within the statutory time limits.

If HMRC miss the time limits to enquire into a tax return then normally they cannot open an enquiry.

Prevention is better than cure!

You can help make an enquiry easier for yourself by ensuring your tax affairs are well-ordered and up to date in the first place.

If you know you have always been diligent with your tax affairs, have appointed properly qualified and experienced accountants to ensure tax returns are accurate and have been honest throughout then it is far easier to both sleep at night and go into an enquiry situation with confidence.

Always maintaining appropriate and clear records to back up entries in your tax returns is also important.

Often, if the taxpayer has ensured their tax affairs are in order, enquiries can be dealt with and concluded quickly and efficiently.

HMRC information sources

Following on from the above, the sheer volume of information on taxpayers’ financial affairs which HMRC have access to these days should not be overlooked.

A quick google search of most people’s names will provide information such as comments on social media profiles and details on websites etc.

If HMRC find photos of holiday mansions overseas which would unlikely have been financed from declared income then the chances are the enquiry is not going to go very well!

As well as generally publicly available data, HMRC have very powerful bespoke software and databases together with a vast and growing network of information exchanges with other tax jurisdictions around the world.

A meeting with HMRC

Often, a meeting is an efficient way of dealing with outstanding queries.

Your accountant and you should consider whether this step would be helpful; for instance if an enquiry is dragging on or there are a large number of points of discussion then face to face contact may be the best way of progressing matters.

In a meeting with HMRC, it is important to focus on answering the questions set without meandering into other areas.

Do not feel obliged, maybe out of awkwardness, to fill silences with ‘chatter’.

You should also ensure there is an agenda received from HMRC prior to any meeting and that this agenda is strictly adhered to.

After a meeting, HMRC will often send to you a copy of their meeting notes asking you to agree and sign them.

There is no obligation to sign these but it would be prudent to at least point out any obvious discrepancies with your own notes.

Be nice!

We all like to be treated nicely.

It should go without saying that you will get along far better with HMRC if you are courteous, polite and professional in your dealings with them at all times.

This does not mean you have to agree with them on all points or meet unreasonable demands but like you and me, HMRC inspectors are human and generally respond better to being treated well than badly!


At the end of an enquiry, if there is additional tax to be paid then the question of penalties will arise.

These are normally calculated as a percentage of the extra tax found to be due.

The rate charged is on a sliding scale from 0% to 100% depending on taxpayer behaviour including whether the errors resulted despite reasonable care being taken by the taxpayer (normally no penalty) or whether they instead resulted from carelessness, deliberate action or deliberate action coupled with concealment.

It should not be forgotten that it is possible to suspend penalties where the reason for the errors leading to the additional tax is carelessness rather than anything more serious.

If the penalties are suspended, the taxpayer will need to demonstrate they have met various compliance obligations over a set period of time.  If they do then the suspended penalties are removed altogether.

Codes of Conduct

Finally, it is worth bearing in mind two particular documents in the context of an enquiry.

The first is the HMRC Litigation and Settlement Strategy (linked here) which gives details of how HMRC agree to conduct themselves during an enquiry.

Secondly the HMRC Charter (linked here) shows what the taxpayer can expect in their dealings with HMRC.

It is worth keeping these documents in mind in cases where it is felt the HMRC inspectors dealing with the case in question fall short of these standards.


The author takes every care in preparing material to ensure that the content is accurate and up to date. However, no responsibility for loss occasioned to any person acting or refraining from acting as a result of this material or from making use of this material can be accepted by the author.