An HMRC compliance check runs in a predictable order. An opening letter tells you which return and which periods are being checked. HMRC then asks for records and explanations, tests the answers through correspondence, and finally issues its conclusion. Being selected is not an accusation: HMRC selects largely by risk profiling and some checks are effectively random. Any additional tax is normally payable within 30 days, and you normally have 30 days to appeal a decision you disagree with.
A letter has arrived from HMRC. This page sets out what that means and what happens next, in the order it usually happens.
First, the thing worth knowing before anything else: a compliance check is not an accusation. HMRC selects returns largely by risk profiling, and some checks are effectively random. Being picked does not mean HMRC believes you have done something wrong.
1. How it starts
HMRC writes to you, and usually to your accountant. For an individual Self Assessment return the enquiry is opened under section 9A of the Taxes Management Act 1970; for a partnership return it is section 12AC.
The letter has to reach you inside the enquiry window. For a return filed on time that is 12 months from the date HMRC received the return. For a return filed late it runs to the next quarter date (31 January, 30 April, 31 July or 31 October) after the first anniversary of the date the return was received.
Not every HMRC contact is a formal enquiry. Some checks concern VAT, PAYE or employer compliance and follow their own routes. If you are unsure which you have received, your accountant will be able to tell from the letter.
2. What HMRC can ask for
The opening letter normally lists the information HMRC wants: records, invoices, bank statements, explanations of particular entries. Much of this is provided voluntarily by your accountant on your behalf.
Where information is not provided, HMRC can issue a formal information notice requiring it. Failing to comply with one carries penalties, and in some circumstances HMRC can seek approval to issue a notice to a third party such as your bank.
3. Who actually does the work
Your accountant does. Responding to a compliance check means reading the letter properly, pulling records together, reconstructing figures where the original working is gone, drafting replies, and pushing back where HMRC has misunderstood something.
That is chargeable work at the practice’s hourly rate, and here is the part people miss: the amount of it is decided by HMRC, not by you. You cannot cap it by being organised. A check that widens from one figure to three tax years multiplies the fees without you making a single decision.
This is the cost that tax fee protection insurance is designed to meet.
4. How long it takes
A single-issue check can be resolved in weeks. A check covering several years, or one where records have to be rebuilt, runs considerably longer. Anyone who quotes you an average is guessing, because the length is driven by what HMRC decides to look at and how quickly information can be produced.
5. How it ends
A formal enquiry is closed by a closure notice. This states HMRC’s conclusions and any amendment it is making to your return. If you disagree with the conclusion you have appeal rights, and there are routes to review and to tribunal.
Closing the enquiry window does not close the subject permanently. Where HMRC later discovers tax has been under-assessed it can raise a discovery assessment: 4 years from the end of the tax year where the loss of tax was neither careless nor deliberate, 6 years where it was careless, and 20 years where it was deliberate. Longer limits apply to offshore matters and to failure to notify chargeability.
6. What it costs you
Two separate bills. Any tax, interest and penalties HMRC decides are due are yours, and no insurance covers those. The professional fees for defending the check are the part that can be insured.
What to do now
- Send the letter to your accountant. Deadlines in HMRC correspondence are real.
- Check whether you already have fee protection cover. Many people are covered through their accountant’s scheme without remembering it. Tell your accountant straight away if you are, because most policies require prompt notification.
- Do not reply to HMRC off the cuff. An answer given quickly and imprecisely is harder to correct later than one given carefully a few days on.
If you have not been contacted yet
Cover has to be in place before a check is opened. A check that has already started is not an insurable risk, in the same way you cannot insure a car after the accident. If you want cover for the future, you can get a quote in under a minute.
If you are an accountancy practice looking at how to offer this to your clients, see tax fee protection schemes for accountants.
This page explains how compliance checks generally work. It is not tax advice and it is not a description of your particular circumstances. Cover, exclusions and conditions are set out in the policy wording.
Common questions
How long does HMRC have to open an enquiry into my return?
For a return filed on time, HMRC normally has twelve months from the date it received the return to open an enquiry. Outside that window HMRC has to use its discovery powers instead, and those are subject to their own conditions and time limits.
Does a compliance check mean HMRC thinks I have done something wrong?
Not necessarily. HMRC selects returns largely by risk profiling, and some checks are effectively random. Being selected is not a finding, and many checks close with no adjustment at all.
Can my accountant deal with HMRC on my behalf?
Yes. HMRC’s published guidance confirms you can have an accountant or legal adviser with you during a visit, and in practice most correspondence is handled by your agent. The professional time that involves is chargeable to you.
What happens if I do not provide the information HMRC asks for?
HMRC’s guidance is that penalties may apply if you fail to provide information after receiving a formal notice, unless you have a reasonable excuse such as serious illness or bereavement. Delay also tends to widen the check rather than close it.
What can I do if I disagree with the outcome?
You can appeal a tax decision you disagree with, normally within thirty days. Alternative dispute resolution is also available where the disagreement is about the facts or about how HMRC has approached the check.
How far back can HMRC go?
HMRC’s assessing time limits are four years in ordinary cases, six years where a loss of tax was brought about carelessly, twelve years for offshore matters and twenty years where the behaviour was deliberate.