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What to Expect in a HMRC Tax Investigation

May 2016

Have you ever tried calling through to HM Revenue & Customs? If yes, then you would be forgiven for thinking HMRC are too large an organisation to do anything quickly.

While HMRC may not be winning any awards for its speedy answering of calls anytime soon, it is most certainly proficient at investigating those they believe may not be paying the right amount of tax.

What triggers an investigation?

HMRC claims compliance checks are usually triggered when figures submitted on a return appear to be wrong in someway. If a small company suddenly makes a large claim for VAT, or a business with a large turnover declares a very small amount of tax, this will likely be flagged-up by HMRC.

However, there are some other things that experience has told us may make a business become the target of an investigation:

Although, it is important to mention that investigations can be completely random.

What business taxes does HMRC investigate?

Many different types of business taxes can be investigated, it is not – as many seem to think – limited to income tax. Other areas of taxation that can be investigated are as follows:

What types of investigation are there?

There are three different levels of HMRC enquiry; full, aspect and random.

During a full enquiry, HMRC concerns itself with cases where it believes there is a significant risk of error in the tax return. In this type of enquiry, a review of all records will be undertaken. This can include personal financial records of Directors/Business owners as well as business records.

If a business is subject to an aspect enquiry, then HMRC are concerned about a particular part (or parts) of your accounts and wants more detail. Generally, the outcome points to a genuine mistake or misunderstanding rather than deliberate attempts to evade tax. This type of enquiry shouldn’t be taken lightly, and should be treated just as seriously as a full investigation.

The third type of enquiry is purely random. HMRC simply picks a selection of businesses completely at random to investigate.

What happens once HMRC have decided to investigate?

Once HMRC have decided to conduct a tax investigation, you will be obligated to provide the information they require. Having said that, you can argue against the decision to investigate if you believe HMRC’s reasoning to be incorrect. The rest is in the hands of HMRC, they will look into exactly what caused the anomaly – more often than not is is due to nothing more than a minor discrepancy and the case is quickly closed.

Occasionally though, some cases will need a more detailed investigation and HMRC may request further information.

What are the possible outcomes?

What happens next depends on what HMRC finds. Some of the most common outcomes and solutions include:

Overpaid tax

In this instance, the taxpayer will receive a tax rebate with interest.

Underpaid tax

This outcome will result in the taxpayer being formally required to pay any tax owed within 30 days, possibly with interest added.

Deliberate wrongdoing

If HMRC conduct a tax investigation and conclude there was deliberate wrongdoing on the part of the taxpayer, then HMRC may escalate the case to criminal status.

If this happens, you may have to pay a penalty. The amount will depend on factors such as why you underpaid or over claimed tax, if you told HMRC about any mistakes as soon as possible, and if you were cooperative throughout the enquiry,

When does an investigation end?

The end of an investigation is officially marked by a decision notice or agreeing a contract settlement.

Decision notices are usually received in the form of a letter detailing exactly what the final position is, and can include a penalty notice or an assessment.

A contract settlement is a legally binding agreement between HMRC and the taxpayer, whereby the taxpayer agrees to pay the money and HMRC agrees not to use its powers to recover the money.

Once a return has been investigated, it cannot be investigated again.

Should you find yourself facing a tax investigation, you can contact us.


8 thoughts on “What to Expect in a HMRC Tax Investigation

  1. Gillian wall says:

    Hi I am authorised to act on behalf of my husband it has resents come to light he has memory and mental issues, which we are trying to get assessed. Basically he had made
    a complete mess of this return.
    which he amended in 2017 on several occasions. I have identified this refund and with the help of my sons have repaid this amount in full. His hmrc is now stating he has a credit of £450.00. Does this mean HMRC have acknowledged this payment, and what do I need to do?
    Thank you
    If there is a fee for for your advice please let me know.

    1. Aston Shaw says:

      Hi Gillian,

      Thanks for your comment. In this case, I would suggest that you simply call HMRC on 0300 200 3310 and explain the situation – please be warned that there might be a wait trying to get through to someone!

      I wish you luck in resolving this issue.

      Kind Regards,

      Aston Shaw

  2. Concerned offical says:

    If an offical of a club pays herself over £3000 in travelling allowance when she lives less than 15 miles away and justifies it as she can do it tax free because she is over 70 years old is it legal.? Also if the inland revenue gets involved would it be the club or individual that will be accountable.?

    1. Aston Shaw says:

      Generally speaking, travel to your regular workplace, i.e. your only place of work is not something you can claim against for tax. Any payments made in addition to expenses being recovered on club related expenditure should be included as wages and liable for tax depending on the individual’s exact situation.

      Clubs can vary in nature and the exact level of tax due can vary, you should always consult an expert to advise on your individual situation. Any ‘pay’ to employees will be treated as net of tax by HMRC and the club would be liable for any PAYE/NIC contributions due.

  3. CH says:

    I am self employed, and 3 years ago became VAT registered. I sold a product to a British man in France, and as far as I am aware I did everything correctly in terms of invoicing, I did not charge VAT, and made note on the invoice of his VAT registration no. Afterwards the customer became adamant I had charged him VAT, and demanded I refund him around £75. I refused, and explained why. The customer became quite aggressive over email and threatened to report me for VAT fraud, as he claimed he used to be a tax inspector. Under advice, I ignored his emails, as I believe I did his transaction correct. However, after a week of quiet, he has forwarded an email showing me that he has in fact reported me.
    My accounts are generally in order for myself, I do my tax and vat returns myself. My main worry is having HMRC knocking on the door and taking a long time to go through everything, meaning I cannot work and earn. And then the worry on top of IF I did anything wrong whilst they investigate.
    My question, are they likely to act on a tip off for £75 – it will show on my next VAT return that I sold this to him ( I do not sell much at all to outside of the UK).
    If they do turn up, what could I expect to have to do?
    If there are any minor irregularities, will I be given an opportunity to correct, providing it is not a silly amount?

    1. Aston Shaw says:


      This sounds to us as if it could be a scam. If you did not know the customer personally, they could well be using scare tactics to get you to part with more money than you need to.

      If you are concerned, I would contact HMRC and explain the situation to them over the phone. You can also ask whether they have received any such complaint from the customer. This shouldn’t take too long and will hopefully give you peace of mind.

      If this is a genuine complaint to HMRC, there is no guarantee that they will not investigate this matter further, however as with most investigations, the more you are compliant and responsive to their requests, the lesser your likely punishment if wrongdoing is found.

  4. Ben says:

    Hello I put a tax return in and have not received it 5 weeks later when I rang up she said it was being checked and my status on my self assessment still says it’s pending does this mean my return is being investigated

    1. Aston Shaw says:

      From our experience it does sound like HMRC may be checking or “Investigating” the return. This is when HMRC verify the data submitted against the data they hold to identify any differences. We would recommend asking HMRC for a confirmation letter and then I would appoint an accountant to assist you with the investigation to ensure HMRC are being fair.

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