What tax enquiries can HMRC make?

In a bid to improve HMRC’s ability to manage tax debts and tax collection, the Government is investing a further £140m in extra resources. The Spring Budget pledge, which comes after a £163m investment in HMRC’s debt management team (announced last autumn), is expected to raise £4.3bn of tax revenue over the next five years.

It’s the latest measure to reduce the tax gap which stands at £35.8bn and we fully expect HMRC to continue to use its powers to focus on compliance reviews into businesses and individuals alike.

Tax officials, who are focused on tackling HMRC’s debt balance, can open a variety of enquiries into an individual’s or company’s tax affairs, ranging from a general enquiry to an in-depth tax fraud investigation.

Tax enquiries can happen to anyone – some taken up on an entirely random basis - so it is worth familiarising yourself with the types of enquiries HMRC conducts.

Enquiries and compliance checks

General enquiries, also referred to as ‘full’ or ‘aspect’ enquiries, are the most common. For individuals, these are initiated under Section 9A of the Taxes and Management Act 1970, and are a formal investigation into your tax return. These are typically undertaken if HMRC has concerns about the accuracy and completeness of a return but can be opened for any reason.

As long as your return was submitted on time, HMRC must give written notice within 12 months of its submission. If you receive an enquiry letter you will need to gather all the information and documentation requested and respond accordingly within the relevant time periods to mitigate any potential penalties.

Discovery Assessments

Discovery Assessments enable HMRC to recover an underpayment of tax up to 20 years after the end of a tax year. Unlike a general enquiry though, there are conditions for a valid discovery assessment:

• HMRC must have made a discovery;
• there must be a loss of tax; and
• assuming a return has been completed, either:
  
  • Insufficient information was provided to HMRC; or
  • Errors were made deliberately or due to carelessness.

Provided these conditions are met, the number of years HMRC can go back can vary between 4 and 20 years after the end of the tax year depending on the underlying conduct of the taxpayer

Fraud Investigations

HMRC will conduct its most intrusive enquiry under Code of Practice 9 (COP9) if it suspects income or gains have not been disclosed and tax has been deliberately avoided. Conducted by its Fraud Investigation Services team, this is the most serious type of civil investigation by HMRC and we would strongly suggest seeking professional advice at an early stage.