Enquiry letters from HMRC

HMRC have the right to enquire into any type of tax return, with common areas of investigation being self-assessment tax returns, corporation tax returns, PAYE submissions, and VAT returns.

Some enquires are carried out at random, but the majority are selected by way of risk assessment. HMRC have a sophisticated risk assessment computer system, which stores data from various sources including banks, local authorities, the Land Registry and the DVLA. This system is used to identify taxpayers with potential tax anomalies that warrant an enquiry.

The initial letter from HMRC will state that an enquiry is being undertaken and will typically include an informal request for information. HMRC do not have to state why the enquiry has been opened.

If you receive an enquiry letter, there are several key questions to ask before replying:

1. Is the enquiry in time and has it been opened correctly? HMRC must comply with legislation when it comes to opening an enquiry. Do not automatically assume that HMRC have followed due procedure. If, for example, HMRC have opened an enquiry outside of the specified time frame, you do not need to supply the requested information.

2. It is an aspect or full enquiry? Where HMRC are only looking at specific areas of a return (aspect enquiry), the level of information to supply will be much less compared to a full enquiry, which looks at a tax return in entirety.

3. Who is the letter from? If there is an indication that HMRC are investigating fraud, professional advice should be sought. This could be indicated by the mention of Code of Practice 9, the Civil Investigation of Fraud team, or the Criminal Taxes Unit.

4. Are HMRC entitled to the requested information and why are they asking for it? HMRC should only request information that would reasonably be required to verify the tax position. HMRC have been known to request the personal bank statements of business owner(s), but this request should be denied unless HMRC can justify the need. If it is unclear why information is being requested, you have every right to ask HMRC for explanation.

5. Is the time frame to reply reasonable? Often a letter from HMRC will be received much later than the date on the letter and this may make it difficult to meet any specified deadline. Do not reply under pressure as this could lead to incorrect information being provided. Instead, ask for more time.

6. Has a meeting or visit to your business premises been requested? HMRC will only make an onsite visit if it is commercially viable for them to do so i.e., the potential tax recovery is expected to exceed the cost of the visit. For this reason, it is vital to be fully prepared in advance – Ask HMRC for a meeting agenda and a list of intended questions.

7. What is the impact of providing the requested information? Full consideration should be given to the implications of your reply – Do you know that there are inconsistencies in your records? What direction could the enquiry go in? It may be worth disclosing any known errors/mistakes to minimise possible penalties.  

If you have received a HMRC enquiry letter and are in any doubt as to how to respond, please seek professional advice.

Here at Whitings LLP, we have a wealth of experience in dealing with HMRC enquiries, so please get in touch for support and guidance.

Disclaimer - All information in this post was correct at time of writing.