Have you ever asked yourself, ‘what happens if my business has a HMRC enquiry’? Receiving a letter from HMRC stating that they want to check the accuracy of your most recent accounts can be a very daunting experience. Even if everything is 100% accurate, you start to panic about whether you’ve missed something by mistake.

Understanding the process and what an enquiry actually is, is very important. I’m going to breakdown some key areas to know and hopefully by the end of your read, you’ll be equipped to navigate an enquiry successfully.

What is an HMRC Enquiry?

A HMRC enquiry is an investigation conducted by His Majesty’s Revenue and Customs to ensure that your company tax returns are accurate and comply with UK tax laws. These enquiries can be triggered by various factors, including discrepancies in tax returns, means testing or random selection. Unfortunately for businesses, HMRC do have the power to ask for any information they deem to be reasonable and relevant to their checks. Even if your return is correct.

If your business has a HMRC enquiry, it can have significant impacts for your company. Beyond the obvious being, potential fines and penalties, it can disrupt your daily operations and cause considerable stress.

Types of HMRC Enquiries

Aspect Enquiries

These are the most likely type of enquiry your company will receive. Aspect enquiries focus on specific areas or claims relating to a return. For example, you may have submitted your tax return with a claim for a charitable donation deduction. Depending on how much donations you’re reported and claimed tax relief on, HMRC may enquiry into what makes up this figure. If this happens, you’ll find that the compliance officer does not ask for evidence supporting any other expenses you’ve claimed.

Most compliance checks begin as aspect checks before being upgraded to full enquiries if HMRC believes serious issues are evident. This would be if HMRC discovered you have over claimed on donations deliberately as a method of reducing your tax liability.

Full Enquiries

Full enquiries involve checking a return, including the accounts, in its entirety. These are both costly and time-consuming for both sides. HMRC will usually only open this type of enquiry on the back of an aspect enquiry or if they are already aware of an issue with your return. Therefore, if your business finds itself the subject of a full enquiry, it is usually for a good reason in HMRC’s eyes.

The first indication of a full enquiry is the receipt of a letter accompanied by a Code of Practice leaflet, confirming the type of enquiry, the information expected to be provided, and the deadline for providing this information. If you have received a full enquiry, It’s recommended that you contact a tax professional to handle the case for you. We are experienced in handling these cases.

Implications of a HMRC Enquiry

An HMRC enquiry can result in substantial fines and penalties if discrepancies are found. Additionally, the costs associated with hiring professional advisors to navigate the enquiry can add up quickly. Most accountants and tax professionals will have tax investigation cover for their clients. If you don’t have this cover in place, its recommended that you have it every year. MJ Kane will always have this cover in place for their clients with Vantage.

If you’re found to have inaccuracies in your return, you may be worried about the fines and penalties. The table below is a good indication for the additional liabilities you may incur on top of paying the additional tax found to be owed.

Penalties Table

Type of failureMaximum penalty payable
Non-deliberate30% of the potential lost revenue
Deliberate but not concealed70% of the potential lost revenue
Deliberate and concealed100% of the potential lost revenue

How to Prepare for a Potential HMRC Enquiry

File Your Company Accounts Correctly

One of the best defences against a HMRC enquiry is to simply file accurate accounts. I know, sounds simple. Most accounting software can streamline this process and ensure that all transactions are properly documented. Most importantly, have an accountant, preferably on of ours, complete a compliance check on your company accounts every year.

Regular Compliance Checks

We suggest having a regular assurance report and compliance check on your company accounts. These can help identify potential issues before they attract HMRC’s attention.

Responding to a HMRC Enquiry

If you receive letter of a HMRC enquiry, seeking advice from one of our tax professionals is the best first step. We can guide you through the process and help ensure that you comply with all requirements. Most importantly, we can handle it for you.

When it comes to HMRC, the most important thing you can do is be timely and transparent with them. This is essential during an enquiry. If you try to avoid answering questions, HMRC will have to make assessments and judgements calls which are not likely to be in your favour. Providing the requested information promptly and accurately can help expedite the process, allow HMRC to determine an accurate understanding and potentially mitigate any penalties.

My Business Has a HMRC Enquiry

If your company has a HMRC enquiry, being prepared and having us in the process can significantly reduce your stress. While the idea of a HMRC enquiry can be daunting for company owners, it isn’t for us. Reach out to us and lets talk about what we need to do.