No one looks forward to seeing any brown letter drop on the doormat. But your stomach drops as you rip open the latest letter from HMRC and see the words “Tax Investigation.” Shock and panic set in. Why me? What did I do wrong? Am I going to prison? Will I have to pay a massive fine? 

Take a breath – we’re here to help.

Navigating an HMRC inquiry can be intimidating but you don’t have to face it alone. This guide breaks down what to expect, how to respond, and where to get help. So you can arm yourself with answers to common questions about the process, timeframes, and potential outcomes.

What is an HMRC investigation?

An HMRC investigation is when HMRC looks into your tax affairs to check if you’re paying the right amount of tax. This doesn’t just cover income tax, but also:

• VAT
• Corporation tax
• Capital gains tax
• Construction Industry Scheme (CIS)
• IR35

There are three types of investigation:

1. A Full Enquiry: This is where HMRC looks at your whole business records, usually because they think there’s a large risk of error in your tax. 
2. An Aspect Enquiry: This is where HMRC will look at a part of your tax affairs. Like a section of your tax return.
3. A Random Check: This is where HMRC decides to make a random investigation into your tax affairs (nowhere near as exciting as winning the lottery, sorry).

Why am I being investigated by HMRC?

HMRC can investigate your tax situation whenever they like, and they could simply be investigating you as part of a random check. 

But here are some of the things that trigger an HMRC investigation:

• Incorrect information on your tax return
• Someone alerting HMRC to unusual activity in your accounts
• Working in a high-risk industry (for example, one that accepts a lot of cash payments)
• Always filing your tax returns late (so try and stay on the ball!)
• Large inconsistencies in revenue from one year to the next 
• Your accounts not matching industry norms

What is HMRC going to look at?

Usually, an investigation will start by looking into last year’s tax returns. But, HMRC can look at any information relevant to their investigation. For example, they might look at:

• Sale invoices or records
• VAT records
• Job quotes or estimates
• Expense receipts
• Payroll records
• Bank statements
• Credit card statements
• Purchase invoices

There are limits to how far back they can look, and these limits vary depending on the reason for the investigation. 

If HMRC are doing a random check, they can look back 4 years. 

If HMRC are investigating careless behaviour, they can look back 6 years. 

If they are looking into deliberate behaviour (such as possible tax fraud), they can look back 20 years. 

What do I need to do during the investigation?

Once HMRC has decided to investigate you, you’ll need to provide them with all the information they ask for (see the list above of possible documents they might need).

Sometimes you can argue against the decision. (Something we can help you with)

During the investigation an HMRC audit team looks across your accounts. They’ll ask you questions about your tax affairs, revenue, etc. And they may visit you at home or at your place of business. 

Basically, you’ll need to set aside a fairly large amount of time. And, depending on the size of your business, staff resources as well. An investigation will probably mean you’ll have less time to run your business or work with clients. You’ll need to be answering HMRC’s questions, responding to their emails and letters, and finding the information they need.

The best idea? To get the help of a professional. At Red 76 Tax we specialise in helping people and companies navigate tax investigations. 

We can make the whole process as painless as possible, make sure you’re complying, and help you find the documentation you need. 

Talk to us here

What’s going to happen after the investigation?

When HMRC has finished their investigation, they’ll send you a decision notice. 

There are a few possible outcomes:

1. 1. You’ve overpaid tax: so you’ll get a lovely rebate!
   2. You’ve underpaid tax: so you’ll need to pay HMRC the money you owe.
   3. You’ve deliberately done something wrong. 

If this last outcome happens, the case is raised to criminal status. You may have to pay a penalty. This will depend on the reasons for your actions, how quickly you told HMRC about it, and whether or not you cooperated through the investigation.

How can I get help with an HMRC investigation?

There’s no way to avoid it – being investigated by HMRC can be a stressful process. And the nature of HMRC communication can leave you even more confused. 

That’s why we, here at Red 76 Tax, are committed to deciphering sentences full of acronyms and letters that you can’t work out whether you’re in trouble or not. 

We hold your hand through the whole process, so you always know what’s going on, and what you’re meant to be doing. We don’t leave you in the dark and then plonk an invoice on your desk. 

If you’re staring at a brown envelope and worrying about what’s inside, the best thing you can do is give us a call.