Most tax investigations start with a letter. Knowing what has happened, why HMRC may be interested and what your options are puts you in the strongest position from the outset. If you think something may be wrong with your tax affairs, acting before HMRC contacts you almost always leads to a better outcome.
What triggers an investigation?
HMRC does not publish its selection criteria, but most enquiries are risk-based. HMRC’s data systems compare your returns with information from banks, letting agents, online platforms, the Land Registry, Companies House and overseas tax authorities. Common triggers include:
- income or expenses that do not match third-party data or look out of line for your sector
- large or unusual fluctuations in income, profits or claims
- late or missing returns and payments
- undeclared rental, overseas or online income
- targeted campaigns aimed at particular trades or types of income
Some enquiries are simply random checks.
Nudge letters and compliance checks
HMRC increasingly sends “nudge” letters asking taxpayers to review their position, often about overseas income, rental profits or capital gains. A nudge letter is not a formal enquiry, but it should never be ignored. How you respond can affect any penalties if HMRC later opens an enquiry, so take advice before replying or signing any certificate HMRC encloses.
How far back can HMRC go?
HMRC can usually open an enquiry into a Self Assessment return within 12 months of the date it was filed. Outside that window, HMRC can still raise assessments where it discovers tax has been underpaid:
- up to 4 years where you took reasonable care
- up to 6 years where the error was careless
- up to 20 years where the error was deliberate
Longer time limits of up to 12 years can apply to most offshore matters.
Putting things right first
If you know there is a problem, a voluntary (unprompted) disclosure gives you the lowest penalties and the most control. Depending on your circumstances, this may be made through:
- the Let Property Campaign for undeclared rental income
- the Worldwide Disclosure Facility for offshore income and gains
- HMRC’s Digital Disclosure Service for most other income
- the Contractual Disclosure Facility where there is a risk that HMRC may suspect fraud
Be prepared
Keep your records for the required period: generally at least 22 months after the end of the tax year for individuals, five years after the 31 January filing deadline for the self-employed and landlords, and six years for companies. Tax investigation fee protection insurance can also cover the professional cost of dealing with an enquiry.
How we can help
- A confidential review of your position before HMRC makes contact
- Advice on responding to nudge letters
- Voluntary disclosures through the right HMRC facility
- Fee protection for future enquiries
Already received a letter? See During a Tax Investigation.
Book a confidential appointment to discuss your position.
This page is for general information only and does not constitute advice. Please contact us before acting on any of the matters discussed.