HMRC Investigations: A Complete Guide

Concerned about an HMRC investigation? It’s a very stressful time and you’ll have many unanswered questions. What does it entail? Why are you under investigation? What information do they need? What happens if errors are found?

In this article, we’ll discuss everything you need to know about HMRC investigations.

 

What is an HMRC investigation?

An HMRC investigation looks to see if you are paying the correct tax now and historically. If they find you are not/have not been paying the correct tax, they want to determine if this is deliberate or by mistake/carelessness, and recover the tax and issue an appropriate penalty.

There are 3 main types of HMRC investigation:

• Full enquiry – a detailed investigation looking at all of your tax affairs for the year relating to the investigation.
• Aspect enquiry – an investigation of a single aspect of your tax return.
• Random check – initiated at random, usually an investigation into a single aspect, but may become a full enquiry if the evidence suggests this is necessary.

The scope of the investigation may change based on the information that is uncovered.

 

Why might HMRC investigate me?

There are many triggers for HMRC investigations, including errors/late submissions of your tax returns, odd fluctuations in your financial records, tip-offs, and completely random checks.

 

Will I know if I am under investigation?

When you are first on HMRC’s radar, you won’t be notified straight away. As soon as HMRC begins a formal investigation, you’ll be notified.

 

How long does an HMRC investigation take?

The time it takes HMRC to complete their investigation depends on the detail of the evidence available to them and the severity of the suspected tax fraud. It can take as little as 3 months for an aspect enquiry, to 12 months or longer for a full enquiry.

What information does HMRC look at?

HMRC will request a variety of documents from you to help them with their investigation, and they are legally entitled to information which will reasonably help their case. You are legally expected to provide it within the specified time frame.

The information they may ask for may include:

• Bank statements
• VAT records
• Payroll records
• Credit card statements
• Expense receipts
• Sales invoices
• Details of cloud accounting software / copy of records on disk

You may be asked to attend a voluntary interview with inspectors. You can ask your accountant and/or solicitor to attend with you (and you should!).

HMRC also has the power to check your bank account without your explicit permission if it will help them with their investigation.

 

How far back can HMRC investigate?

The length of time HMRC can go back to investigate your tax depends on the type of tax fraud involved and how severe the fraud is.

For carelessness/mistakes, they can go back 4-6 years. For deliberate evasion, they can go back as far as 20 years.

 

What is the investigation process like?

The process varies between investigations but in general, it follows this process:

1. Notification of investigation – you’ll receive a letter from HMRC saying you are under investigation and what they seek to investigate in particular.
2. Gathering of information – HMRC will request specific information from you, which you must submit by a specific date. They will also interview certain individuals in the company.
3. Data analysis – HMRC will spend time analysing the evidence they’ve unearthed, looking for errors.
4. Request for further information – HMRC may need clarification on certain aspects of the evidence they have, or they may need more information, which you must supply.
5. Meeting with HMRC – You may need to meet with HMRC with your accountant and/or solicitor present. You can present your case and respond to issues HMRC highlights.
6. Outcome – HMRC will decide whether any further action is required. They may close the investigation with no further action, correct your documents, issue a penalty, or begin criminal proceedings.

 

What penalties might I face?

The penalties for tax evasion can be severe – up to 7 years imprisonment (a life sentence for the most serious cases) and/or an unlimited fine.

What should I do if I am facing an HMRC investigation?

If you’re facing an investigation by HMRC, it’s important to act quickly and seek professional legal help.

It’s hard to dispute much of the evidence HMRC uncovers during their investigation. Instructing a tax fraud solicitor is critical as they have the expertise and experience to advise you how to cooperate with HMRC, and they can negotiate with HMRC on your behalf to secure no or reduced penalties.

A tax fraud solicitor is a better choice than simply using a tax accountant because of their extra knowledge of how the legal sector operates – and solicitors can instruct tax accountants on your behalf, giving you the best of both worlds.

If you are currently, or think you may soon face an HMRC investigation, please contact Holborn Adams urgently. The sooner we begin working on your defence, the better the outcome.

---