What to do when an HMRC letter arrives
Read it carefully and note the date HMRC wants a reply by. Do not ignore it, and do not rush a reply either. Many problems in an enquiry start with a quick answer sent the same evening, which later turns out to be incomplete or wrong.
Send us a copy as soon as you can. We will tell you what kind of check it is, what HMRC is asking for and how long you have. If the deadline is too tight to gather the information properly, we can ask HMRC for more time. HMRC will often agree to a reasonable request made before the deadline passes.
Types of HMRC checks
An aspect enquiry looks at one part of a return, such as a large expense claim or a capital gain. A full enquiry looks at the whole return and the records behind it. Some checks are random, but most are triggered by something HMRC has noticed, such as figures that do not match information it holds from banks, letting agents, online platforms or Land Registry.
There are also VAT inspections, employer checks on payroll and benefits, and CIS reviews for construction firms. In more serious cases HMRC uses a set of procedures known as Code of Practice 8, for complex tax avoidance, and Code of Practice 9, where it suspects fraud. A Code of Practice 9 letter needs specialist help straight away.
What is included
- Review of HMRC letters and deadlines
- Acting as your agent in all contact with HMRC
- Preparing records and answers to information requests
- Self assessment, VAT, payroll and CIS checks
- Negotiating tax, interest and penalty amounts
- Voluntary disclosures, including the Let Property Campaign
- Worldwide Disclosure Facility submissions
- Preparation for and attendance at HMRC meetings
How long HMRC can look back
For a self assessment return filed on time, HMRC normally has 12 months from the date it was filed to open an enquiry. After that, it can still raise an assessment if it discovers tax was lost.
How far back it can go depends on why the tax was lost. The normal limit is 4 years. That extends to 6 years where the error was careless, and up to 20 years where it was deliberate. This is one reason why the way a mistake is described to HMRC matters so much.
- Genuine mistake despite taking reasonable care: usually 4 years
- Careless error: up to 6 years
- Deliberate understatement: up to 20 years
How we handle an enquiry for you
Once you authorise us as your agent, HMRC will deal with us. We review your records first, before anything is sent, so we know where the strong and weak points are. Then we answer HMRC's questions with the information it is entitled to ask for, explained clearly and in order.
We keep you informed at each step. Where HMRC asks for something that goes beyond what the law allows, we say so politely. Where there is tax to pay, we work to make sure it is calculated correctly and that any penalty reflects the full help you have given. If a meeting is requested, we prepare you for it and attend with you.
Putting past mistakes right voluntarily
Penalties are usually lower when you tell HMRC about a problem before it asks. That is called an unprompted disclosure. HMRC has specific routes for this. Landlords can use the Let Property Campaign for undeclared rental income. People with untaxed income or gains abroad can use the Worldwide Disclosure Facility. Others use the general digital disclosure service.
We see this often in Fulham, Chelsea and Kensington, where people have let a flat while working abroad, or sold a property without realising tax was due. A UK residential property sale with tax to pay must normally be reported and paid within 60 days of completion, and many people miss that rule entirely.
What to have ready
HMRC will usually want to see the records behind the figures it is checking. Getting them together early means we can spot problems before HMRC does and decide how best to explain them. If some records are lost, tell us. There are accepted ways to rebuild figures from bank statements and other sources, and it is far better to raise a gap yourself than to have HMRC find it.
Keep copies of everything you send and receive, and do not throw anything away once an enquiry has started.
- The HMRC letter and any earlier correspondence
- The tax return or VAT return being checked
- Bank statements for the period in question
- Invoices, receipts and agent statements behind the figures
- Details of any loans, gifts or transfers between accounts
Common mistakes during an investigation
Sending HMRC the full set of bank statements for every account when it has asked about one item is a frequent one. It can widen the enquiry for no reason. Guessing at figures is another. If you do not know an answer, it is better to say so and find out.
Some people pay the amount HMRC proposes simply to make it stop. Sometimes that is sensible, but HMRC calculations can be wrong, and penalties in particular are often open to reduction. It is worth having them checked first. Fees are fixed and agreed before any work starts, after a free review of the letter and your records.
Who this suits
- Self employed people and landlords facing an enquiry
- Company directors with a corporation tax or VAT check
- Landlords with rental income that was never declared
- People with income or gains abroad not reported in the UK
- Anyone who has received a nudge letter from HMRC
Common questions
Why has HMRC opened an enquiry into my tax return?
Usually because something in your return does not match information HMRC holds, or because a figure looks unusual for your type of business. Some enquiries are random. The letter often hints at which area it is interested in.
How long does an HMRC investigation take?
A simple aspect enquiry can be closed in a few months if the answers are clear. Full enquiries and investigations into several years can take much longer. Replying fully and on time keeps things moving.
What is a nudge letter from HMRC?
It is a letter suggesting you may have income you have not declared, often from abroad, property or online selling. It is not a formal enquiry, but you should take it seriously and check your position before replying.
Can HMRC investigate me if I have done nothing wrong?
Yes. HMRC carries out some random checks. If your records are in order, an enquiry can often be closed with no changes. Having someone respond on your behalf keeps it focused.
Will I get a penalty if I tell HMRC about a mistake?
It depends on why the mistake happened. Where you took reasonable care, there is usually no penalty. Careless or deliberate errors can bring penalties, but they are lower when you tell HMRC first and help fully.
I have not declared rent from a flat. What should I do?
The Let Property Campaign lets landlords disclose past rental income on better terms than if HMRC finds it first. We work out the tax owed for each year and handle the disclosure for you.
Should I speak to HMRC myself?
You can, but it is usually better to let an accountant reply. Answers given in a hurry can be hard to correct later. Once we are authorised, HMRC will contact us directly.