HMRC will regularly carry out checks to ensure that individuals and businesses are keeping up with their tax obligations. Though HMRC won’t initiate a check without warning, the process can be complex to navigate and ultimately stressful without the right knowledge and support.

It’s important that businesses and individuals understand what a compliance check entails, how to prepare for it, and what to do in the event that any discrepancies are found.

What is an HMRC compliance check?

HMRC will conduct a compliance check to investigate whether or not individuals or businesses have been paying the correct amount of tax. For a business, the checks will cover the various taxes that come with running a business, including income tax, corporation tax, VAT and national insurance.

There are a number of events that can prompt an HMRC compliance check. Inconsistencies in tax returns, significant changes in income or expenses, or third-party information suggesting tax avoidance can all prompt an investigation. Failing that, organisations can also be selected at random.

What will HMRC check?

First, HMRC will make contact with the taxpayer to confirm that they are conducting a compliance check. This contact can be made through the taxpayer’s appointed agent which will usually be an accountant.

HMRC can request and look at the following information:

How it works

During a compliance check, HMRC will send a letter to the taxpayer confirming that a check will take place. This letter will usually include an information notice, outlining the reasons for the compliance check and a request for the information and documentation that HMRC will need.

The subject of the investigation will have a set period of time to provide the required information and documentation. If HMRC isn’t satisfied with the documentation provided, it can also attend a taxpayer’s premises to inspect any documents in person. If a visit is required, HMRC will usually notify the taxpayer in advance and will request that the required documentation is made available for inspection when they arrive.

That said, HMRC is also entitled to visit premises without notifying the taxpayer. If this does happen, HMRC will be required to produce a notice that explains the reason for the visit and evidences the basis on which it was authorised, either by an officer or tribunal.

Refusing to comply

Non-compliance can be a costly exercise. If the taxpayer does not comply with HMRC’s information notice and allow access to the correct documentation, they risk receiving a fine that is imposed daily until the necessary information is provided.

Similarly, if a taxpayer chooses to refuse access to the premises to HMRC, a daily fine will be levied until this access is granted.

After a check has been completed

After a check, HMRC will notify the taxpayer of the results. Broadly, there are two potential outcomes.

If too much tax has been paid, the taxpayer will receive a repayment, possibly with interest on that amount. If any tax is found to be due, a request for payment will be issued and the taxpayer will need to pay it within thirty days, likely with interest from the date the tax accrued.

Additionally, dependent of the outcomes and the investigation, HMRC can impose a penalty. This will depend on the reasons that are provided for any underpayment or incorrect claim for repayment, any admission of error to HMRC within an acceptable period, or the extent of co-operation during the check.

Dealing with discrepancies

A HMRC compliance check can be a stressful experience. In order to deal with any disputes, it’s important that your response to HMRC is accurate, timely, and strategically sound.

Seeking independent legal advice can assist in navigating what is a complex process. Whether it’s providing legal advice, collating the required material or acting as official agents through the compliance check, effective legal representation can assist in securing a favourable outcome.

Author: Timothy Thompson