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Receiving a letter from HMRC about your tax affairs is unsettling. How you respond — and how quickly you take specialist advice — can make a significant difference to the outcome. HMRC opens tens of thousands of enquiries every year. These range from routine questions about a single return entry to full criminal fraud investigations. Understanding which type of enquiry you face, what HMRC wants, and what your rights are throughout the process is essential. Our tax advisors at Tax Accountant support individuals, landlords, directors and businesses at every stage of HMRC investigations. The most important thing we tell every client is this: do not respond to HMRC without taking specialist advice first.
Why HMRC Opens Enquiries and How It Selects Targets
HMRC uses risk-profiling, data matching and intelligence to decide which returns to investigate. Its Connect system draws on data from Land Registry, Companies House, financial institutions, overseas tax authorities and social media. It flags discrepancies between what taxpayers declare and what other data sources suggest they earn or own. A gap between reported income and lifestyle, an undisclosed property sale, unreported offshore income or returns inconsistent with industry norms can all trigger HMRC’s interest.
Some enquiries are random. HMRC can open an enquiry into any return within twelve months of the filing date without needing a specific reason. Others are targeted and tend to be more serious. Where HMRC holds specific intelligence suggesting underreporting, the enquiry is likely to be broader and harder to resolve quickly. HMRC’s own guidance on compliance checks explains their general process.
The Different Types of HMRC Enquiry
Not all HMRC contact carries the same weight. An aspect enquiry focuses on one specific entry in a return. A full enquiry covers the return as a whole and requires the taxpayer to demonstrate it is correct across every area. A discovery assessment applies where HMRC believes an underassessment has occurred and the normal enquiry window has closed. These can reach back up to twenty years in cases involving deliberate behaviour.
HMRC also runs specialist investigation teams. A Code of Practice 8 investigation applies where HMRC suspects serious tax fraud but offers the taxpayer a civil settlement route. A Code of Practice 9 investigation is the most serious civil route. HMRC uses it where it suspects deliberate fraud. Under COP9, HMRC invites the taxpayer to make a full disclosure through the Contractual Disclosure Facility. Accepting the CDF and disclosing fully protects against criminal prosecution. Failing to disclose or rejecting the CDF leaves the door open to criminal investigation. Our specialist team handles COP9 cases through our specialist tax services. Experienced representation from the outset is not optional in these cases — it is essential.
Information Notices and What Happens if You Ignore Them
HMRC has statutory powers to request documents and information under Schedule 36 of Finance Act 2008. An information notice requires the taxpayer to provide specified documents within a set timeframe. Ignoring the notice — or returning HMRC letters unopened — does not make the obligation go away. It leads directly to penalties.
A 2025 tribunal case made this clear. In Marshall v Revenue and Customs [2025] UKFTT 1256 (TC), the taxpayer returned HMRC letters unopened. He argued the correspondence was incorrectly addressed because it included other names alongside his. The tribunal rejected this. The address was correct and the letters clearly named him. Returning them was neither fair nor reasonable. HMRC upheld the penalties and the tribunal dismissed his appeal.
The lesson is straightforward. You do not have to agree with HMRC’s position. But you do need to engage with the process. Our team manages HMRC information notices and compliance checks on behalf of clients. We handle the correspondence and document production so you do not inadvertently make things worse.
PAYE and VAT Investigations
Not all HMRC investigations relate to income tax or corporation tax. PAYE investigations examine an employer’s payroll, benefits reporting and National Insurance compliance. HMRC commonly focuses on benefit-in-kind reporting, expenses payments, contractor arrangements and IR35 compliance. Errors identified across multiple years can produce significant liabilities quickly. Our PAYE investigations service covers all of these areas.
VAT investigations are equally distinct. HMRC’s VAT compliance teams examine input tax claims, the treatment of exempt and mixed supplies, VAT registration thresholds and return accuracy. Overclaimed input tax or misclassified supplies can result in assessments covering several years. Our VAT investigations team reviews the underlying position, responds to HMRC accurately and works to minimise the liability where the facts support it.
Making a Voluntary Disclosure Before HMRC Comes to You
Where a taxpayer knows their tax affairs are not in order, making a voluntary disclosure before HMRC opens an enquiry is almost always the better approach. HMRC’s disclosure facilities allow taxpayers to bring their affairs up to date and pay the tax, interest and penalties due. Unprompted disclosures — made before HMRC has been in touch — attract significantly lower penalty rates than prompted ones.
HMRC runs targeted disclosure campaigns for specific sectors and income types, covering rental income, offshore assets and undisclosed business income. The Worldwide Disclosure Facility remains open for taxpayers with offshore matters to settle. HMRC’s guidance on telling HMRC about underpaid tax sets out the available routes. Our team manages voluntary disclosures from start to finish, making sure the disclosure is complete, accurate and presented in a way that achieves the best possible outcome.
Penalties, Reasonable Excuse and Where the Line Falls
Where HMRC establishes that tax is underpaid, penalties apply as a percentage of the unpaid amount. The rate depends on the nature of the behaviour — careless, deliberate or deliberate and concealed — and whether the disclosure was prompted or unprompted. The range runs from 0% for genuine errors disclosed voluntarily up to 200% for deliberate and concealed offshore matters.
Taxpayers can reduce or eliminate penalties by demonstrating a reasonable excuse. A recent case shows exactly where that boundary sits. In Wals v Revenue and Customs [2025] UKFTT 1331 (TC), a taxpayer from the Netherlands instructed a chartered accountant to file his UK returns. The accountant failed to do so and later died. The taxpayer argued this gave him a reasonable excuse for all the late filing penalties.
The tribunal agreed — but only for the first year. By May 2013, the taxpayer had telephoned HMRC directly to discuss daily penalties for the 2011/12 return. At that point he clearly knew his accountant had failed him. The tribunal found his reasonable excuse ended there. It allowed the appeal for 2010/11 but dismissed the rest.
The practical point is important. Relying on a third party can be a reasonable excuse — but only while you genuinely have no reason to think something has gone wrong. Once you become aware of a problem, acting immediately matters. Our team advises on penalty mitigation and manages appeals through our tax appeals and disputes service.
When HMRC Gets It Wrong
HMRC does not always assess correctly. Taxpayers have formal rights to challenge decisions they disagree with. The first step is usually a statutory review — an independent look at the decision by an HMRC officer not involved in the original case. If the review upholds the decision, the taxpayer can appeal to the First-tier Tribunal. This is an independent judicial body. Cases can proceed further to the Upper Tribunal and beyond if warranted.
HMRC’s guidance on disagreeing with a tax decision sets out the appeals process clearly. Our tax appeals team handles statutory reviews, tribunal preparation and representation across a wide range of disputes. Where the facts and law support a challenge, we pursue it. Where settlement is the more practical outcome, we negotiate to achieve the best possible terms.
How Our Tax Advisors Can Help
An HMRC investigation is not something to handle alone or put off. The earlier you take specialist advice, the more options you have and the better the likely outcome. Whether you have just received an initial enquiry letter, face a COP9 investigation, need to make a voluntary disclosure or want to challenge a penalty, our team is here to help.
We support clients across the full range of HMRC investigation work — from routine compliance checks to serious fraud cases. Our approach is consistent: understand the facts properly, identify the correct legal position, engage with HMRC professionally and protect your interests throughout. Get in touch through our specialist tax services and we will guide you through the next steps.