2 min read HMRC

How to Deal with an HMRC Compliance Check

An HMRC compliance check can cover VAT, PAYE, Self-Assessment, or Corporation Tax. Here is what to expect and how to respond effectively.
How to Deal with an HMRC Compliance Check

An HMRC compliance check is a review of your tax affairs — it may be triggered randomly, by inconsistencies in your returns, by a tip-off, or by HMRC's risk profiling. Unlike a full investigation, a compliance check is often narrower in scope but can still result in additional tax being owed. Knowing how to respond professionally and calmly is essential.

Types of Compliance Check

HMRC compliance checks fall into several categories: VAT inspections (reviewing your VAT records, invoices, and returns); employer compliance reviews (checking that PAYE, NI, and payroll are being operated correctly); Self-Assessment or Corporation Tax enquiries (examining your income, expenses, or specific items in your return); CIS (Construction Industry Scheme) reviews; and customs and excise checks for businesses dealing with imports, exports, or alcohol and tobacco.

Receiving the Check Notice

HMRC usually notifies you in writing before a compliance check, explaining which tax and which period will be examined. For VAT inspections, HMRC officers may visit your premises — they should give you advance notice, though they can visit unannounced in exceptional circumstances. You have the right to have your accountant or tax adviser present at any meeting.

What HMRC Can Ask For

HMRC may request: business records (invoices, purchase records, bank statements, till rolls, stock records); payroll records (wage books, timesheets, P60s, P45s); VAT records (VAT account, input and output tax records); any other documents relevant to the period under review. They have formal powers to issue statutory information notices requiring documents within a set timeframe, with penalties for non-compliance.

Preparing Your Records

Before HMRC arrives or responds to a written notice, review the period being examined. Identify any areas where your records are incomplete or where your treatment of an item might be questioned. It is much better to raise any issues proactively than to have HMRC discover them. Your accountant can help you identify risk areas and prepare a clear response.

During the Check

Be cooperative and provide what is requested promptly, but do not volunteer information beyond what is asked. If you do not understand a question, ask for clarification. If you are unsure of an answer, say so rather than guessing. Anything you say or provide can be used in the check. Having your accountant present at any meetings provides a buffer and ensures you do not inadvertently prejudice your position.

Outcomes

A compliance check may conclude with no changes, an agreed adjustment (additional tax and possibly a penalty and interest), or in serious cases, a formal assessment. Penalties for compliance failures depend on whether the error was careless, deliberate, or deliberately concealed — ranging from 0% for genuine mistakes to 100% for concealment. Disclosure and cooperation reduce penalties significantly.

Time Limits

HMRC can normally go back 4 years for innocent errors, 6 years for careless errors, and 20 years for fraud. Keep all business records within these timeframes — destroying records prematurely can itself be treated as a compliance failure.

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