08 Apr 2026 6 min read HMRC

How to Handle a Tax Investigation by HMRC

An HMRC investigation letter is not a conviction. But how you respond in the first 30 days shapes everything that follows.

The Letter That Ruins Your Morning

It arrives without warning — a plain envelope from HM Revenue & Customs, reference number at the top, requesting "information and documents relating to your tax affairs." Your stomach drops. You read it twice, understanding less the second time. You consider calling your accountant, then worry about the bill. You consider ignoring it, then worry about prison.

Neither panic nor paralysis helps. An HMRC enquiry — the official term — is a structured process with defined rules, timelines, and taxpayer rights. Roughly 300,000 compliance checks are opened each year across all taxes. The vast majority end with either no additional tax due or a modest adjustment. Criminal prosecution is extraordinarily rare: HMRC prosecuted fewer than 600 individuals in the last full reporting year. Understanding the process removes most of the fear.

Why HMRC Opened Your Enquiry

HMRC does not select taxpayers randomly, despite what their guidance implies. Their Connect system — a data-matching platform that cross-references over 30 billion data points — flags discrepancies automatically. Common triggers include: a significant drop in declared income compared to previous years, lifestyle indicators inconsistent with reported earnings (property purchases, car registrations, social media), discrepancies between your return and information reported by employers, banks, or HMRC's own records.

They also run sector-specific campaigns. In recent years, landlords, cryptocurrency traders, online marketplace sellers, and construction subcontractors have all been targeted. If you operate in one of these sectors, your risk of enquiry is materially higher than the general population — not because you have done anything wrong, but because the sector has a statistically higher non-compliance rate.

There are two types of enquiry. An aspect enquiry examines a specific entry or claim on your return — perhaps a large expense deduction or an unusual capital gains figure. A full enquiry (also called a "random" or "full" compliance check) reviews your entire return. Full enquiries are less common but more intrusive. The opening letter will usually indicate which type you face, though not always clearly.

The 12-Month Window

HMRC can open an enquiry into any self-assessment return within 12 months of the filing date. If you filed your 2024/25 return on 15 October 2025, the window closes on 15 October 2026. If you filed on the 31 January deadline, the window runs to 31 January 2027. File early, and the clock starts ticking earlier — one of the few tactical advantages of early filing.

There is an important exception: if HMRC suspects deliberate understatement or fraud, they can go back 20 years. For careless (but not deliberate) errors, the lookback period is 6 years. For innocent errors, 4 years. The classification matters enormously because it determines both the period under review and the penalty regime.

Your First 30 Days

Do not reply immediately. You typically have 30 days to respond, and using most of that time is both acceptable and advisable. Here is what to do in that window.

First, contact a tax adviser — ideally a chartered accountant or chartered tax adviser (CTA) with specific enquiry experience. General accountants can handle routine compliance, but an HMRC investigation requires someone who knows the procedural rules, penalty negotiation, and when to push back. Ask for a fixed fee or capped estimate. Most initial consultations are free or under £200.

Second, gather your records. HMRC will request specific documents — bank statements, invoices, receipts, contracts. Under the Taxes Management Act 1970, you are legally required to keep records for at least 5 years after the 31 January filing deadline (6 years for business records). If records are missing, say so early. Reconstructing records with bank statements is acceptable. Fabricating them is a criminal offence.

Third, do not volunteer information beyond what is requested. This is not about being obstructive — you have a legal obligation to cooperate. But HMRC's opening letter will ask for specific items. Provide those items, clearly and completely. Do not attach a narrative explaining your entire financial history. Every additional piece of information is a potential thread for HMRC to pull.

What HMRC Can and Cannot Do

HMRC has broad information-gathering powers under Schedule 36 of the Finance Act 2008. They can demand documents, require you to attend meetings, and issue third-party notices to your bank, employer, or clients. They can visit your business premises by appointment (or without appointment if they suspect tax fraud, though this is exceptional).

What they cannot do: enter your home without a warrant, compel you to attend an interview under caution without legal representation, or impose penalties without giving you the opportunity to appeal. You have the right to appoint an agent (your accountant or tax adviser) to deal with HMRC on your behalf. You have the right to request that all communication goes through your agent. Use this right — it creates a buffer that prevents you from saying something unhelpful in a moment of stress.

The Meeting

HMRC may request a face-to-face meeting, particularly in full enquiries or where they suspect significant irregularities. You can decline — there is no legal obligation to attend an informal meeting (as distinct from a formal interview under caution). However, declining can prolong the enquiry and may be interpreted unfavourably.

If you attend, bring your adviser. Prepare specific answers to likely questions but do not rehearse a script — HMRC officers are trained to spot prepared responses. Be honest, be concise, and if you do not know the answer to a question, say so. "I would need to check my records" is always preferable to guessing.

Penalties: The Framework

If HMRC finds that you owe additional tax, penalties are calculated as a percentage of the "potential lost revenue" (PLR) — the tax that should have been paid. The percentage depends on the behaviour:

Reasonable care taken but error made: 0% penalty (you just pay the tax plus interest)
Careless error: 0-30% of PLR
Deliberate but not concealed: 20-70% of PLR
Deliberate and concealed: 30-100% of PLR

Within these ranges, the actual penalty depends on whether you made an "unprompted" disclosure (you told HMRC before they found the error) or a "prompted" disclosure (they found it first). Unprompted disclosures receive substantially lower penalties. If you discover an error during an enquiry, disclose it immediately — do not wait for HMRC to find it. The penalty reduction is significant: a careless error with unprompted disclosure typically attracts 0-15%, versus 15-30% if prompted.

HMRC also has the power to suspend penalties for careless errors for up to two years, subject to conditions (such as improving your record-keeping). If offered a suspension, take it seriously — meet the conditions and the penalty is cancelled entirely. Fail the conditions and it becomes payable immediately.

How Long It Takes

HMRC's internal target is to close enquiries within 18 months. In practice, aspect enquiries often resolve in 3-6 months. Full enquiries can stretch to 2-3 years, particularly if they expand in scope or if the taxpayer is slow to provide information.

You can apply for a "closure notice" under Section 28A or 28B of the Taxes Management Act if you believe HMRC is dragging its feet. The First-tier Tribunal can direct HMRC to close an enquiry if there is no reasonable basis for keeping it open. This is a powerful but underused tool — most taxpayers do not know it exists, and most advisers are reluctant to antagonise HMRC by using it.

My recommendation: if an aspect enquiry has been open for more than 12 months without clear progress, instruct your adviser to write formally requesting closure. If a full enquiry exceeds 24 months, consider applying to the Tribunal. HMRC officers have large caseloads and sometimes cases simply fall to the bottom of the pile. A formal nudge often accelerates things.

The Outcome

Most enquiries end in one of three ways. The enquiry closes with no additional tax due — HMRC sends a closure notice confirming this. Your return stands as filed. No apology is offered or required.

Alternatively, HMRC proposes an adjustment. You can agree (sign a contract settlement or amended assessment) or disagree and appeal. Appeals go first to an internal HMRC review, then to the First-tier Tribunal. Tribunal hearings are relatively informal and you can represent yourself, though professional representation is advisable for amounts above £5,000.

In the rarest cases — genuine fraud with intent to deceive — HMRC refers the case to their Fraud Investigation Service for criminal investigation. If you receive a letter mentioning "Code of Practice 9" or an invitation to make a disclosure under the Contractual Disclosure Facility, stop everything and instruct a specialist solicitor immediately. This is no longer an accounting matter.

For everyone else: respond promptly, cooperate fully, keep records meticulously, and get professional help early. An HMRC enquiry is stressful but survivable. The process has rules, and those rules protect you as much as they empower HMRC.