Don’t panic, but don’t ignore it
An HMRC enquiry letter does not mean you have done something wrong. It is HMRC’s way of checking that income and gains have been fully declared, the right reliefs claimed and the correct tax paid.
That said, HMRC has formal powers to ask questions, request records and charge penalties if information is not provided. Staying calm, organized and quick to respond is the best way to get an enquiry closed with minimum stress.
First steps when the letter arrives
- Check the letter is genuine. HMRC publishes a list of genuine contacts at tinyurl.com/HMRCchk.
Note what HMRC is asking for and which tax year or years it covers. - Put the deadline in your diary straight away.
- If you cannot meet the deadline, ask HMRC for more time before it passes and explain why. Extensions are often agreed where you are clearly cooperating.
Know the scope and gather your records
Some enquiries look at one item, such as rental income, employment expenses or business costs. Others cover a whole return or more than one tax. You must answer what HMRC asks, but you do not need to send unrelated material unless it is relevant or you have spotted other errors that should be disclosed.
Pull together the records behind the figures being checked. These may include:
- Invoices and receipts
- Bank statements
- Payroll records
- Rental statements and tenancy agreements
- Contracts and calculations
Keep a copy of everything sent to HMRC.
Replying to HMRC
A clear, well organized reply usually leads to a quicker close. Keep these points in mind:
- Be polite, factual and complete.
- Answer each question HMRC has asked, in order.
- If a question is unclear, ask HMRC to clarify rather than guessing.
- Where a figure is based on an estimate or assumption, add a short note explaining how you got there.
- Send organized documents
Keep your other tax affairs up to date
An enquiry into one year does not pause anything else. You still need to file future returns on time and pay any tax due.
If HMRC finds extra tax is owed, interest normally runs from the original due date, so delays can add cost. If paying is going to be difficult, approach HMRC about a Time to Pay arrangement.
If something was wrong on your return
Do not hope the problem goes away. Telling HMRC about a mistake yourself, explaining how it happened and helping to fix it can lower the risk of a penalty and reduce its size.
When deciding on penalties, HMRC usually looks at:
- Why the error happened
- Whether it was disclosed promptly
- How much help you gave during the enquiry
How an enquiry ends
HMRC should explain its conclusion when the enquiry closes. There are three main outcomes:
| Outcome | What it means |
|---|---|
| No change | Your return is accepted as filed |
| Repayment | You paid too much and HMRC refunds the difference |
| Extra tax | You pay the shortfall, usually with interest and possibly a penalty |
