What Happens If HMRC Investigates My Business?

Receiving a letter from HMRC telling you your tax affairs are under review is unsettling — but it doesn’t necessarily mean you’ve done anything wrong. HMRC investigates both randomly and when something in a return looks unusual. Understanding the process takes away much of the fear.

Types of HMRC Enquiry

There are broadly two types of HMRC enquiry:

• Aspect enquiry — HMRC queries a specific item on your return, such as a particular expense or income figure. These are relatively common, focused, and usually resolved straightforwardly.
• Full enquiry — HMRC examines your entire return and business records in detail. These are more serious and more time-consuming, but are still carried out routinely on a proportion of taxpayers each year.

HMRC may also conduct what’s known as a Code of Practice 8 (COP8) or COP9 investigation for suspected serious tax avoidance or fraud — but these are far less common and apply in specific circumstances.

What Triggers an HMRC Investigation?

Some investigations are selected randomly — there’s no way to entirely eliminate the risk. Others are triggered by specific factors, such as:

• Figures that appear inconsistent with previous years or with others in the same industry
• Large or unusual expense claims
• Turnover that seems low relative to the type of business
• Anonymous tip-offs
• Late or amended returns
• Discrepancies between your return and information HMRC holds from other sources (banks, employers, DVLA)

Filing accurate, well-documented returns reduces your risk — but doesn’t eliminate it entirely.

What Happens When an Enquiry Opens?

HMRC must open a formal enquiry within 12 months of the filing deadline for your return (see HMRC’s guidance on tax compliance checks) (or within 12 months of the actual filing date if you filed late). They’ll write to you stating that they’re looking into your return and specifying what they want to see.

For an aspect enquiry, they’ll typically ask for specific documentation — receipts, bank statements, or an explanation of a particular figure. For a full enquiry, they may request all your business records for the relevant year.

What Should You Do If You Receive an Enquiry Notice?

• Don’t ignore it — failing to respond will escalate the situation
• Read it carefully — understand exactly what HMRC is asking for
• Get professional help — if you have a bookkeeper or accountant, contact them immediately. If you don’t, now is the time to get one
• Gather your records — having good documentation (which is why keeping records matters) makes it much easier to respond
• Be cooperative but careful — respond to what’s asked, don’t volunteer additional information unnecessarily

How Are Enquiries Resolved?

Most enquiries are resolved by correspondence — you provide the information requested, HMRC reviews it, and either closes the enquiry (finding nothing wrong) or proposes an amendment to your return. If additional tax is owed, interest and potentially penalties will be charged. If you disagree with HMRC’s conclusions, there are formal appeal processes available.

The Best Protection: Good Records

The single best thing you can do to protect yourself from the consequences of an HMRC investigation is to maintain accurate, complete records throughout the year. If every income figure and every expense claim is backed by documentation, an enquiry becomes much less stressful — and far more likely to be resolved quickly and in your favour.

Our guide to what records to keep as a sole trader covers exactly what HMRC will look for.

PBAS Can Support You Through an Enquiry

If you’ve received an enquiry notice from HMRC, PBAS can help you respond correctly and manage the process. We can also review your previous returns to identify any issues before HMRC does. Get in touch as soon as possible — the earlier we’re involved, the smoother the process tends to be.