Receiving a letter from HMRC initiating a tax investigation can be a distressing and disruptive experience, with the possibility of severe penalties and even criminal prosecution. Our tax investigation team can help you through the process and bring matters to a resolution.

What is an HMRC tax investigation?

A tax investigation is a process which HMRC undertakes to review whether taxpayers are paying the right amount of tax. If irregularities are identified, HMRC will work with taxpayers and/or their advisers to quantify the correct tax position and consider whether any financial penalties would be appropriate.

HMRC has the right to check the tax affairs of any individual or business. Usually, this will take the form of a review of a submitted return within a set timeframe; however, even those who have not submitted a return can also be subject to a tax investigation, if HMRC has reason to believe that income has not been declared.

Why am I under HMRC investigation?

HMRC rarely selects cases at random. More than 90% of tax investigations will be initiated because HMRC holds information which indicates a risk that a loss of tax has occurred.

Each year, HMRC’s access to data grows significantly. Currently, it obtains information from multiple sources, including Companies House, Land Registry, the Benefits Agency, Experian, eBay, overseas tax authorities and even UK banks. HMRC has been able to access data from overseas following the introduction of the Common Reporting Standard (CRS). This international agreement places reporting obligations in countries worldwide to exchange information, giving HMRC access to data about overseas accounts and investments, including those owned by UK resident taxpayers through overseas structures. HMRC utilises data analytics to assess the information gathered from these different sources to assess the risk of non-compliance, selecting cases with the highest risk for review.

Unusual activity in a taxpayer’s records, such as constantly filing returns late or making several amendments, may also increase the risk of HMRC scrutiny.

How will I know I’m being investigated by HMRC?

Ordinarily, the first sign that HMRC is opening an investigation will come in the form of an opening enquiry letter, which can include a request for information. The breadth of information requested by HMRC will depend on the risks identified or perceived.

These preliminary compliance checks by HMRC can cause significant disturbance and stress for both individuals and businesses. Engaging a tax investigation specialist to represent you in your dealings with HMRC enables you to concentrate on growing your business and expedite the resolution of your case.

What are HMRC’s powers during an investigation?

Aside from its authority to request information and documentation, HMRC possesses criminal investigation powers similar to those of other UK law enforcement agencies. However, these powers are restricted to HMRC-related offences. HMRC can seek and implement search warrants, conduct interviews under caution, make arrests and search the premises of suspects in addition to applying for and issuing orders.

How long will a tax investigation last?

There is no set time limit for how long an investigation can last as each individual and business’s circumstances will vary. Adequate management can expedite some cases, while others can become unwieldy and persist for several years if not handled proactively.

Those with complex tax affairs can typically expect an investigation to take some time, especially where they are not managed correctly at the start. HMRC is obligated by its charter to ensure that its enquiries do not become overly prolonged, and if you have concerns regarding the duration of an ongoing compliance check, seek specialist advice.

Tax investigation penalties

HMRC stipulates that individuals who exercise reasonable care while completing their tax returns will not be subject to penalties. However, penalties will be imposed for careless or deliberate irregularities. For deliberate irregularities that are revealed in response to HMRC enquiries for both onshore and offshore non-compliance, penalties of no less than 35% and up to 200% of the unpaid tax may be imposed, respectively. The amount of the penalty will be calculated as a percentage of the unpaid tax, considering the taxpayer's culpability and the extent of their cooperation.

Penalties for careless irregularities can, in most cases, be suspended.

Our expertise ensures that penalties are considered from the outset, allowing us to work towards the lowest penalty that can reasonably be applied.

Who is susceptible to an HMRC investigation?

Anyone can be investigated by HMRC. HMRC investigations serve as a significant revenue stream for HMRC, and in the tax year ending 5 April 2024, such investigations resulted in the recovery of over £41 billion in taxes that would otherwise have gone uncollected.

Should I deal with HMRC myself?

While you can deal with HMRC solely, we advise you to speak to a member of our Tax Investigations and Dispute Resolution team to understand fully the severity of your case. Those considering dealing with HMRC investigations solely, or with a non-specialist, should consider the following:

• Are you comfortable managing HMRC on your own?

• Do you understand the potential penalties involved, and do you know the most effective ways to minimise them?

• Are there any inaccuracies in your tax affairs that require disclosure, and if so, how did they arise?

• Are you certain about distinguishing deliberate irregularities from non-deliberate ones, and do you feel confident defending this distinction if challenged by HMRC?

• What is the optimal approach to addressing your tax affairs to secure a more favourable settlement or outcome with HMRC?

• Are you able to challenge HMRC on any information requests, including meetings?

• Is there a risk of imprisonment?

• Could you be publicly exposed as a tax evader?

HMRC welcomes the support of dedicated tax investigation accountants as it helps expedite the process and brings matters to a conclusion. Depending on the letter you’ve received, it may even state “You are strongly recommended to seek specialist independent professional advice”.

What are the benefits of using the Buzzacott Tax Investigation Service?

When you enlist our experts to advise and advocate on your behalf during an HMRC investigation, you will benefit from:

• Timely, accurate advice during every stage of the investigation.

• We act as a buffer between you and often aggressive tax investigators.

• Enlisting our help enables you to get on with other things knowing the investigation is being handled in the best possible manner.

• We help to ensure you don’t pay more than you’re obliged to pay in taxes, interests and penalties.

How far into my past will the HMRC investigation look?

As a general rule, a standard investigation will look at the previous 4 years of your tax filings. If, however, HMRC investigators determine you have been careless in your filings or have made too many unforced errors on your returns they may decide to look as far back as 6 years. In cases where they suspect a person has deliberately tried to evade paying taxes, they may look as far as 20 years into your past.

What is the maximum amount I may have to pay?

Each case is different. The total amount of tax, penalties and interest is dependent on whether your behaviour is deemed careless or deliberate, and if the case involves UK activities and/or offshore.

What are the chances I will end up in prison?

The vast majority of HMRC investigations are undertaken under HMRC’s civil powers. This means the decision to work that case on a civil basis with a view to a potential financial settlement. However, it’s possibly under criminal tax investigation cases.

What are the different potential outcomes of a tax investigation?

Potential outcomes fall into one of four categories.

1. No further action is taken: If HMRC find no evidence of wrongdoing, it will close the case without taking any further action. Demonstrating that no tax, interest, or penalties are owed can be achieved with the assistance of a tax investigation specialist.

2. Additional tax assessment: In this scenario, HMRC assesses the amount due, adds penalties and interest, and issues a bill to the party under investigation. A tax investigation expert can assist in arranging a time-to-pay agreement with HMRC to facilitate repayment or help dispute imposed penalties.

3. Settlement is reached: It’s not uncommon for HMRC to propose a settlement where it accepts less than the originally assessed amount. Having a tax investigation specialist by your side increases the chances of reaching a favourable settlement.

4. Criminal charges and imprisonment: Although relatively uncommon, this outcome is possible. Involving specialist advisers is the initial step to avoid criminal prosecution and the threat of imprisonment.

Concluding the tax investigation

A tax investigation may be brought to a conclusion in various ways. The most common outcomes include:

• Amendments to a return - in simple cases where a single adjustment is required, HMRC will amend your previously filed returns. This will result in you having to pay the tax owed, interest on any tax paid late and potential penalties.

• Closure notices – where more than a simple amendment is required, HMRC will issue a closure notice at the end of the investigation. This will explain the outcome of the enquiry, together with details of the additional tax, interest and penalties due for each tax year. The closure notice will also set out the reasons for HMRC’s decision.

• Raising of assessments – in more complex cases, covering multiple tax years, HMRC will issue assessments of additional tax considered due, together with penalties and interest.

What if I disagree with HMRC’s decision?

Following HMRC issuing its decision, taxpayers have the right to appeal if they do not consider it to be correct or fair. There are several routes you can use to challenge HMRC’s decision. The first stage to challenge HMRC’s decision is to request a Statutory Review.

What is a Statutory Review?

A Statutory Review is carried out by HMRC Solicitor’s Office and Legal Services (SOLS). It impartially reviews the appealable tax decision made by the original decision-maker and can uphold, vary or cancel it. Review officers are independent of the original decision-maker and act as a second pair of eyes when reviewing the tax decision. HMRC is required to respond to a request for a Statutory Review within strict time limits, so this can be an expedient way of reaching a resolution.

Approximately two-thirds of taxpayer’s who dispute their appealable tax decision choose to appeal to the Tribunal, without first requesting a Statutory Review. We believe that requesting a Statutory Review should be considered the first step in disputing a HMRC decision and can be beneficial from a time and cost-perspective.

A request for a Statutory Review must be made within 30 days of an appealable decision by HMRC. There is also the opportunity to make further representations to the Reviewing Officer, should there be additional information which only became available at a later date or information that the original decision maker did not take into account.

Other Options

Should the result of a Statutory Review not resolve matters, consideration should be given to Alternative Dispute Resolution (ADR).

If all else fails, then an appeal can be made directly to the Tax Tribunal should you wish to challenge a HMRC decision further. Appeals to the Tribunal are often a lengthy process with significant costs associated. Specialist advice must be taken before embarking on this course of action.

Can I be Criminally Prosecuted by HMRC?

In the most serious cases, and if HMRC considers that criminality was involved, the civil investigation will be converted to a criminal investigation with a view to a potential criminal prosecution.

Should I seek specialist help?

When considering appointing specialist representation, advisers and taxpayers should ask themselves these questions:

• Do you feel comfortable dealing with HMRC?

• Are you able to manage and control HMRC or have you now lost control?

• Do you have up-to-date knowledge of HMRC’s powers?

• Are there any errors in your tax affairs that should be disclosed?

• Are you concerned about being publicised as a tax evader?

• Can you restrict the extent of information you provide to HMRC, without adversely affecting the extent of your penalty mitigation?

If you choose to get specialist advice from Buzzacott, we will:

• Carry out a comprehensive review of your position to ensure we’ve a full understanding of the issues and risks you’re facing;

• We’ll work with your existing adviser, if you have one, and prepare a strategy going forward to minimise your potential exposure to unnecessary tax, interest and penalties;

• Should a disclosure be necessary, we’ll present this to HMRC to ensure that you’re treated fairly and proportionately; and

• Aim to fast track your investigation to resolution and closure of all issues at minimum cost and disruption to you.

Our highly experienced Tax Investigations and Dispute Resolution specialists can ease the burden by guiding and assisting you through the investigation process, negotiating with HMRC on your behalf to minimise your potential exposure to unnecessary tax, interest and penalties.

Get help today

Call us today on +44 (0)20 7710 3389 or fill in the form below and a member of our team will be in touch. All communications are in the strictest confidence.