HMRC opens most tax investigations because something in the data it already holds does not match what you have reported, not because of bad luck or a random draw. Common triggers include figures that do not agree with third-party reports, patterns HMRC associates with a particular sector, and inconsistencies within your own returns over time. A small proportion of checks are opened at random, to test overall compliance, but most start from a specific reason.
What is the difference between a compliance check, an enquiry and Code of Practice 9?
These terms describe a ladder of seriousness, not different names for the same thing. A compliance check is HMRC's general term for reviewing whether you have paid the right amount of tax; it can be a routine check of your Self Assessment return or something more targeted. Within that, a formal enquiry is HMRC using its statutory powers to examine a specific return in depth, usually because something specific has caught its attention. At the most serious end, Code of Practice 9 (COP9) is reserved for cases where HMRC suspects deliberate tax fraud, and it works differently: you are offered the chance to make a complete disclosure under a formal contract in exchange for HMRC not pursuing a criminal investigation for the fraud itself. Our tax investigations page covers how a formal enquiry runs from opening to resolution, and our Code of Practice 9 page explains what that specific process involves.
What actually triggers a check?
HMRC does not publish a precise formula, but the pattern of what tends to bring a case to its attention is well understood from how the system works in practice.
Being selected does not mean HMRC has found something wrong. Many checks close with no changes at all, once the taxpayer has explained or evidenced the figures in question.
What does HMRC check?
HMRC's compliance check guidance sets out that a check can cover any taxes you pay, your accounts and tax calculations, your Self Assessment return, your Company Tax Return, or your PAYE records and returns if you employ people. If you use an accountant, HMRC will usually contact them rather than you directly.
What arrives first, and what should I do in the first week?
HMRC will write or phone to say what it wants to check. It may ask to visit your home, your business, or an adviser's office, or ask you to visit them, and you can have an accountant or legal adviser present at any meeting. The table below sets out a sensible first-week sequence.
If you disagree with HMRC opening or continuing a check, you can write to the office that sent the letter setting out your reasons, and you can apply for alternative dispute resolution at any point if you do not agree with HMRC's decision or the scope of what it is checking.
Why is record-keeping the best defence?
A compliance check is fundamentally a request to show your figures are right. Landlords, business owners and anyone with income beyond straightforward employment are in a much stronger position if they can produce clear records quickly: invoices, bank statements, tenancy agreements, receipts for expenses, and a clear trail from the transaction to the figure on the return. Good records shorten a check considerably; gaps or estimates invite further questions and can push a routine check into a longer, more detailed one.
After a check concludes, HMRC will write to confirm the outcome. If you paid too much tax, you will be repaid, potentially with interest. If you owe more, you are normally asked to pay within 30 days, with interest running from when the tax was originally due. HMRC also decides whether a penalty applies, based on why the error happened, whether you told HMRC as soon as you were aware, and how co-operative you were during the check. Keeping good records and answering promptly and consistently affects all three of those factors.
Worked example
Example. Consider a self-employed contractor whose declared income for the year is noticeably lower than payments reported to HMRC by his main client under existing reporting rules. HMRC writes asking him to explain the difference as part of a compliance check into his Self Assessment return.
Rather than respond immediately from memory, he first checks his own invoicing records and bank statements against the figure his client reported, and finds that one late invoice, paid just after the tax year end, was recorded in the following year on his return but reported by the client in the earlier year. He explains this timing difference to HMRC with the supporting invoice and bank statement, and the check closes with no adjustment needed, because the underlying record-keeping made the explanation straightforward to evidence.
What this means in practice
Reading any HMRC letter carefully, and pulling together the specific records it mentions, are things you can begin immediately.
Deciding how to respond, especially if the figures genuinely do not reconcile, or if the letter suggests HMRC suspects more than an innocent error, is worth doing with an adviser before you reply, since what you say early in a check tends to shape how it proceeds.
If a letter or a check escalates towards suspected deliberate wrongdoing, that is a different and more serious conversation than a routine check, and our Code of Practice 9 page explains what that involves.
Talk to us before you respond
If HMRC has written to you about a compliance check and you are not sure what it means or how to respond, speak to the team at Vision Consulting. The first conversation covers exactly what HMRC is asking, what records you need, and how to manage the check calmly from the outset. Call 020 8554 2135 or email info@visionconsulting.co.uk, or get in touch via our contact page.
By the Vision Consulting team.
This is general information, not advice. Your position depends on your circumstances.