What Happens If HMRC Opens an Enquiry Into My Company

Introduction

HMRC conducts enquiries to check that businesses are paying the right amount of tax and that their accounts and returns are accurate. A company can be selected for an enquiry at random, through risk-based selection, or because something in its tax return appears unusual.

If your company is contacted by HMRC, it is important to act promptly, cooperate fully, and seek professional advice if necessary. Many enquiries end without adjustments once the company provides the requested information.

Why HMRC might open an enquiry

HMRC opens company tax enquiries for several reasons. Common triggers include:

Large or unusual expense claims.

Inconsistencies between different tax returns (for example, VAT and Corporation Tax).

Sudden drops or spikes in profit.

Frequent late filings or payments.

Industry benchmarks showing your figures are significantly different from similar businesses.

Information received from third parties, such as banks or customers.

Sometimes, HMRC selects a company entirely at random as part of its compliance checks.

Types of HMRC enquiries

1. Aspect enquiry

An aspect enquiry focuses on a specific area of your company’s tax return, such as one deduction or transaction. These are relatively limited in scope and often resolved quickly once the issue is clarified.

2. Full enquiry

A full enquiry is more comprehensive. HMRC reviews your company’s entire tax return, accounts, and financial records to check whether all income and expenses have been reported correctly.

Full enquiries usually take longer and involve more communication between your company and HMRC.

3. Random compliance check

HMRC also conducts random checks on businesses to maintain overall tax compliance. Even if your accounts are accurate, you may still be selected to verify your record keeping and procedures.

How HMRC notifies you

HMRC will send a formal letter, usually addressed to the company’s registered office, explaining:

That an enquiry has been opened.

Which tax year or accounting period it relates to.

What specific information or records they need.

The letter will name the HMRC officer handling your case and provide contact details. You should respond within the timeframe specified, usually 30 days, unless you request an extension for valid reasons.

What HMRC may ask for

Depending on the scope of the enquiry, HMRC might request:

Copies of your company’s accounts and tax computations.

Bank statements and invoices.

Payroll, VAT, and expense records.

Contracts, loan agreements, or supplier details.

Explanations for specific figures or transactions.

You may also be invited to attend a meeting, although you are not obliged to do so. Written correspondence is often sufficient if you provide full responses.

How to respond if HMRC opens an enquiry

Read the letter carefully. Understand what HMRC is asking for and which period or issue is under review.

Contact your accountant or tax adviser. Professional representation can help you prepare accurate responses and prevent misunderstandings.

Gather the requested documents. Ensure records are complete, clear, and organised before sending them to HMRC.

Respond promptly. Meet the deadlines stated in HMRC’s letter, or request an extension if more time is needed.

Be honest and transparent. Providing incomplete or misleading information can lead to penalties and prolong the investigation.

Your accountant can communicate directly with HMRC on your behalf, helping to clarify technical matters and reduce disruption to your business.

How long an HMRC enquiry lasts

The duration depends on the complexity of the case.

A simple aspect enquiry may take a few weeks to resolve.

A full enquiry can take several months or, in rare cases, more than a year.

HMRC will usually keep you informed of progress and may issue interim correspondence if additional information is required.

Possible outcomes of an enquiry

Once HMRC completes its review, there are three main possible outcomes:

1. No changes required

If HMRC is satisfied that your company’s tax return is accurate, they will close the enquiry and confirm that no further action is needed.

2. Adjustments made

If HMRC finds errors, they will adjust your tax return and issue an updated calculation. You may have to pay additional tax, plus interest from the original due date.

3. Penalties applied

If HMRC believes errors were careless or deliberate, they may impose penalties in addition to the tax owed. Penalty amounts depend on the nature of the error and how cooperative your company has been during the enquiry.

How penalties are calculated

Penalties are typically based on:

The level of inaccuracy (careless, deliberate, or deliberate and concealed).

Whether the error resulted in a loss of tax.

The degree of cooperation shown during the enquiry.

For example, if you voluntarily disclose an error before HMRC discovers it, any penalty will be significantly reduced.

How to minimise the impact of an enquiry

Keep thorough and accurate records at all times.

File all returns on time and double check figures before submitting.

Respond quickly to any HMRC correspondence.

Seek professional help early to avoid unnecessary complications.

Your accountant can review your company’s records regularly to spot potential risks and ensure compliance.

Example scenario

ABC Consulting Ltd receives a letter from HMRC about its most recent Corporation Tax return. The enquiry focuses on high travel expenses that appear inconsistent with previous years. The company’s accountant provides invoices, mileage logs, and supporting evidence showing the expenses are legitimate client visits. After reviewing the documentation, HMRC closes the enquiry with no adjustments.

By responding quickly and providing clear evidence, the company avoided penalties and resolved the issue efficiently.

What if you disagree with HMRC’s findings

If you believe HMRC’s decision is wrong, you have the right to:

Ask for an independent internal review by another HMRC officer.

Appeal to the First-tier Tax Tribunal within 30 days of the final decision.

Your accountant or tax adviser can guide you through the appeals process and help present your case effectively.

Preventing future HMRC enquiries

While you cannot eliminate the risk entirely, you can reduce the likelihood of future enquiries by:

Maintaining accurate and up-to-date accounting records.

Using professional accounting software to automate calculations.

Submitting returns well before deadlines.

Seeking professional advice when claiming tax reliefs or allowances.

A proactive approach to compliance not only reduces audit risk but also demonstrates professionalism and transparency.

Example of a voluntary disclosure

If you discover an error in a past tax return, it is better to tell HMRC before they contact you. For instance, if your company mistakenly underreported income by £5,000, your accountant can submit a voluntary disclosure. HMRC is likely to treat this as a genuine mistake and may waive penalties altogether.

Conclusion

An HMRC enquiry does not necessarily mean your company has done something wrong. Most are routine checks or requests for clarification. The best way to handle an enquiry is to stay calm, cooperate fully, and seek professional guidance.

An experienced accountant can manage communication with HMRC, prepare evidence, and ensure your company remains compliant throughout the process. With accurate records and timely responses, most enquiries are resolved quickly and without lasting impact on your business.