What Happens If HMRC Opens an Enquiry Into My Company

At Towerstone Accountants we provide specialist limited company accountancy services for directors and owner managed businesses across the UK. We wrote this guide for people running a company who want clear answers on tax, payroll, Companies House filing duties, and day to day compliance without jargon. Our aim is to help you understand your responsibilities, reduce the risk of penalties, and know when to get professional support.

This is one of the most worrying letters a business owner can receive, and I see the reaction all the time, panic, confusion, and an immediate assumption that something must have gone badly wrong. I want to reassure you straight away, an HMRC enquiry does not automatically mean you have done anything wrong, and in many cases it is simply part of HMRC’s routine compliance work rather than an accusation of wrongdoing.

In this article I am going to explain what it actually means when HMRC opens an enquiry into your company, why enquiries happen, what types of enquiries exist, how the process usually unfolds, what HMRC can ask for, how long enquiries last, and how to protect yourself and your business throughout. I am writing this from the perspective of a chartered accountant who deals with HMRC regularly on behalf of limited companies, and everything here reflects how enquiries work in practice rather than how people fear they work.

What an HMRC enquiry actually is

An HMRC enquiry is a formal review by HMRC into some aspect of your company’s tax affairs. It is not the same as an investigation, and it is not the same as an accusation of fraud. In most cases, it is HMRC asking questions to satisfy itself that the figures reported are correct and complete.

HMRC has the legal right to enquire into:

• Corporation Tax returns
• VAT returns
• PAYE and payroll records
• CIS submissions if relevant
• Specific transactions or claims

The enquiry will normally relate to a particular tax return or accounting period, and HMRC must open it within strict time limits.

Why HMRC might open an enquiry

This is the question I am asked most often, usually followed by what did I do wrong. The reality is that enquiries can be triggered for many reasons, and not all of them involve errors.

Common reasons include:

• Random selection as part of routine checks
• Figures that fall outside expected norms
• Large fluctuations in profit or expenses
• Consistent losses
• High expense claims
• Director loan account movements
• VAT repayment claims
• Discrepancies between different tax filings

Sometimes an enquiry is triggered simply because your business looks different to others in the same sector. HMRC uses risk profiling and data comparison, and anything unusual can attract attention even if it is entirely legitimate.

Types of HMRC enquiries

Not all enquiries are the same, and understanding what type you are dealing with helps reduce anxiety and plan your response.

Full enquiries
A full enquiry looks at the entire tax return and underlying records for a specific period. HMRC can ask about income, expenses, capital allowances, and accounting treatment across the board.

Aspect enquiries
An aspect enquiry focuses on a specific area, such as travel expenses, director loans, VAT treatment, or a particular deduction. These are more common and usually quicker to resolve.

Random checks
Some enquiries are genuinely random and not based on suspicion. HMRC does this to encourage overall compliance.

How you are notified of an enquiry

HMRC will always notify you in writing. You will receive a formal letter stating that an enquiry has been opened, what period it relates to, and what HMRC wants to look at initially.

The letter will usually include:

• The type of enquiry
• The tax period under review
• Initial information requests
• A response deadline

This is not something to ignore, but it is also not something to panic about.

Time limits for opening enquiries

HMRC cannot open enquiries indefinitely. There are strict time limits, which depend on the type of tax and circumstances.

In most cases:

• Corporation Tax enquiries must be opened within 12 months of filing
• VAT enquiries usually follow similar timeframes
• Longer time limits apply only where HMRC suspects careless or deliberate behaviour

If HMRC misses the deadline, it loses the right to enquire for that period unless exceptional circumstances apply.

What HMRC can ask for

During an enquiry, HMRC has the power to request information and documents that are reasonably required to check your tax position.

This often includes:

• Accounting records
• Bank statements
• Sales invoices
• Purchase invoices
• Expense receipts
• Payroll records
• Director loan account details
• Contracts or agreements

HMRC cannot ask for anything it likes, and requests must be relevant to the enquiry. If a request feels excessive, it can be challenged, usually through your accountant.

How enquiries usually progress

Most HMRC enquiries follow a similar pattern. After the opening letter, HMRC will review the information provided and then either ask follow up questions or move towards closing the enquiry.

The typical stages are:

• Opening letter
• Initial document request
• Review by HMRC
• Follow up questions if needed
• Clarifications or explanations
• Agreement or proposed adjustments
• Closure letter

Some enquiries end quickly once HMRC receives satisfactory explanations. Others can take months, or in complex cases, years.

Your responsibilities during an enquiry

As a director, you have a legal obligation to cooperate with HMRC, provide information requested within reasonable deadlines, and answer questions honestly.

However, cooperation does not mean volunteering unnecessary information or guessing answers. One of the biggest mistakes I see is directors responding too quickly and saying things they later regret.

Good practice includes:

• Responding on time
• Providing accurate information
• Asking for clarification if needed
• Keeping copies of everything sent
• Letting your accountant handle communication where possible

The role of your accountant

If you have an accountant, this is the point at which their value really shows. Most HMRC enquiries I handle are far less stressful for clients because I act as the main point of contact.

An accountant can:

• Interpret HMRC letters
• Prepare responses
• Challenge unreasonable requests
• Explain technical points clearly
• Negotiate adjustments if needed
• Help bring the enquiry to a close

If you do not already have professional support, getting advice early is almost always cheaper than dealing with problems later.

What happens if HMRC finds an error

Finding an error does not automatically mean penalties. HMRC looks at behaviour as well as the error itself.

Possible outcomes include:

• No action if everything is correct
• Amendments to tax returns
• Additional tax payable
• Interest on late paid tax
• Penalties depending on behaviour

If an error was genuine and you cooperated fully, penalties are often reduced or eliminated entirely.

Penalties and how they are calculated

Penalties depend on whether HMRC believes the error was:

• Careless
• Deliberate
• Deliberate and concealed

Careless errors attract lower penalties, especially where disclosure is prompt and cooperation is good. Deliberate behaviour attracts much higher penalties.

This is why tone and approach during an enquiry matter so much.

Can an enquiry lead to other years being reviewed

Yes, in some cases. If HMRC finds issues in one year, it may look at earlier periods, particularly if it believes the issue is ongoing.

That said, HMRC cannot simply reopen closed years without justification, and time limits still apply.

How long an HMRC enquiry lasts

There is no fixed timeframe. Some aspect enquiries close within a few months. Full enquiries can take much longer.

Factors that affect length include:

• Complexity of the business
• Quality of records
• Speed of responses
• Whether disputes arise

Clear records and professional handling almost always shorten enquiries.

Common mistakes I see during enquiries

The most common problems I see are not tax errors, but process errors.

These include:

• Ignoring HMRC letters
• Responding emotionally
• Providing inconsistent explanations
• Missing deadlines
• Trying to handle everything alone

Most of these mistakes are avoidable with calm, structured handling.

How to reduce the risk of an enquiry

You cannot eliminate the risk entirely, but good habits reduce it significantly.

These include:

• Accurate bookkeeping
• Timely filings
• Clear records
• Reasonable expense claims
• Consistent treatment year to year
• Taking advice before unusual transactions

Businesses that keep good records and take advice tend to resolve enquiries quickly even when they arise.

Final thoughts

An HMRC enquiry is unsettling, but it is not the end of the world and it does not mean you are in trouble. In many cases, it is simply HMRC doing its job. How you respond makes a huge difference to how the process unfolds.

If you stay calm, keep good records, respond properly, and get professional support where needed, most enquiries end with minimal disruption. The key is to treat it as a process to be managed, not a crisis to be feared.

You may also find our guidance on What happens if I file my company accounts late and How do I pay Corporation Tax for my company helpful when exploring related limited company questions. For a broader overview of running and managing a company, you can visit our limited company hub.