What happens if I get an HMRC investigation letter?

Getting a letter from HMRC saying they want to review your tax affairs can be worrying. You might immediately fear a fine or assume you’ve made a mistake, but not every investigation is the result of wrongdoing.

HMRC carries out tax investigations to ensure people and businesses are paying the correct amount of tax. These checks range from simple information requests to full-scale audits. Knowing how to respond quickly and correctly can make the process smoother and help you avoid unnecessary penalties.

This article explains why HMRC might investigate, what happens after you receive a letter, and how to deal with it calmly and professionally.

Why HMRC might contact you

HMRC sends investigation letters when something about your tax return, business records, or income seems unusual or inconsistent. Common reasons include:

• Large changes in income or expenses compared with previous years.

• Discrepancies between tax returns and information HMRC receives from employers, banks, or other sources.

• Missing or late tax returns.

• Random compliance checks as part of HMRC’s regular review programme.

• Information received from third parties or other government departments.

Sometimes, an investigation is simply part of a routine review. In other cases, it may indicate that HMRC has concerns about possible errors or underpaid tax.

Types of HMRC investigations

HMRC conducts three main types of investigation, depending on the seriousness of the issue and the information needed.

1. Random check: These are selected at random and can happen even if your records are in perfect order.

2. Aspect enquiry: HMRC wants to check a specific part of your tax return, such as an expense claim or source of income.

3. Full enquiry: HMRC examines your entire tax return, including income, expenses, bank accounts, and business records.

The letter you receive will normally state which type of review is being carried out.

What the investigation letter means

An HMRC investigation letter typically includes:

• The reason for the enquiry.

• The tax year or period being reviewed.

• A request for specific information or documents.

• A deadline for your response.

If you are self employed, HMRC might ask for business accounts, invoices, receipts, or bank statements. If you are an employee, they may ask for payslips, P60s, or details of additional income such as rental or investment earnings.

The letter does not automatically mean you are in trouble—it means HMRC needs clarification before confirming that your tax return is accurate.

What to do when you receive the letter

1. Read it carefully
   Check what HMRC is asking for and the time frame for responding. Do not ignore the letter, as failing to reply can lead to penalties or escalation.

2. Contact an accountant or tax adviser
   An accountant experienced in dealing with HMRC enquiries can review the letter, explain what it means, and communicate with HMRC on your behalf. They can ensure you only provide the information required and that your responses are clear and accurate.

3. Gather the requested documents
   HMRC will usually ask for records to support your tax return, such as:

• Invoices and receipts.

• Business accounts and bank statements.

• Mileage logs or expense claims.

• Copies of previous tax returns.
  Ensure all documents are accurate and complete before sending them.

4. Reply on time
   Always meet HMRC’s deadlines, even if you need more time to gather information. If that happens, you or your accountant can request an extension.

5. Be honest and cooperative
   If HMRC identifies a mistake, admit it and provide any missing details. Cooperating from the start helps resolve the enquiry faster and can reduce penalties if errors are found.

What happens during the investigation

Once HMRC receives your response, they will review your documents and may:

• Ask for additional information or clarification.

• Arrange a meeting or phone call to discuss your accounts.

• Contact your accountant or business representative directly.

Investigations can take anywhere from a few weeks to several months depending on complexity. Straightforward checks often close quickly, while more detailed enquiries may require multiple rounds of communication.

Possible outcomes

After reviewing your information, HMRC will reach one of the following conclusions:

1. No changes required
   If everything is in order, HMRC will confirm that your tax return is correct and close the enquiry. No further action is needed.

2. Underpayment or error identified
   If HMRC finds an error, they will issue an assessment showing how much additional tax is due, plus interest on late payments. They may also charge a penalty depending on whether the mistake was careless, deliberate, or concealed.

3. Overpayment found
   Occasionally, investigations reveal that you have overpaid tax. In that case, HMRC will issue a refund, usually with interest.

Penalties and fines

HMRC penalties depend on the nature of the error and your level of cooperation. They consider whether the mistake was:

• Careless: You made an unintentional mistake (penalty up to 30% of unpaid tax).

• Deliberate: You knowingly gave incorrect information (penalty up to 70%).

• Deliberate and concealed: You intentionally hid information (penalty up to 100%).

If you voluntarily disclose an error before HMRC finds it, the penalty can often be reduced or waived altogether.

How to avoid future investigations

While no one can guarantee avoiding HMRC checks entirely, you can reduce your risk by:

• Filing tax returns accurately and on time.

• Keeping detailed records and receipts for at least five years.

• Reconciling your accounts regularly.

• Ensuring income matches what HMRC receives from third parties.

• Using a qualified accountant to prepare or review your returns.

Good bookkeeping and transparency make any potential future enquiries much easier to resolve.

When to seek professional help

If you are unsure why you have been contacted or the investigation seems complex, speak to an accountant or tax specialist immediately. They can:

• Communicate with HMRC on your behalf.

• Review your financial records for errors.

• Negotiate repayment terms or reduced penalties if tax is owed.

• Provide advice to prevent future issues.

Accountants familiar with HMRC procedures can often resolve matters faster and minimise financial or legal consequences.

The bottom line

Receiving an HMRC investigation letter can feel intimidating, but it is not necessarily a sign of wrongdoing. The key is to stay calm, respond promptly, and seek professional guidance.

Most enquiries are routine and can be resolved quickly with accurate information. By keeping organised records, submitting returns on time, and cooperating fully, you can ensure the process runs smoothly and get back to business with confidence.