What Really Happens During a HMRC Tax Investigation: Bedford Accountants Explain

When I speak to clients who have received a brown envelope from HMRC, the reaction is usually panic. People immediately think they are being accused of fraud or wrongdoing. That is not how it works. HMRC conducts thousands of investigations every year, many of which are random, routine or triggered by simple inconsistencies. The key is to stay calm and understand the process properly.

Let me walk you through exactly what happens from start to finish.

Step 1: HMRC Send You an Opening Letter

The process always begins with a letter. HMRC will tell you which tax year they are looking at and whether the investigation is:

• A full enquiry
• An aspect enquiry
• A compliance check
• A VAT review
• A payroll or CIS review
• A record-keeping inspection

A full enquiry means they will review your entire tax return or company accounts.
An aspect enquiry means they will review one part only, such as expenses, dividends, VAT, payroll or rental income.

Most people panic before they even read the letter properly. The letter usually asks for information, documents or explanations. It will give you a deadline. Missing that deadline is the worst thing you can do.

Step 2: Your Accountant Contacts HMRC Immediately

The first thing I do for clients is to contact HMRC on their behalf. This achieves three things:

• It stops you from saying something incorrect out of panic
• It buys time where needed
• It shows HMRC that you are cooperating professionally

When HMRC see that an accountant is involved, the tone of the investigation usually becomes more structured and less stressful.

Step 3: HMRC Ask for Evidence and Explanation

HMRC will typically request documents such as:

• Bank statements
• VAT returns
• Payroll records
• Purchase invoices
• Sales invoices
• Dividend vouchers
• Mileage logs
• Contracts
• Letting agent statements (for landlords)
• Rental contracts

They want to check that the figures on your tax return match the evidence behind them.
This is why clean bookkeeping is so important.

I see many Bedford businesses panic because they never saved receipts or mixed business and personal transactions. These things complicate the investigation, but a good accountant can still help you correct them.

Step 4: HMRC Analyse Your Records

At this stage HMRC look for inconsistencies such as:

• Expenses that look unusually high
• Dividends that exceed profit
• VAT that does not match turnover
• Missing payroll submissions
• An overdrawn Director’s Loan Account
• Differences between bank deposits and declared income
• Missing rental income
• Claims that do not make sense for your industry

The analysis can be detailed, but most of the time HMRC are simply checking whether the figures make sense.
They are not trying to punish you unless they believe there has been deliberate wrongdoing.

Step 5: Your Accountant Replies With a Formal Explanation

This is the stage that makes the biggest difference.
I always prepare a structured and professional response that explains:

• Why the figures are correct
• Where any mistakes occurred
• How they have been corrected
• What evidence supports the figures
• What the client has done to improve their records

HMRC respect clear, honest and well-presented explanations.

When someone tries to respond alone, they almost always give too much information, not enough information, or information that creates new questions. This makes the investigation longer and more stressful.

Step 6: HMRC Ask Follow-Up Questions

HMRC rarely close a case after one letter. They may come back with:

• Requests for additional receipts
• Clarification of certain payments
• Questions about income differences
• Explanations for unusual entries

This is normal.
It does not mean the situation has become serious.
It simply means HMRC are working through the information.

Your accountant handles all of this on your behalf so you do not have to speak directly to HMRC.

Step 7: Outcome and Resolution

Once HMRC finish their review, one of three outcomes occurs:

1. No changes needed
HMRC are satisfied and close the enquiry. This is more common than people think.

2. Minor corrections
HMRC accept the return but ask for small adjustments. Often this is due to simple errors in bookkeeping.

3. Additional tax due
If something was missed or misreported, HMRC may request payment plus interest. Penalties depend on whether the error was careless or deliberate.

The key point is that most investigations end without drama when handled correctly.

What Triggers a Tax Investigation

Although investigations can be random, many are triggered by patterns HMRC notices. Common triggers include:

• Big changes in profit
• Excessive expenses
• VAT returns that do not match sales
• Not taking salary as a director
• Overdrawn Director’s Loan Accounts
• Dividends in years of low profit
• CIS mismatches
• Inconsistent bookkeeping
• Using unqualified accountants
• Late tax returns
• Data from banks and third parties

HMRC receives more information than most people realise. Banks, employers, letting agents and even online platforms send them data. If something does not match, HMRC will ask questions.

The Biggest Mistakes People Make During an Investigation

From experience, these are the behaviours that make investigations worse:

• Ignoring HMRC letters
• Responding without an accountant
• Panicking and sending incorrect explanations
• Providing incomplete documents
• Giving HMRC more than they asked for
• Trying to justify mistakes instead of correcting them
• Blaming software
• Making late amendments without explanation

These mistakes lead to extended investigations and higher penalties.

The Role Your Accountant Plays

A good accountant protects you during an HMRC investigation. We:

• Take over communication
• Review your books
• Identify problems
• Correct the errors
• Present evidence cleanly
• Negotiate with HMRC
• Reduce penalties
• Stop the situation escalating

The presence of a professional changes everything.
HMRC see you are serious, compliant and supported.

If You Have Done Nothing Wrong, You Still Need Support

Some people believe they only need an accountant if they have made mistakes.
That is not true.

Even when the figures are correct, you still want an accountant speaking on your behalf.
HMRC letters are written in formal language that can easily be misunderstood.
You do not want to accidentally give the wrong impression or confuse the issue.

The accountant keeps everything calm, factual and professional.

The Emotional Side Nobody Talks About

I want to address something that clients often tell me privately.
An HMRC investigation is stressful.
It affects your sleep.
It makes you feel like you have done something wrong.
It can make you question your bookkeeping, your accountant and your entire business.

Let me reassure you.
Most investigations are routine.
Most close quickly with the right support.
HMRC is not out to destroy your business.
They simply want clarity.

Having someone who has been through the process many times helps reduce that fear dramatically.

How Towerstone Supports Bedford Businesses Through Tax Investigations

At Towerstone we have helped many Bedford businesses work through HMRC investigations calmly and successfully. We take full control of the process, communicate clearly with HMRC and guide you from start to finish. While we do not offer weekend or in person evening appointments, we do speak with clients in the early evenings where needed because investigations can feel urgent and stressful.

We:

• Handle HMRC for you
• Prepare evidence
• Rebuild poor bookkeeping
• Fix past errors
• Appeal penalties where possible
• Explain everything clearly
• Protect you from further issues

Our clients often say the moment we take over the case is the moment they finally feel able to breathe again.

The Bottom Line for Bedford Business Owners

An HMRC investigation is intimidating but it is not something you need to face alone. The process is structured, predictable and much easier when you understand what is happening. With the right accountant managing the enquiry, responding clearly and correcting any issues, most investigations end without major problems.
What matters most is acting quickly, staying calm and getting proper support.