HMRC enquiry letters are sent to individuals to notify them that HMRC has chosen to formally investigate their tax affairs.
While some enquiries are carried out randomly, the majority are selected based on a risk assessment of a business.
These checks should not be seen as accusatory, as they are often a routine procedure to make sure your business is compliant and the correct amount of tax is being paid.
If you’ve received a letter, you need to know what to do.
Why are there more enquiries?
It is no surprise enquiries are on the rise when the UK’s estimated tax gap for 2024 to 2025 sits at £59.2 billion, up £6.4 billion on the previous year, according to HMRC.
The largest component of the tax gap by customer group is small businesses, accounting for 62 per cent of lost liabilities.
HMRC is feeling the fiscal squeeze and small businesses have been identified as a key target for closing the tax gap.
Did you know?
Many of our clients choose to take out Tax Investigation Insurance. Where cover is in place for the relevant tax year, the policy can cover our professional fees incurred in dealing with an HMRC enquiry, providing valuable peace of mind should HMRC ever open an investigation.
How should I respond?
After receiving an enquiry letter, you have 30 days to respond from the date printed.
Your first step should be to speak with your accountant and gather all the relevant documents and information that has been requested by HMRC, making sure each requirement is reasonable.
Next, the information should be reviewed to understand the context and implications of the information HMRC has asked for.
If you believe there is anything that might need to be disclosed, it is important that a disclosure is made as early as possible. HMRC reviews the timing of any disclosure when deciding on penalties.
Finally, when you are ready, respond to HMRC with the information alongside any explanations or clarifications.
If the deadline is not realistic, it is important to request an extension before a response becomes overdue.
How can an accountant help?
Accountants can help distinguish between information that is ‘reasonably required’ by HMRC and that which goes beyond their scope.
It is not uncommon for HMRC to ask for a response that is broader than what is required, but an accountant can explain where and when disclosure is needed.
Throughout the process, accountants can oversee communication with HMRC to minimise inconsistencies and handle extension requests properly.
Worried about the professional costs of dealing with an HMRC enquiry?
Many HMRC enquiries can be resolved quickly, but some investigations can continue for many months and require significant correspondence, meetings and negotiations with HMRC.
At Wem & Co, we offer Tax Investigation Insurance to eligible clients. Where cover is in place for the tax year under enquiry, the policy can cover our professional fees incurred in responding to HMRC throughout the investigation.
For many clients, this means that if HMRC opens an enquiry into a tax return that was covered by the policy, there is no additional fee to pay for our professional representation, subject to the terms and conditions of the policy.
In our experience, HMRC enquiries can sometimes last six months or longer and the professional costs of dealing with them can run into thousands of pounds. Tax Investigation Insurance can therefore provide valuable peace of mind and financial protection.
If you have received an HMRC enquiry letter and are unsure what to do next, please contact us as soon as possible so we can review the position and discuss the support available.
