When an envelope arrives on your doormat stamped “HM Revenue & Customs”, stomachs can sink in seconds. Even clients who keep immaculate books worry that an enquiry could mean they have slipped up somewhere. The HMRC investigations process is designed to confirm that the right tax has been paid, not to catch honest taxpayers out – but knowing how it works, what triggers it and, critically, how to respond, will calm nerves and protect your cashflow.
Investigations are far more common than many people realise. HMRC completed 320,000 compliance checks in 2023/24, up 15 on the previous year and now uses sophisticated data-matching tools that flag discrepancies automatically. Meanwhile, the latest tax-gap report puts the shortfall between tax owed and tax collected at £46.8 billion – 5.3% of theoretical liabilities (HMRC Tax Gap, 2025). Against that backdrop, compliance activity is only going in one direction.
Whether you are a sole trader, the director of a growing SME or a finance manager in a large company, understanding the HMRC investigations process will help you cooperate confidently, avoid unnecessary penalties and minimise professional fees. Below we set out the key stages, what you can expect and how to stay one step ahead.
What triggers an HMRC investigation
Most enquiries arise for one of three reasons:
- Late or missing submissions: Self assessment returns: Filed after the statutory deadline or not at all.
- Discrepancies with third-party data: PAYE submissions: Numbers that do not match employer filings, banks or pension providers.
- Patterns outside the norm: Sector averages: Margins or VAT refund claims that sit well above (or below) industry benchmarks.
Random compliance checks also occur, so spotless records do not guarantee immunity. The important point is that an investigation notice is not an accusation of wrongdoing; it is a request for evidence.
Understanding the HMRC investigations process
Letters are typically titled “Check of your tax position”. They outline the period under review, the type of enquiry and the information required. From that moment, the HMRC investigations process follows a structured path:
- Opening meeting: HMRC may propose a phone call or face-to-face visit to discuss the business and its records.
- Information gathering: You provide the documents requested, usually within 30 days.
- Review and clarification: HMRC may ask follow-up questions; timeframes can stretch if data is incomplete.
- Closure: Once satisfied, HMRC issues a decision letter confirming any adjustments, penalties or a clean bill of health.
Timely, accurate responses shorten each stage and demonstrate a cooperative attitude, which HMRC notes when considering penalties.
Types of enquiry: Aspect, full and random
- Aspect enquiries: Limited to a single item – for example, a large repair deduction or a claim for research and development relief.
- Full enquiries: A comprehensive review of the entire return, most often Self-Assessment or Corporation Tax.
- Random checks: Selected by algorithm. The scope may be narrow or wide but there is no underlying suspicion.
Understanding which category your letter falls into helps gauge how much evidence you will need and how long the review might last. A straightforward aspect enquiry can be closed within weeks; a complex full enquiry can roll over several tax years if records are weak.
What happens once the letter arrives
Acting promptly is vital:
- Acknowledge receipt: Confirm to the officer that you are collating the information.
- Gather records: Bank statements: Statements, invoices, payroll journals, contracts.
- Appoint a representative: If we already handle your accounts, authorise us to correspond directly with HMRC on your behalf.
A clear timeline, ideally agreed in writing with the officer, keeps the HMRC investigations process on track and reduces the chance of compulsory information notices.
How to respond and keep calm
- Stick to facts: Provide what is asked for, nothing extra.
- Explain anomalies: One-off losses: A short narrative backed by documents often closes a query quickly.
- Maintain professionalism: Tone matters. Polite, business-like letters show cooperation.
Where HMRC proposes an adjustment, you have 30 days to agree or appeal. Do not ignore assessments – interest and penalties accrue daily.
Record-keeping essentials
Good records are the best defence. For the 2025/26 tax year we recommend:
- Digital bookkeeping software: Automatic bank feeds reduce human error.
- Quarterly reviews: Identify discrepancies early and document corrections.
- Retention policy: Keep business records for at least six years – PAYE records for three.
Our bookkeeping services integrate with Making Tax Digital APIs, giving HMRC-ready audit trails.
When to seek professional advice
Engaging a specialist is advisable if:
- You receive a full enquiry letter covering multiple years.
- HMRC alleges deliberate behaviour – penalties can reach 100% of tax due.
- Cashflow constraints make staged payments essential.
We negotiate time-to-pay arrangements and have a strong track record of reducing penalties through disclosure.
Ready to talk?
An HMRC letter need not derail your business. By understanding the HMRC investigations process, keeping well-organised records and seeking advice early, you can turn what feels like an ordeal into a manageable administrative task – and sometimes even an opportunity to tighten your systems. Crucially, you do not have to wait until a brown envelope lands to act. Our pre-emptive compliance health checks mirror HMRC’s own data-matching techniques, flagging inconsistencies and gaps while there is still time to correct them. We can review your bookkeeping software, reconcile ledgers against third-party data and prepare an audit trail that stands up to scrutiny.
For added peace of mind, we also arrange tax-investigation fee-protection insurance, so professional costs never become a barrier to a robust defence. Whether you need a one-off file review or full representation, our advisers are ready to step in.
If you have received an enquiry notice – or simply want confidence that your affairs are enquiry-ready – contact us today. One of our tax specialists will guide you through every stage of the HMRC investigations process, from the first letter to final closure, turning HMRC scrutiny into a chance to strengthen your financial controls and protect your cashflow.