Share this content

HMRC investigations: What you need to know

3rd Feb 2010
Share this content

Ronnie Ludwig offers some timely advice for those facing HMRC enquiries.

Since the introduction of self assessment in 1996, HMRC has been retraining its staff to develop investigatory skills rather than deal mainly with compliance and the preparation of assessments, as was previously the case. This new focus of the Revenue and certain developments over the last year suggest that the number of tax investigations, which may target businesses or individuals, is likely to continue rising over the coming months.

The war on tax evasion
During 2009 governments across the world were engaged in a co-ordinated campaign to limit banking secrecy, sign tax information exchange agreements with known tax havens, gain information on any potential tax dodgers and stamp out tax evasion. With tax information exchange agreements negotiated even with the jurisdictions traditionally committed to banking secrecy such as Switzerland or Liechtenstein, HMRC has access to an increasingly wide pool of information and there are few places to hide for tax evaders.

Those who may have unpaid tax liabilities but choose not to come forward voluntarily, are likely to see investigations launched into their financial affairs, as tax inspectors attempt to recover revenue for the Exchequer. Britain’s public debt stood at £15.7bn at the end of 2009, and it is clear that the government will need to raise its tax take in order to plug that hole.

The information network
Details of offshore account holders handed over by banks under new tax information exchange laws are not the only reason for the start of HMRC enquiries. The tax authorities assess a wide range of information. For example, they look at gross profits of similar businesses up and down the country and if your income is significantly different from the average, that might trigger an investigation.

A large proportion of tax enquiries, perhaps over 50%, are started by informants - former business associates, jilted lovers and others.

What to do
Tax investigations are becoming an increasingly inevitable part of the fiscal landscape but there are some simple rules which will help you limit the trouble and anxiety associated with an enquiry if not avoid it altogether.

Keep good records
Good records are essential to running a business as well as keeping an individual’s financial affairs in order. They will also be a great help during tax investigations. You need to ensure (especially if yours is a cash business) that your books are carefully maintained, with all transactions properly logged and recorded so that should you or your business ever be subject to a tax investigation, you will be able to respond to all queries and provide all information requested. By law, self-employed individuals are required to keep all records pertaining to their tax return for five years from the filing date, and those whose tax is deducted through PAYE must keep records for 12 months from filing date.


Under the Taxes Management Act, HMRC has the right to request information from you or a third party (e.g. your accountant), and you are obliged to cooperate. However, cooperation is not just a matter of legal necessity - it can also significantly help your case. Timely responses to HMRC enquiry letters, providing all the information requested can help resolve an enquiry early on before it turns into a full-scale investigation, saving you a great deal of trouble.

Cooperation can also be rewarding in purely monetary terms as any penalties imposed can vary significantly depending to the extent to which you demonstrated a willingness to come forward with information and cooperate with HMRC investigators.

Seek quality professional advice
Having a good professional adviser representing you will, in many cases, help you avoid becoming the target of an enquiry in the first place. If you are facing a tax investigation, the help of an experienced professional who has a good reputation with HMRC will be invaluable in dealing with any enquiries.

Ronnie Ludwig is a partner at top 20 accountancy firm Saffery Champness

Replies (10)

Please login or register to join the discussion.

By Anonymous
03rd Feb 2010 10:44

HMRC investigations

I am slightly concerned to note that Ronnie quotes the TMA 1970 when talking about co-operation with HMRC enquiries.  All mainstream taxes (VAT, CT, IT & CGT) have a single set of information and investigation powers under Sch 36 FA 2008.

The new powers are not to be confused with the old powers as they are quite different and contain quite strong penalties for non compliance! 

Thanks (0)
By geoffwolf
03rd Feb 2010 12:15

decimal point

Is it in the right place. Isn't the public debt £157bn?

Thanks (0)
By redsq01
03rd Feb 2010 12:47

Does this article have the highest read to comment ratio of any

Is everybody scared of the Stasi spies out there? They should be.

Thanks (0)
By Simon Sweetman
03rd Feb 2010 13:07


"A large proportion of tax enquiries, perhaps over 50%, are started by informants - former business associates, jilted lovers and others" - that is certainly not my experience either from my HMRC days or now : obviously such information might up the risk score, but it would not now be enough on its own. And the future is "campaigns" rather than the selection of individual cases. The article seems to be curiously out of date.

Thanks (0)
Nichola Ross Martin
By Nichola Ross Martin
03rd Feb 2010 13:26

Up to date article.

This is a link to guidance on the new powers in Schedule 36 FA 2008. They apply from 1 April 2008.

Virtual tax assistance for accountants and their clients:

Thanks (0)
By vstrad
03rd Feb 2010 20:30

Public Debt

According to Liam Fox in the HoC today, it's £799B

Thanks (0)
By Nick E Morgan
03rd Feb 2010 22:34

Hot Topic

The number of hits shows just how much of a hot topic this is.

HMRC has got to get more cash for less work, it's as simple as that.


Thanks (0)
By johnjenkins
04th Feb 2010 09:55

Heard it all before

The reason why a lot of people are reading and not commenting is that we have heard it all before.

HMRC are gearing up to have an almighty hit on all tax payers and Accountants. Whatever comments we make won't make any difference. This Government does not listen or comprehend. Mr. Brown has his own agenda and he is determined to stamp out tax avoidance whatever the damage and cost. Why is it that some people in postions of pwer can't see further than their nose????????

Thanks (0)
By elasterry
05th Feb 2010 14:04

The War on Tax

This "National Averages for various types of businesses ", countrywide, adopted by HMR&C in their Operational Manuals is absolutely typical of the blinkered "one size fits all" mind of the average Civil Servant involved in Statistics & Data publishing & data processing management at HMR&C & no doubt throughout other departments in Whitehall.

When coupled with the closure of many local tax offices, and the sad lack of transfer to the new Regional Offices in the Capital Cities of each County of all the valuable information obtained on the various trades monitored by those now defunct Local Offices during their Compliance investigations in previous years, is going to lead to ever more problems and time wasting for clients, their accountants, with hugely greater timewasting and inefficiencies in Collecting the greater tax revenues required by Government to repair its own finances.

If someone "at the top" of HMR&C doesn't get a grip on this problem in this coming tax year, then I can see a complete disaster.

In one particular case in my office, the Inspector and his support staff in Lincoln Tax Office have spent an enormous amount of hours trying to extract totally unjustified amounts of tax out of one of my clients, all based on their total lack of ability to understand that the margins of the particular trade in this part of the country bear no relation whatsoever to the National averages!   The final extra tax agreed by the Inspector and his Departmental Manager, has been eventually reduced to such a small figure that the cost to the Revenue  over the last two years of investigation, must be somewhere near ten times the agreed final tax.   My Fees?  I stopped the clock within the first month, as the clients are barely solvent, and I wasn't that worried about the income!  My concern was that if the Revenue took the same attitude with everyone else in the trade in this area, they would all be put out of business.  The local population would lose a vital service and some 50 more workers & firms' owners would be placed on the dole! 

As I'm nearing retirement, I too wanted the vital services these guys provide to be available when I reach my infirmity and dotage!


Terry Hunt,  Mablethorpe UK

Thanks (0)
By SMiller44A
08th Feb 2010 17:58

Tax Health Plan

With HMRC's current focus of attention on the amnesty front being Health Professionals (the ludicrously named 'Tax Health Plan') this brings up the delightful prospect of a tax investigation officer subsequently meeting a surgeon that he has investigated but this time on the surgeon's own terms (of course that's if any surgeons bother to remain here). What goes around comes around.

Thanks (0)