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.
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.
