How Long Does a HMRC Investigation Take?

Understanding HMRC Investigations

HMRC investigations are a scary thought for the self-employed and company owners throughout the UK, and rightfully so! An investigation into your reported income, expenses, tax payment and general financial position can be daunting, even if everything has been done by the book.

At Blue Skies we’ve worked with thousands of individuals and companies to mitigate the risk of receiving an HMRC investigation, and working with those who have an investigation pending or underway.

The Different Types of HMRC Investigations:

Before understanding what the process looks like and the expected timeframes, it’s important to understand a bit more about investigations as a whole. There are several types of HMRC investigations to be aware of, including:

  • Random checks: These investigations are conducted randomly, and you may be selected even if you’ve done nothing wrong.

  • Full enquiry: This is a comprehensive investigation that looks at all aspects of your tax affairs.

  • Civil investigation: This is an investigation into suspected tax fraud.

  • Criminal investigations: This is an investigation into suspected tax fraud or evasion that may lead to criminal charges.

Common Triggers for an Investigation

HMRC can initiate an investigation if there’s reason to believe that something is wrong with your tax returns or tax calculations & payments. What these triggers look like will vary person-to-person (or company), but largely they fall under one of the below:

  • Information: HMRC may receive information from other sources, such as banks or employers, that suggests that you have not declared all of your income.

  • A mistake on your tax return: If you make a mistake on your tax return, HMRC may investigate to determine whether the mistake was intentional or accidental.

  • Tax fraud: If HMRC suspects that you have committed tax fraud, they may initiate an investigation to gather evidence.

  • Tax evasion: If HMRC suspects that you have evaded paying taxes, they may initiate an investigation to determine whether you have committed a criminal offence.

  • VAT: If you are a VAT-registered business, HMRC may investigate to ensure that you have paid the correct amount of VAT.

The type of investigation, and the reason for the investigation, will largely dictate how long HMRC spends working through your tax & income information and coming to a conclusion. For less serious triggers, such as making a mistake on your tax return, this may be concluded quite quickly. For more serious cases with legal implications, such as those for tax evasion and tax fraud, the investigation will likely take considerably longer.

The HMRC Investigation Process

Initial Contact and Information Request

When HMRC has decided to investigate you & your tax and income declarations, they will initially contact you to request information. This could be in the form of a letter. You'll be asked to provide documents such as accounts, bank statements, and other financial records. It’s very important that you respond to this request promptly and provide all the information requested.

Once you have provided the initial information, HMRC will carry out an initial review of your records. This might lead to further questions or requests for additional information. You may also be asked to attend a meeting or interview with HMRC to discuss your records and provide further information.

In-depth Examination

Should HMRC then decide to carry out an in-depth examination, they will issue a formal notice detailing the scope of their intended investigation. You’ll be given a deadline to respond to this notice and provide any additional information or paperwork requested.

During the investigation process, HMRC will review your financial records, interview relevant parties, and carry out a compliance audit. They may also request additional information from third parties, such as banks or accountants.

Concluding the Investigation

Once the investigation is complete, HMRC will issue a report detailing their findings.

This report will outline any discrepancies or errors found in your tax affairs and may include recommendations for corrective action. From this, you’ll have the opportunity to respond to this report and provide any additional information before any penalties or fines are imposed.

The length of the investigation will depend on the severity of the issue (from a mistake on your tax return to tax evasion) as we mentioned above, but other factors such as how long it takes for you to send HMRC the discovery information, how much data there is in your accounts and income/expenditure records, the level of detail HMRC require for the investigation, and more.

It’s for these reasons that it’s very difficult to assess at the outset just how long your investigation with HMRC will take. However, working with experienced accountants can help you to get not only a good idea of length, but also what to expect and possible outcomes.

Legal Implications and Rights

When facing an HMRC investigation, it’s important to understand your legal rights and the potential implications of the investigation. This will help you to understand your position throughout the investigation, but more importantly it can help you to plan for a penalty, fine or worse should issues or discrepancies be found.

Penalties and Fines

If HMRC finds that you have underpaid tax, you may be subject to a penalty or a fine, with the amount depending on the seriousness of the offence and whether or not you have made any attempts to conceal the correct financial information.. 

Penalties can range from a caution to a criminal prosecution, which can result in a fine or even a prison sentence.

Appeals and Disputes

If you disagree with HMRC's decision, you have the right to appeal and you can do this by submitting a formal appeal in writing, which will be reviewed by an independent tribunal. If, after the tribunal findings, you’re still unhappy with the outcome, you may be able to take your case to the Upper Tribunal or even the Court of Appeal.

The Role of Accountants in an HMRC Investigation

Providing your accountant has agent authority with HMRC and therefore your permission to handle your investigation on your behalf, typically they will be able to get involved and understand both your current situation and the root of the investigation. Enlisting an accountant to support during an HMRC investigation can help you with ensuring you provide the right information, but we also recommend working with an accountant year-round to greatly minimise your risk of being investigated.

If you or your business are facing an HMRC investigation, or if you want to minimise your risk of being investigated contact the Blue Skies team today for a no-obligation chat. Find out how we’ve helped thousands of individuals like yourself over the last 20+ years.

Speak to our team on 01767 699996 or thecrew@blue-skies.tv

Cameron Sykes