How to handle an HMRC compliance check

Read the letter twice before doing anything. It will state which tax and which period is being checked, what HMRC wants, and by when. It will normally enclose one of HMRC's CC/FS factsheets, and those factsheets are genuinely useful — they set out your rights, what HMRC can require, how penalties work for that type of check and how to complain. They are published on GOV.UK, so you can read the whole series rather than only the one enclosed.

Compliance checks come in two broad shapes. An aspect check looks at one or a few specific items — a claim for expenses, a capital gain, a single figure. A full check looks at the whole return, and sometimes at more than one year. The letter usually makes it obvious which you have, because an aspect check names the items.

Check the timing. For Self Assessment, HMRC has a defined window after you file in which it can open an enquiry into that return without needing any particular reason. Once that window has closed, HMRC can still assess tax but generally needs to make a discovery — that is, to find something it could not reasonably have known from the return. Discovery assessments reach back further where the loss of tax was careless, and further still where it was deliberate. If a letter concerns a very old year, the first question worth asking is on what basis HMRC says it is in time.

Distinguish an informal request from a formal one. HMRC often starts by asking for information in an ordinary letter. It can also issue a formal information notice, which is a legally binding demand, carries penalties for non-compliance, and in some circumstances requires approval from the tribunal. If you receive a formal notice, note the deadline carefully — the penalties for ignoring it are separate from and additional to any penalty on the tax.

Establish what HMRC already knows. HMRC receives data automatically from employers, banks and building societies, pension providers, the Land Registry, letting agents, digital platforms and overseas tax authorities under international exchange agreements. In most checks the trigger is a mismatch between one of those feeds and your return. Working out which feed is involved usually tells you exactly what the check is really about.

Decide early whether you need help. A straightforward aspect check about a figure you can evidence is something most people can handle themselves. A full check, a check involving several years, an allegation of deliberate behaviour, or anything with a criminal dimension is not — take professional advice immediately. If you cannot afford an accountant and your income is low, the charities TaxAid and the Low Incomes Tax Reform Group exist for exactly this situation.

Answer in writing and keep a copy of everything. Phone conversations with HMRC generate a note on their system that you cannot see and cannot correct. If you do speak to someone, follow up with a short email or letter recording what was said and agreed.

Meet the deadline or ask for more time before it passes. HMRC routinely agrees extensions where there is a reason — records held by a former accountant, illness, a bank taking weeks to produce statements. Asking in advance is cooperation; missing the date and explaining afterwards is not, and cooperation directly reduces the penalty.

Send what was asked for and no more. Volunteering unrelated records widens the check. This is not evasiveness: HMRC's own factsheets describe the check as being about specified matters, and answering precisely keeps it there. If HMRC then asks about something new, deal with that on its own terms.

Correct errors you find yourself, immediately and in writing. If reviewing your records shows a second problem HMRC has not raised, disclosing it before they ask converts it from a prompted disclosure to an unprompted one, which is one of the largest single reductions available in the penalty regime. This is genuinely counterintuitive — people instinctively hide the second error — and it is usually the most valuable thing you can do.

Never destroy, alter or backdate anything. Doing so converts a careless case into a deliberate and concealed one, moves the assessing window to the longest available, and opens the possibility of criminal investigation. The same applies to asking anyone else to do it.

Be careful about what you concede. Saying you 'should have known' about something is a statement about behaviour, and behaviour is what sets the penalty. Describe what you actually did — what records you kept, what advice you took, what you understood the rule to be at the time — and let HMRC apply the label. The published test is whether you took reasonable care, judged by what could be expected of a person in your circumstances, and someone who kept records, asked a question and got it wrong is not in the same category as someone who kept nothing.

If you genuinely cannot produce a document, say so and explain why, rather than ignoring the request. Records lost in a flood, held by an insolvent agent or destroyed by a former employer are ordinary facts, and HMRC can often obtain the same information from the third party directly.

Penalties for inaccuracies are a percentage of the additional tax, and the percentage range is set by behaviour. Where you took reasonable care there is no penalty at all, even though the tax is still due. Careless behaviour attracts a range, deliberate behaviour a higher range, and deliberate with concealment the highest. HMRC's CC/FS7A factsheet sets out the framework.

Within each range, the actual percentage depends on the quality of your disclosure. HMRC gives credit for three things: telling — admitting the problem and explaining how it arose; helping — quantifying it, doing the calculations, answering questions; and giving access — producing records and allowing checks. Full credit on all three moves the penalty to the bottom of its range. That is why cooperation is not merely good manners but the main lever you control.

The single largest reduction is for unprompted disclosure — telling HMRC before you have any reason to believe they are about to find out. Once a check has been opened, disclosure of the matter under check is prompted. But a different matter you volunteer during the check can still be unprompted, which is why raising your own additional errors early pays.

Failure to notify penalties apply where you should have registered for a tax and did not — someone with rental or self-employment income who never told HMRC at all. The structure is similar: behaviour sets the range, disclosure sets the position within it.

Careless penalties can be suspended. HMRC can suspend a penalty for a period on conditions designed to stop the error recurring — new record-keeping, a different process, using an accountant. If you meet the conditions, the penalty is cancelled. If you do not, it becomes payable. Suspension is not offered as a matter of course and is not available for deliberate behaviour, but it is available on request, and CC/FS10 explains it. Many people never ask.

Interest runs on late-paid tax separately from penalties and is not a penalty — it is not reduced for cooperation and is not usually negotiable. There are also separate late filing and late payment penalties, which follow their own rules.

If the additional tax is agreed but you cannot pay it, ask for a Time to Pay arrangement. HMRC agrees these routinely with people who ask early and provide a realistic budget, and considerably less readily after enforcement has begun. Contact them before the due date rather than after.

If HMRC issues a decision, an assessment or a penalty you disagree with, there is a structured route and it is free at every stage. Do not simply refuse to pay — appeal within the time limit stated on the decision, which is short.

The first option is an internal review. You ask HMRC for the decision to be looked at again by an officer not involved in the original case. Reviews change outcomes more often than people expect, particularly on penalty percentages and behaviour findings, and they cost nothing but the time limit for asking is strict.

Alternative dispute resolution is the second option and is under-used. It brings in an HMRC mediator who has not been involved in the case, and it works particularly well where the dispute is about facts, communication has broken down, or the two sides have simply stopped understanding each other. It does not affect your right to appeal to the tribunal afterwards, and HMRC's CC/FS21 factsheet explains how to apply.

The third option is an appeal to the First-tier Tribunal, Tax Chamber. It is independent of HMRC, there is no fee to appeal, and you can represent yourself. The tribunal decides the facts and applies the law, and it can and does reduce or cancel penalties, including on the basis that a taxpayer had a reasonable excuse or took reasonable care. Appeals against a decision usually need to be made to HMRC first; the tribunal route follows.

The tax normally has to be paid or postponed while an appeal is outstanding, depending on the tax and the type of decision. Ask HMRC to postpone payment pending the appeal if you cannot pay, and get the position confirmed in writing, because the assumption that appealing automatically suspends collection is wrong for some taxes.

Keep the dispute about the tax separate from any dispute about how you were treated. The tribunal decides tax; it does not award compensation for poor service or delay. That is a complaint, and it runs on an entirely different track.

Complaints and appeals are different things and going down the wrong one wastes months. Appeal if you think the decision is wrong. Complain if the process was mishandled: unreasonable delay, repeated requests for information already supplied, wrong advice given on the phone, rude or unprofessional conduct, or a mistake that cost you money.

Start with HMRC's own complaints process, which has defined stages. Set out what happened, when, what it cost you, and what you want done. Vague complaints get vague answers; a dated chronology gets a substantive one.

If HMRC's final response does not resolve it, take the complaint to the Adjudicator's Office. It is free, independent, and reviews complaints about HMRC and the Valuation Office Agency after HMRC's own process is exhausted. It can recommend an apology, a change of decision, reimbursement of costs you incurred because of the error, and compensation for worry and distress.

Beyond the Adjudicator, the route is the Parliamentary and Health Service Ombudsman, which for HMRC complaints must be accessed through an MP. This is a genuine route, not a formality, and it is where systemic failures end up.

HMRC publishes a Charter setting out the standards of behaviour and service taxpayers are entitled to expect. Quoting the specific Charter standard you say was breached makes a complaint markedly harder to deflect than a general expression of dissatisfaction.

Where HMRC's own delay or error caused you to underpay tax over a long period and you reasonably believed your affairs were in order, there are limited circumstances in which arrears can be given up. It is applied narrowly and is not a general remedy, but it is worth raising where the facts genuinely fit — HMRC held the information, failed to act on it in good time, and you had no reason to think anything was wrong.

Income Tax, National Insurance, Corporation Tax, VAT, Capital Gains Tax and Inheritance Tax are administered by HMRC across the whole UK, and the compliance check regime described on this page applies identically in all four nations.

Scotland sets its own Income Tax rates and bands on non-savings, non-dividend income through the Scottish Parliament, and Scottish taxpayers are identified by an S prefix on their tax code. But the rates being different does not create a different tax authority: HMRC still collects Scottish Income Tax, still opens compliance checks into it, and appeals still go to the UK First-tier Tribunal Tax Chamber.

Fully devolved Scottish taxes are a different matter. Land and Buildings Transaction Tax, Scottish Landfill Tax and the Scottish Aggregates Tax are administered by Revenue Scotland, not HMRC. Revenue Scotland runs its own compliance and penalty regime, and disputes go to the First-tier Tribunal for Scotland, Tax Chamber — a completely separate tribunal from the UK one. If your letter is from Revenue Scotland, none of the HMRC-specific routes on this page apply.

Wales works the same way in structure. Welsh Rates of Income Tax are set by the Senedd but collected by HMRC, with a C prefix on the tax code. Land Transaction Tax and Landfill Disposals Tax are administered by the Welsh Revenue Authority, which has its own enquiry, penalty and appeal arrangements.

Northern Ireland has no devolved income tax and no separate revenue authority for the taxes covered here, so HMRC handles everything in the same way as in England. What is different is domestic rates, which replace council tax and are administered by Land and Property Services rather than a local council — a distinct system with its own arrears and enforcement route.

The practical rule: look at the letterhead. HMRC letters follow the process on this page. Revenue Scotland and Welsh Revenue Authority letters follow their own, with their own deadlines and their own tribunals, and applying the wrong timetable to them is a real way to lose an appeal that was winnable.