How have HMRC Tax investigation enquiries Changed?

HMRC Tax Investigations/Enquiries in the past

Years ago, HMRC would have opened an enquiry by agreeing a date and time for the visit and then arriving.  On arriving at the business premises, they would interview the directors/business owners and then review the records to try to find any potential errors in the systems and business processes.

Tax enquiries were usually ‘full’ enquiries often based on a big rise in sales or a sudden rise in expenses.  With the change to Self-Assessment in the mid 90’s, HMRC knew they would only have one chance to get it right so enquiries were often a “Standard Approach” rather than a smaller aspect enquiry. 

Often this was a trial and error approach and most enquiries found that the businesses had complied and generated very little extra tax.

HMRC enquiries of today

Due to the twin pressure of fewer resources and the imposition of tax collection targets which have to be met. HMRC has had to become more sophisticated has become more reliant on technology.

In 2009 HMRC launched, a state of the art analytical software system called Connect, which they increasingly use to determine who should be subject to a tax enquiry.  Connect is gathering huge amounts of information about ALL of us. It takes the information declared on each tax return and assesses if it seems reasonable or not. It does this by making comparisons, eg comparing this year’s results to previous year’s and comparing results against industry norms. Any anomalies will be quickly highlighted and the taxpayer can expect an enquiry. On the face of it a really smart move by HMRC to get the best use of its resources of systems and people! 

So what is the impact of this change?

According to the providers of Tax Fee Protection Insurance and let’s be honest they would know…as they deal with lots of professionals who take on HMRC in these claims be it ex Tax inspectors now “working for the other side” or Accountants acting on behalf of their clients trying to defend against investigations.

There has been a dramatic change in the profile of cases.

  • Steep rise in VAT visits (now account 45% of Tax Fee Protection Insurance claims)
  • Fall in more straightforward Self-Assessment Aspect Enquiries and simple interventions BUT be warned those that are opened are now dragging on for much longer.
  • Rise in Full Self-Assessment Enquiries
  • Corporation Tax Enquiries have remained broadly unchanged
  • PAYE/Construction Industry Scheme reviews have nearly doubled in the 12 months.


It is clear that HMRC are starting more enquiries and their approach is much more focused than it ever used to be.

This is compounded by the fact that HMRC are hugely more aggressive in identifying underpayment of tax and then charging penalties and interest.

I believe this is driven by the creation in recent years of tax collection targets which I understand individual tax inspectors have been given.

What can you do to protect yourself ?

  • Have good systems and processes in your business which are followed by your people.

Having a modern bookkeeping system like Xero, which has been set up properly in the first place, is a good start.  However like anything it is only as good as the person operating it.  No one can ever be 100% sure that there records are perfect as legislation changes, people make mistakes, some expenses are non standard etc.

  • Get good tax advice and follow the rules on what expenses can and can’t be claimed.

Some business owners mistakenly think that they’re ‘safe’ because their accountant checks every single record and every piece of paper at the year end.

The reality is the accountant, when preparing a set of accounts or tax returns, doesn’t check everything. It’s just not practical because if they did then the cost would run into thousands or tens of thousands of pounds. Some Accountants do a sample check, and follow the guidance of their Institutes and some do none!

In Summary

Every taxpayer needs to appreciate that the nature of Tax Enquiries has fundamentally changed and risks to any taxpayer is now MASSIVE.

  • The likelihood of someone having Tax Enquiry – gone up.
  • The risk of someone having pay extra tax plus penalties and interest inspection – gone up.
  • The likelihood of a Tax Enquiry lasting for longer – gone up.
  • The stress and worry associated with a Tax Enquiry – gone up.

The threat to a taxpayer is real and significant. The best way for a taxpayer to protect themselves is to have the right systems and take the right advice (& then follow it).

This article is for general information only and no action should be taken, or refrained from, as a result of this information.  Professional advice should be taken based on specific circumstances in each individual case.  Whilst we endeavour to ensure that the information contained in the article is correct, no liability  will be accepted by KMA Accountancy which is a trading name of Kim Marlor Associates Ltd or damages of any kind arising from the contents of this communication, or for any action or decision taken as a result of using any such information

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