If you have received a letter opening a compliance check, here is what to expect from an HMRC compliance check: a written notice telling you which return and which tax are under review, one or more formal requests for records and explanations, and eventually a closure notice that either confirms your return was correct or sets out additional tax, interest, and penalties. Some checks are random, some are triggered by data that does not match what you filed, and most are resolved by negotiation rather than at tribunal. How you handle the process has a direct effect on what you end up paying.
How the Check Starts
Nothing formal happens until a letter arrives. HMRC opens a compliance check by writing to you or your tax agent, naming the tax year and the tax type under review and outlining what it wants to examine.1GOV.UK. HMRC Compliance Checks – Help and Support
Even if the letter focuses on a single figure, the enquiry is legally into the whole return. HMRC officers sometimes describe a narrow review as an “aspect enquiry,” but the legislation draws no such distinction, and every enquiry into a tax return is an enquiry into the full return.2GOV.UK. Enquiry Manual – EM0091 – Introduction: Types of Enquiry: General Practically, that means the scope can widen if new concerns emerge during the check.
HMRC has to open the check within a set window. For returns filed on or before the deadline, that window closes 12 months after the filing date. If you filed late, it runs to the next quarter day (31 January, 30 April, 31 July, or 31 October) after the first anniversary of the date you submitted. Once the window closes, HMRC generally cannot open a fresh enquiry into that return, although separate discovery powers can still reach back further.
What HMRC Can Ask For
Schedule 36 of the Finance Act 2008 gives HMRC broad powers to demand information and documents and to inspect business premises.3GOV.UK. Compliance Handbook – CH20150 – Information and Inspection Powers: Overview: Schedule 36 FA 2008 Those powers cover every major tax, including income tax, corporation tax, VAT, capital gains tax, and PAYE.4GOV.UK. Compliance Handbook – CH201100 – How to Do a Compliance Check: General: Introduction and Scope
A formal information notice will specify what HMRC wants and set a period to produce it. There is no fixed statutory deadline; the timeframe must be reasonable given what has been requested.5UK Parliament. Finance Act 2008 Schedule 36 – Information and Inspection Powers Requests typically cover bank statements, sales invoices, expense receipts, and digital accounting records, and follow-up notices are common if the first batch raises further questions.
Ignoring a formal notice has real cost even if you ultimately owe no additional tax. The initial penalty is £300, followed by daily penalties of up to £60 for each day the failure continues. A tribunal can lift that daily figure to as much as £1,000.5UK Parliament. Finance Act 2008 Schedule 36 – Information and Inspection Powers
Site Visits
For VAT, employer compliance, and excise checks, a visit to your premises is standard. Officers will examine your business records and may inspect physical assets, stock, and operating procedures. Visits are almost always arranged in advance. Unannounced inspections are reserved for cases where HMRC suspects deliberate understatement and believes advance warning would let evidence be concealed.6GOV.UK. Compliance Handbook – CH207400 – How to Do a Compliance Check
How Far Back HMRC Can Go
Outside the initial enquiry window, HMRC can raise a “discovery assessment” if it later finds tax has been underpaid. The reach depends on the behavior involved:
- No carelessness: 4 years from the end of the relevant tax period.
- Careless error: 6 years.
- Deliberate error: up to 20 years.7GOV.UK. DST63300 – Time Limits for Making a Discovery Assessment
The 20-year window is where the largest settlements come from. By that point the combination of underpaid tax, compounded interest, and penalties can be very large.
What You Should Do During the Check
You have an obligation to cooperate and to provide accurate information, even where it works against you. Concealing records or submitting false documents escalates both penalties and the risk of criminal investigation. Cooperation is not unconditional, though; you do not have to accept unreasonable demands or open-ended fishing.
The HMRC Charter, required by the Commissioners for Revenue and Customs Act 2005, sets the standard of service you should expect, including fair treatment, data security, and the right to appoint a representative.8GOV.UK. The HMRC Charter If an officer’s conduct falls short, you can complain formally by reference to the Charter. If you disagree with a decision, you can request a statutory review, appeal to the independent tax tribunal, or both.
Get Representation Early
Engaging an accountant or tax solicitor early is usually worth the cost. A good representative handles communication with the officer, ensures you only disclose what is legally required, and pushes back on overreach. They also catch procedural errors, such as an information notice served outside the enquiry window or a penalty calculated under the wrong behavior category. Routing all correspondence and meetings through your representative reduces the chance that a casual remark or volunteered detail widens the scope of the check.
Applying for a Closure Notice
If the check drags on with no clear end, you can apply to the First-tier Tribunal for a direction that HMRC close the enquiry. Under section 28A of the Taxes Management Act 1970, the tribunal must issue that direction unless HMRC can show reasonable grounds for keeping the check open.9UK Parliament. Taxes Management Act 1970 Section 28A It is one of the least-known rights during a compliance check and one of the most useful when an officer is stalling.
How the Check Ends and What You Pay
A compliance check ends when HMRC issues a closure notice confirming the final position. If nothing is wrong, the notice simply confirms your return was correct. If underpaid tax has been identified, the notice sets out the additional liability, interest, and any penalties.
In most cases HMRC and the taxpayer agree the numbers before the closure notice is issued. That negotiated settlement is the common outcome: you agree the underpaid tax, the interest, and the penalty, and HMRC formally closes the check. The level of cooperation and the quality of your disclosure directly affect the penalty reduction you receive, which is why fighting every point is often the wrong strategy.
If agreement cannot be reached, the dispute moves to the First-tier Tribunal. You normally have 30 days from the date a penalty or decision is issued to request a review or lodge an appeal.10GOV.UK. Disagree With a Tax Decision or Penalty A late application is possible with a good reason, but staying inside the 30 days avoids the complication.
How Penalties Are Calculated
If the check finds underpaid tax, penalties are calculated under Schedule 24 of the Finance Act 2007 as a percentage of the “potential lost revenue,” meaning the tax that went unpaid because of the error.11UK Parliament. Finance Act 2007 Schedule 24 – Penalties for Errors The maximums depend on behavior:
- Careless (failure to take reasonable care): up to 30% of the potential lost revenue.
- Deliberate but not concealed: up to 70%.
- Deliberate and concealed: up to 100%.11UK Parliament. Finance Act 2007 Schedule 24 – Penalties for Errors
Those maximums come down depending on whether you tell HMRC about the error before they raise it (unprompted) or only after (prompted), and on how complete and timely your disclosure is:
- Careless: unprompted disclosure can reduce the penalty to as low as 0%; prompted, the minimum is 15%.
- Deliberate: unprompted, minimum 20%; prompted, minimum 35%.
- Deliberate and concealed: unprompted, minimum 30%; prompted, minimum 50%.11UK Parliament. Finance Act 2007 Schedule 24 – Penalties for Errors
If you find an error in an earlier return, telling HMRC before they contact you is almost always the better financial outcome. The gap between unprompted and prompted disclosure can halve the penalty or more.
Interest on Underpaid Tax
Interest is charged on underpaid tax from the date it was originally due and compounds over the full period. As of early 2026, the late payment interest rate sits at 7.75%. On a check reaching back several years, interest alone can add thousands. Unlike penalties, interest is not reduced by cooperation or disclosure; it reflects the time value of the money HMRC was owed.
When It Is Not a Standard Check: Code of Practice 9
Standard compliance checks deal with carelessness and even deliberate errors through civil penalties. Where HMRC suspects outright tax fraud, it may instead issue Code of Practice 9 (COP9), which is a different process.12GOV.UK. Code of Practice 9 – HM Revenue and Customs Investigation of Fraud
COP9 offers a choice: make a full and honest disclosure of all deliberate tax irregularities through the Contractual Disclosure Facility, and HMRC will not pursue criminal prosecution for the conduct you disclose. You have 60 days from receiving the CDF offer to accept or reject it.13GOV.UK. Admit Tax Fraud to HMRC Using the Contractual Disclosure Facility Accepting means admitting that your deliberate behavior caused a loss of tax, providing full details, and cooperating fully to settle what you owe.
If you reject the offer or fail to respond within 60 days, HMRC will start its own investigation, which may be criminal, and penalties for non-cooperation run higher than in a standard check. Anyone who receives COP9 should contact a specialist tax solicitor before responding to HMRC.