Income Tax Compliance

Income Tax Investigations are described as Compliance Checks in HMRC literature. They are usually conducted by HMRC Local Compliance. Income tax investigations are conducted on individuals and partnerships.

Although some income tax compliance checks are done on a random basis this amounts to be such a small number of tax investigations as to be insignificant. Should you be subject to an tax compliance check then the chances are that HMRC believe that there is something wrong (or potentially wrong) with your tax return. It is also highly unlikely that anyone who is subject to a full compliance check will have been selected at random.

HMRC mainly conduct compliance checks when they have identified a tax risk. That is that they believe that further tax may be due and that the best way to check this is by a opening a tax investigation.

Generally income tax compliance checks are conducted into the last tax return that has been filed and the income tax investigation should be notified to the person whom is subject to the compliance check within 12 months of the date the tax return was filed.

In order to start an income tax compliance check HMRC should send a notice in writing to the individual or partnership. The letter should make it clear that HMRC are conducting a tax investigation.

Income tax investigations fall into two categories:

  • A full income ax compliance check where HMRC look at all of the business records for a whole year as well as checking all other entries on the tax return
  • An aspect Income tax compliance check where HMRC look at one or two aspects of the individual’s tax return such as a capital gains calculation or the claim to relief for pension contributions


An aspect compliance check can turn into a full income tax investigation and if this happens HMRC should make this clear. This is an indication that HMRC believe that there are serious issues with the individual’s tax affairs.

HMRC have published guidance on the various compliance checks they undertake and this is here.

As part of the compliance check HMRC may wish to meet with the individual under investigation and his or her representative. If a meeting is requested then this is a clear indication that the tax investigation is being conducted as HMRC believe that there is something wrong. It is not compulsory to attend a meeting with HMRC. That is not to say that as part of a compliance check a meeting with HMRC should not occur but it should always remember that this is a tax investigation because HMRC believe that there may be something wrong with the tax return which could lead to additional tax being due. Preparation for any meeting is important. HMRC will make notes of the meeting and we have seen many instances where people have not thought through the answer and the implications of this and when it turns out they actually did not give a full explanation HMRC have refused to accept the additional information as being fact and this can lead to massive problems during the enquiry.

HMRC are entitled to look at the records supporting the tax returns and nothing else, however their information requests often go way beyond what they are legally entitled to. This often includes a request for private bank statements and credit cards. Perfectly innocent deposits for gifts and repayment for things paid personally are then often alleged to be omitted profits by HMRC as most people do not keep records of these personal transactions.

The starting point for any compliance check is to satisfy yourself that HMRC entitled to ask for what they are requesting and have not missed the 12 month deadline to enquire into the tax return.

If for any reason the tax returns submitted are known to be incorrect then it is important to disclose this at the earliest given opportunity to your advisor or speak to someone whom specialises in tax investigations. Early disclosure of tax evasion or errors can help the individual and reduce the level of any penalty.

If errors are found during the Income tax enquiry HMRC will often assume that similar errors have occurred in other years and wish to make adjustments for these years as well (and charge interest and penalties). That is not to say that errors will be found in all compliance checks and if there are no errors then HMRC should close down their compliance check. Major issued can arise where HMRC have decided there are errors and none exist. This is why it is important to ensure that the compliance check is managed by someone with experience of dealing with tax investigations.

Gilbert Tax understands that people sometimes make mistakes in their dealings with HMRC and that HMRC make mistakes in dealing with taxpayers. Many people do not know how to deal with HMRC or who to turn to for help resolve the tax dispute.

Gilbert Tax is a firm of tax advisors who specialise in resolving people's problems with HMRC. We have extensive expertise in dealing with all forms of tax investigations and tax disputes as well as with taking matters to the Tax Tribunal where agreement cannot be reached.

Gilbert Tax deal both directly with the individual who is under enquiry and also work with many firms of accountants supporting them in dealing with HMRC disputes and advising them on how to handle HRMC to get the best result.

The fact is that proper management of HMRC is the best way of reducing the tax, interest and penalty as well as the time taken in resolving any tax dispute.

Gilbert Tax are none judgemental and rigorously defend your position within the scope and parameter of the law. We take control and manage the process to minimise the interruptions that any form of tax investigation causes to an individual's life and business.