HMRC’s Top Enquiry Triggers

Why would HMRC contact or investigate me regarding my tax return filing?

As we head to the end of the year and another UK tax return filing deadline, it is also the period where letters from HMRC may be arriving for taxpayers and their registered agents advising them of HMRC’s intent to conduct a compliance check into the 2019/20 return.

This is because with so many returns being filed in the December and January period, this marks the end of the 12 month window from filing that HMRC usually have to raise questions about a return they receive.

It is worth therefore understanding a few key points, should you receive such a letter. You ought to be aware of the main areas that, in our experience, lead to HMRC opening a compliance check.

What to do when you receive an HMRC Compliance Check Letter?

When you receive a compliance check letter from HMRC, the first step should be to engage with the HMRC Inspector who issued the letter as soon as possible. It will be very important to the successful closure of the enquiry that there is an understanding of what the concerns are which lead to the issue of the letter in the first instance.

Communication with the Inspector and providing clear indications of a wish to assist with the process and provide the required clarifications and additional documentation is also very important both to a prompt end to the enquiry and also to the question of any penalties should it be determined that there is additional tax to pay as there are reductions available in the penalty rules for cooperating fully with the enquiry and prompt provision of requested information.

Some areas of particular focus for HMRC in terms of concern around errors and insufficient tax being paid from our experience are as follows:

Top reasons why HMRC would investigate me regarding my tax return filing?

  • The claiming of foreign tax credits to ensure that these are calculated correctly and allowed under the relevant double taxation agreement or our domestic rules

  • Payment of the correct level of remittance basis charge for the number of years an individual has been resident in the UK

  • Unreported foreign income for those paying tax on the remittance basis

  • Amounts not reported as remittances which should be reported as taxable remittances

  • If your return considers any of these matters it is important to ensure that clear records are kept which can be provided to HMRC in the event of such a check.

    HMRC have also begun to issue what they call one to many letters, affectionately known in the industry as nudge letters, as a first step where they have a specific concern before issuing a formal compliance check.

    These letters ask a client to check their return and ensure they are happy with it in respect to a specific point.

    It may be time well spent therefore if you receive one of these letters to have the return reviewed and write to HMRC as appropriate explaining that the return has been checked and you do not believe it contains any errors with reasons provided. This may prevent a compliance check being issued and therefore prevent stress and professional fees down the line.

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