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What to know about tax enquiries

The What Investment Guide to Personal Tax tells you what you need to know about a possible tax enquiry.

Your tax office has the right to open a formal enquiry into your tax return. A small proportion of all returns is selected at random for enquiry. However, most are chosen because the Revenue thinks there is something wrong or a risk assessment analysis suggests that there is a high chance of this. Your tax office must tell you if the enquiry is into your whole return or just some aspect of it (such as a particular expense you have claimed).

Your tax office must give you written notice of an enquiry. For your 2011–12 return, the enquiry must normally start within one year of the date on which you filed your return. If your return was late or you amended it, the enquiry deadline is extended to one year from the end of the calendar quarter in which you sent in your late or amended return.

In effect, the enquiry window can be extended if your return includes a valuation or some other value judgement, or you have interpreted tax law in a different way from the Revenue and you are deemed to have given insufficient information about this on your return. In this situation, the Revenue is allowed to make a discovery assessment following the ruling in the case Langham v Veltema. You can find guidelines on the Revenue website (www.hmrc.gov.uk) on the information that you should supply in your tax return to avoid a discovery assessment.

Your tax office has the right to demand that you produce certain documents as part of the enquiry. When you receive a notice of an enquiry, you may also receive a notice to produce these within 30 days. You can provide copies, but your tax inspector may insist on seeing the originals. You can appeal within 30 days against this notice to produce documents.

You can also appeal to the First-Tier Tribunal if you consider that an enquiry should not have been undertaken or is being continued unnecessarily. If it agrees, the tribunal can issue a notice to the Revenue requiring it to close the enquiry.

When the subject of an enquiry is complete, your tax office will issue you with a formal notice telling you so, how much tax you are considered to owe (if any), any penalty charge, and requiring you to amend your self assessment. You can appeal against it, if you don’t agree. The result of a tax enquiry may also lead to a revision of any tax credits you claim. Once the enquiry is closed, no further enquiry can be made into the same return but a discovery assessment is possible.

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