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What is an HMRC Compliance Check for Self Assessment?
An HMRC compliance check on your self assessment tax return is essentially an investigation to ensure that you’ve correctly reported your income, expenses, and other financial details. HMRC uses compliance checks as part of their efforts to tackle tax fraud and non-compliance, making sure that everyone pays the right amount of tax.
These checks can involve reviewing your financial records, asking for additional documentation, or conducting interviews to clarify certain elements of your tax return. The aim is to confirm whether the information provided in your self assessment is accurate and in line with UK tax law.
Common Reasons for an HMRC Compliance Check on Self Assessment
HMRC may choose to conduct a compliance check on your self assessment tax return for several reasons, including:
Mistakes in income reporting or expense claims are among the most common triggers.
Submitting your self assessment return late can prompt HMRC to review your records more closely.
Claiming expenses that don’t align with your typical business or personal activities could raise a red flag.
Differences between your tax return and third-party data (such as information from banks or employers) may lead to a compliance check.
In some cases, you might be selected for a compliance check randomly, as part of HMRC’s efforts to maintain overall tax compliance.
It’s important to remember that not all compliance checks indicate wrongdoing. Sometimes, HMRC is merely seeking clarification or further evidence.
What Powers Does HMRC Have?
HMRC is legally entitled to request documents and information to assess whether you've correctly paid the right amount of tax. These requests can often be demanding and, if you're unfamiliar with the process or unsure how to push back, you might find yourself sharing more information than necessary. For businesses, HMRC can also request to inspect your premises as part of their investigation.
These investigations can be highly disruptive and stressful for both individuals and businesses. By engaging a professional adviser to manage your dealings with HMRC, you can stay focused on running your business while working towards a faster and more favourable resolution.
Once the compliance check has concluded, HMRC has the right to issue penalties.
What Rights Do Taxpayers Have?
Taxpayers have several important rights when dealing with HMRC. They can appoint someone to represent them. HMRC allows reasonable time for taxpayers to consult an adviser and guarantees confidentiality in all dealings. If taxpayers feel they have been treated unfairly, they have the right to complain.
While it's generally advisable for taxpayers to cooperate and provide requested information promptly to potentially reduce penalties, they are not obligated to comply with all requests. If a taxpayer decides not to comply, HMRC will outline their rights and the next steps.
How Far Back Can HMRC Investigate?
After filing a Self Assessment tax return, HMRC has 12 months to review and raise queries. However, even if no enquiry is initiated within this period, HMRC can issue a discovery assessment to claim unpaid tax, plus interest and penalties, up to four years after the tax year in question.
For errors due to carelessness, HMRC can extend this period to six years, and for deliberate wrongdoing, they can investigate up to 20 years.
To avoid costly errors and potential investigations, it’s essential for individuals and businesses to ensure accuracy in their tax returns and seek professional advice when needed.
What Happens During a Compliance Check?
During an HMRC compliance check related to self assessment, the process typically begins with HMRC notifying you via a letter, indicating which aspects of your tax return will be reviewed. This letter may outline the specific documents and information required, such as financial records, bank statements, and invoices. You will need to gather and submit the requested documentation by the specified deadline, ensuring that all information is accurate and complete. HMRC will review the materials provided and may request further clarification or additional documents. In certain cases, they might conduct a visit to your premises for verification. Once the review is complete, HMRC will either close the compliance check with no further action or issue an assessment if discrepancies are identified, which could result in additional tax owed, interest, or penalties. Throughout this process, it's advisable to stay organised and consider seeking professional help to navigate the compliance check effectively and ensure compliance with all requirements.
Should I Seek Professional Help?
Given HMRC’s authority to investigate several years of tax returns and the complexities involved, seeking professional advice is highly recommended. Professional help can provide peace of mind, reduce stress, and potentially lead to quicker resolutions.
How Tax Dispute Experts Can Help
At Tax Dispute Experts, we specialise in helping individuals and businesses navigate HMRC compliance check letters for self assessment. Our experienced team can assist you in gathering the necessary documentation, responding to HMRC’s requests, and resolving any potential issues that arise during the compliance check process.
We understand that dealing with HMRC can be stressful. That’s why we offer tailored support to ensure that your case is handled professionally and efficiently. Contact us today for expert guidance on your self assessment compliance check.