Have you received a letter from HMRC notifying you that they’re opening a tax investigation into your affairs? Are you worried about what this means for your business or personal finances?

It’s a situation that catches thousands of people and businesses off guard every year.

HMRC opens tax investigations into individuals, directors, companies, and charities for all sorts of reasons, and the process can be stressful, time-consuming, and, if mishandled, extremely costly. But with the right legal support in place early, you can take control of the situation and protect your position.

As specialist HMRC tax investigation solicitors, we work alongside your accountant to guide you through the investigation process, manage communications with HMRC, and ensure your rights are protected every step of the way.

What is a tax investigation?

A tax investigation is an enquiry by HMRC into your tax affairs and payment history. It can affect individuals, employees, directors, or companies, and covers taxes under HMRC’s jurisdiction including:

• VAT
• Income tax
• Corporation tax
• Capital gains tax
• PAYE

The scope and severity of an investigation depends entirely on the facts of your case. Some investigations are resolved with a single letter. Others can run for months or even over a year, particularly where complex tax structures or large businesses are involved.

Compliance checks vs tax investigations: what’s the difference?

Before going further, it’s important to understand the distinction between a compliance check and a tax investigation.

A compliance check is used when HMRC suspects something may be wrong but doesn’t yet have concrete evidence. The purpose is to gather information and evidence that could lead to a formal assessment.

A tax investigation, by contrast, is where HMRC already has evidence that something is wrong and is investigating the full scope of the issue.

Here’s what makes compliance checks particularly concerning: you don’t know how far they’ll go. With a formal investigation, HMRC has laid their cards on the table. With a compliance check, HMRC is exploring. They suspect something, but they haven’t yet determined the full extent of the issue or whether it involves you directly, someone in your supply chain, or a broader pattern.

This uncertainty means compliance checks can expand rapidly. One compliance check can morph into multiple enquiries across different areas of your tax affairs. What starts as a narrow enquiry about a specific transaction can grow arms and legs if HMRC uncovers further concerns during their review.

The key point: compliance checks should never be treated as less serious than investigations. In some ways, they’re more critical to handle properly. This is your window to respond decisively, provide context, and prevent the scope from expanding. HMRC is resource-constrained, so if they’re conducting a compliance check, it’s rarely random. They’re acting on specific intelligence or concerns.

Once you enter either door (compliance check or investigation), you’re essentially in the same room. The process is similar, the stakes are real, and the need for specialist legal advice is just as urgent. The difference is that with a compliance check, you have an earlier opportunity to take control and limit the damage.

The earlier you get specialist legal advice, the better positioned you’ll be to manage the enquiry, contain its scope, and protect your interests.

What triggers an HMRC investigation?

HMRC typically won’t tell you exactly what prompted an investigation. However, common triggers include:

Mistakes, omissions, or inconsistencies on your tax return. For example, submitting inaccurate figures or frequent errors can prompt HMRC to dig deeper into your finances.

Tip-offs from third parties. Disgruntled ex-employees, former business partners, or even concerned members of the public can report suspected tax irregularities to HMRC.

Operating in a high-risk sector. Certain industries attract more scrutiny from HMRC. If you’re in a sector they consider high risk, you may be selected for investigation even if you’ve done nothing wrong.

Significant changes in declared income. A sudden drop or spike in your income compared to previous years can raise red flags.

Random checks. A small percentage of investigations are genuinely random, though this is far less common than targeted enquiries.

HMRC now uses an AI-based system that cross-checks billions of data items from banks, estate agents, online marketplaces, and even social media to identify potential cases of tax evasion and avoidance.

If you’ve received a tax investigation letter from HMRC, don’t delay. Our staff are specialists at advising on HMRC Tax Investigations. We are used to receiving enquiry calls and working through the issues swiftly, to understand what advice or support is needed. We will provide an idea of the next possible next steps on that initial call and can often set out what documentation you may need to gather in preparation for further steps.

For a confidential free discussion, call us today on 01908 414990. Alternatively, email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

Types of tax investigation

Not all tax investigations are the same. The type of investigation HMRC opens depends on what they suspect and the seriousness of the alleged wrongdoing.

Civil investigations

Most tax investigations are civil in nature. HMRC will notify you in writing that they’re opening an enquiry and request further information. This might relate to a specific transaction, a particular tax return, or a broader review of your tax affairs.

Civil investigations can be resolved through disclosure and agreement on the correct tax position without the matter escalating to prosecution.

However, it’s important to understand that a civil investigation can move to a criminal investigation if HMRC uncovers evidence of serious wrongdoing. For example, if a company director is suspected of using company assets for personal reasons (such as the company paying for personal building projects, windows, or other home improvements) and claiming them through the company, HMRC may escalate the matter. This is why it’s critical to take civil investigations seriously from the outset.

Code of Practice 8 (COP8) investigations

If HMRC suspects you’re not paying the right amount of tax through arrangements such as pension schemes, employee benefit trusts, or other tax avoidance schemes, they may open a COP8 investigation. This gives them the power to claim unpaid tax plus penalties and interest.

Code of Practice 9 (COP9) investigations

Where HMRC suspects serious tax fraud, they may open a COP9 investigation. This is HMRC’s most serious civil investigation route.

Under COP9, you’re offered the chance to make a full disclosure of all irregularities in your tax affairs through the Contractual Disclosure Facility (CDF). If you cooperate fully and meet the criteria, you can avoid criminal prosecution (but the penalties can still be significant).

If HMRC suspects criminal VAT fraud or high levels of tax evasion, they may launch a criminal investigation. Unlike civil enquiries, HMRC won’t notify you at the outset. You’ll typically find out when you receive a letter requesting your attendance at a voluntary interview under caution, or when you’re arrested.

Criminal investigations carry the risk of prosecution and, potentially, a prison sentence.

What happens during a tax investigation?

The process varies depending on the type and scope of the investigation, but here’s what you can typically expect:

1. Initial letter from HMRC

HMRC will write to you notifying you that an investigation has been opened. The letter will usually outline what they’re investigating and request specific information or documents.

2. Information requests

HMRC has extensive powers to request information from you and third parties, including:

• Financial records
• Bank statements
• Invoices and receipts
• Business accounts
• Correspondence

If the investigation is straightforward, the paperwork required may be limited. In more complex cases, HMRC may request years of documentation.

3. Meetings and interviews

In some cases, HMRC may request a meeting to discuss your tax affairs. Before any meeting, it’s vital to understand who will be attending and what topics will be covered.

We always request a detailed agenda from the HMRC officer in advance. This ensures you can prepare properly, bring the right documentation, and avoid being caught off guard.

The attendance of certain HMRC specialists at a meeting can also indicate the future direction of the investigation.

4. HMRC’s review and decision

Once HMRC has reviewed all the information, they’ll make a decision. This could result in:

• The investigation being closed with no further action
• An assessment for unpaid tax
• Penalties for errors or wrongdoing
• Agreement on the tax position and closure of the investigation

• Referral for criminal prosecution (in serious cases)

How long does a tax investigation take?

It depends on what HMRC is investigating.

Some investigations are dealt with quickly (resolved after one letter). Others drag on for months, with HMRC repeatedly asking for more information. In certain sectors, you may also face additional compliance checks running in parallel.

Speaking to us at an early stage helps everyone understand whether the investigation is likely to expand into other areas, so you can prepare accordingly.

How far back can HMRC investigate?

The time limits depend on the seriousness of the alleged error:

• Innocent mistake: HMRC can go back 4 years
• Careless behaviour: HMRC can go back 6 years
• Deliberate tax evasion: HMRC can go back 20 years

These time limits apply to capital gains tax, corporation tax, income tax, PAYE, and VAT. HMRC will usually start by investigating the most recent tax return. If they find errors, they’ll determine whether the mistake was innocent, careless, or deliberate before deciding how far back to look.

HMRC tax investigation penalties: what are you liable to pay?

If HMRC finds that tax has been underpaid, you’ll be liable for:

• The unpaid tax
• Interest on the unpaid amount
• Penalties (depending on the nature and severity of the error)

HMRC tax investigation penalties can be as much as 100% of the unpaid tax,

Where your penalty falls on the scale depends on whether the underpayment was due to:

• Lack of reasonable care
• A deliberate error (such as intentionally providing false information)
• A concealed deliberate error (where false information was intentionally covered up)

HMRC will consider mitigating factors (such as your level of cooperation, the gravity of the wrongdoing, and whether you made voluntary disclosures) when determining the final penalty.

The penalty rules are complex. With the right legal advice, it’s often possible to reduce the amount owed by following the correct procedures and presenting your case effectively.

Altion Law are specialists at advising and representing parties who have received HMRC assessments and wrongdoing penalties from HMRC. We can advise whether you are even the correct party for HMRC to pursue, if there are any additional risks (such as further assessments or penalties against company directors personally), and what defences are available to you.

For a confidential free discussion, call us today on 01908 414990. Alternatively, email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

Can you appeal an HMRC investigation?

No, you cannot appeal the opening of an investigation.

However, once HMRC concludes their investigation and issues a decision (such as a tax assessment or penalty), you have 30 days to appeal. You can appeal in writing by giving Notice of Appeal to HMRC.

HMRC will either confirm their decision, amend it, or agree with your representations. If you’re still dissatisfied, you can pursue a formal internal review or appeal to the First-tier Tax Tribunal.

Are tax investigations made public?

The majority of HMRC investigations are conducted privately. Only criminal prosecutions become public.

However, under HMRC’s “Name and Shame” policy (section 94 Finance Act 2009), HMRC can publish details of deliberate tax defaulters where:

• Penalties have been charged for deliberate defaults, and
• The penalties involve tax of more than £25,000

What if you don’t want to cooperate?

We generally recommend assisting with HMRC enquiries. Here’s why.

If an error is found in your tax return that leads to a penalty, your cooperation can help reduce the penalty charge. Assisting HMRC is also likely to result in the enquiry closing sooner rather than later.

If you refuse to cooperate, HMRC can issue a determination based on the evidence they have. This is always a last resort, but it means HMRC will make their own assessment of what you owe, potentially without the full picture of your circumstances.

That said, cooperation doesn’t mean accepting everything HMRC says without question. It means engaging professionally, providing the information they’re entitled to request, and making sure your side of the story is heard clearly.

If you suspect a criminal investigation

It’s very important to understand if you’re being criminally investigated by HMRC.

Criminal investigations are treated very differently from civil tax enquiries. If you suspect you are (or shortly will be) the subject of a criminal investigation, you need urgent legal advice.

Under COP9, if HMRC suspects serious tax fraud, you’re offered the chance to make a full disclosure through the Contractual Disclosure Facility. If you cooperate fully and meet the criteria, you can avoid criminal prosecution. But this process is highly technical and carries significant risks if mishandled.

If you believe you’re facing a criminal investigation, don’t delay. Seek specialist legal advice immediately.

If you are concerned you are being criminally investigated by HMRC, for a confidential free discussion, call us today on 01908 414990. Alternatively, email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

How Altion Law can help with tax investigations

Tax investigations are stressful, time-intensive, and carry serious financial risks. Many businesses struggle to keep up with HMRC’s demands while trying to run their operations.

Here’s how we help:

We work alongside your accountant (but there’s a critical difference)

We’re experienced at working with accountants to position you effectively during an investigation. While your accountant can help collate financial information and ensure calculations are correct, the legal strategy is where we come in.

Here’s what many people don’t realise: once you disagree with an HMRC decision, you’ve crossed into legal territory. It’s no longer just a tax matter. It’s a dispute.

Think of it like this. You wouldn’t ask your GP to perform heart surgery. Your accountant is brilliant at what they do (returns, calculations, financial compliance), but most accountancy firms don’t deal with arguing with HMRC day in and day out.

We do. All we do is argue with HMRC. For us, being prepared to challenge HMRC and defend your position is what we expect to do. It’s not an occasional side task. It’s our core work.

Many accountants will write letters and submit information, but they’re not equipped to fight. And if your accountant uses your one chance to respond effectively and doesn’t deploy everything properly, you’ve wasted your lifeline.

Tax investigations are legal matters. Challenging HMRC’s position, negotiating penalties, and protecting your rights requires legal expertise and an understanding of tax law, case law, and HMRC’s internal procedures.

That said, the best outcomes often come from a tripartite approach: your accountant knows the numbers, you know the narrative and history of your business, and we know the law. Working together, we can build the strongest possible defence.

We can be appointed as your Agent, meaning we become the main point of contact with HMRC for the dispute. This takes the pressure off you and allows you to focus on your business.

Your accountant will remain as the point of contact for all routine HMRC filings, but we take forward the HMRC dispute itself.

We will:

• Co-ordinate all information requests
• Respond to HMRC’s correspondence on your behalf
• Manage deadlines and remind you when information is needed
• Contact HMRC to explain any delays and agree new timescales
• Give HMRC a gentle nudge if they’re slow to respond

We protect your position

Ignoring HMRC correspondence or leaving it to the last minute can be counter-productive. HMRC officers may assume delays indicate underlying problems, leading to incorrect assumptions about your case.

We ensure all communications are handled professionally and on time, so HMRC sees cooperation (not obstruction).

We provide strategic advice

Before any meeting with HMRC, we clarify who’s attending and request a detailed agenda. We’ll attend meetings with you, handle lines of enquiry that fall outside the immediate investigation, and ensure HMRC stays within the limits of their powers.

We also advise on:

• Whether you’re the correct party for HMRC to pursue
• Any additional risks, such as further assessments or penalties against company directors personally
• What defences are available to you
• Whether a voluntary disclosure is in your interests

We give you peace of mind

Our staff are specialists at advising on HMRC tax investigations. We’re used to receiving urgent enquiry calls and working through issues swiftly to understand what advice or support is needed.

We’ll provide an idea of the possible next steps on that initial call and can often set out what documentation you’ll need to gather in preparation.

Get expert advice on your tax investigation

If you’ve received a letter from HMRC or are concerned about a potential investigation, the most important thing you can do is seek legal advice early.

Our specialist HMRC and tax disputes lawyers know that the enquiries we receive are often complex and time-sensitive.

For a confidential free discussion, call us today on 01908 414990. Alternatively, email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

 

“Excellent Service As Always From Anthony. Prompt And Effective Service Was Provided With Swift Resolution Of Our Case”.