What is a personal tax compliance check?

A personal tax compliance check is an enquiry from HMRC into your tax return.

Most checks are random or part of routine checks, and in many cases, they may only involve minor clarifications. It’s worth noting that HMRC’s advanced data analysis systems now flag potential issues with increasing precision.

Why might you be selected?

HMRC might select your tax return for review for a few common reasons. These could include:

• inconsistent information or discrepancies between your tax return and the data HMRC holds.
• missing information or failing to declare income from various sources.
• a significant change in income from one year to the next.
• regularly filing late returns.
• higher-risk occupations or industries (like cash-based businesses).
• random selection as part of HMRC’s routine investigations.

In most cases, checks are resolved quickly and without penalties, provided there is no evidence of intentional wrongdoing.

What happens during a compliance check?

HMRC will contact you by letter to inform you that they are conducting a compliance check. This letter will outline the areas of your tax return they wish to review and may request supporting documents such as bank statements, invoices or receipts.

It’s essential to respond to this letter promptly. HMRC typically gives you 30 days to respond, but you can request an extension if necessary.

Depending on the outcome, the check could take a few different paths.

• No further action: If everything is in order, HMRC may close the enquiry without changing your tax return.
• Minor adjustments: If HMRC finds minor errors, they may adjust your tax return accordingly. You may need to pay any additional tax due or be refunded if you’ve overpaid.
• Further investigation: If HMRC finds more significant issues, they could extend the check, and you might face penalties or interest on unpaid tax. In rare cases, HMRC may conduct a full audit.

How to prepare for a compliance check

1. Keep thorough records

The best way to protect yourself during a compliance check is to keep accurate and thorough records of your income, expenses and deductions.

2. Review your tax return carefully

Before submitting your tax return, double-check that all the information is correct and complete. Look for common errors like mistyped figures, missed deductions or failing to declare all sources of income.

3. Seek professional advice

If you’re not confident in managing your tax affairs, consider working with a tax adviser or accountant.

Potential outcomes and penalties

Most compliance checks end with minimal disruption. However, if HMRC identifies errors or omissions, they may ask you to make additional payments or amend your return. In more serious cases, you could face penalties or interest on unpaid tax.

If you realise you have made an error, HMRC is more likely to reduce a penalty or apply a lower percentage if the error is proactively disclosed rather than waiting for them to identify it.

How to dispute an outcome

If you disagree with the outcome of a compliance check, you have options. HMRC allows you to request a review of their decision, which involves a different officer assessing your case.

Should the review not resolve the issue to your satisfaction, the next step is to appeal to the tax tribunal. This independent body will examine the facts of the case and make an impartial decision.

How we can help

While compliance checks may seem daunting, they are manageable with the right preparation and expert guidance. Please email Joe Wilson or call 023 8076 1237 if you require assistance in managing this process.

Please also see our recent tax enquiry fee protection article.