What to Do If You Receive an HMRC Enquiry Letter

Introduction

Receiving an HMRC enquiry letter is stressful. But don't panic. Your response matters. What you say and do in the first few days can significantly affect the outcome.

This guide walks you through what to do when HMRC opens an enquiry.

Types of Enquiry

Type 1: Enquiry Notice (SA316) HMRC is enquiring into your tax return generally. They'll request documents and information across multiple items.

Type 2: Aspect Enquiry (SA313) HMRC is focusing on a specific aspect (e.g., capital gains, rental income, business expenses).

Type 3: Protective Claim HMRC is protecting their position (you've made a claim). They're investigating before allowing it.

Your First Response: Don't Panic

Do NOT:

• Make hasty admissions
• Respond to HMRC without advice
• Offer information beyond what's requested
• Agree to any settlement immediately

Do:

• Take time to gather information
• Review your tax return carefully
• Engage a tax adviser
• Respond professionally within the deadline

The Timeline

HMRC sets a deadline for your response (usually 30 days). They might extend if you request reasonably.

If you don't respond:

• HMRC may issue a notice of assessment without your input
• You'll have limited appeal rights
• Penalties apply for non-cooperation

Gathering Information

HMRC requests specific documents. They might ask for:

• Bank statements and proof of income
• Expense receipts and invoices
• Business records
• Correspondence
• Property valuations (if property-related)

Action: Gather everything requested within the timeline.

Responding to HMRC

Your response should:

• Address each item HMRC requested
• Be factual and accurate
• Explain where records are missing
• Highlight supporting evidence

Example: HMRC asks about a £5k deduction you claimed.

Your response: "The £5k deduction relates to professional fees paid to [Company] on [date]. We've attached the invoice and bank statement showing payment. The fees were for [specific work], which is a legitimate business expense under [rule]."

What If You Can't Find Records?

If records are missing, be honest.

"We retained records for [period], but records from [date] have been discarded (normal retention policy). We can provide reconstructed evidence [e.g., bank statements]."

HMRC is often lenient with missing records if you've made a genuine effort. They're less lenient if you're evasive.

Reasonable Excuse for Errors

If HMRC finds an error in your return:

Reasonable excuse argument:

• You relied on advice from an accountant
• You made an honest mistake (not negligence)
• You have documentary evidence of good faith effort
• You corrected it voluntarily

No reasonable excuse:

• Careless handling of records
• Failure to understand basic tax rules
• No documentation of your position

Reasonable excuse can eliminate or reduce penalties.

Penalties

HMRC charges penalties for:

• Failure to notify chargeability (late filing)
• Careless errors (10-30% of tax)
• Deliberate errors (70-100% of tax)
• Evasion (up to 100%)

First step: Establish whether the error is careless or deliberate.

Careless = honest mistake. Deliberate = knowingly wrong.

Reasonable excuse and penalty mitigation often go hand-in-hand.

Dealing With HMRC Officers

If HMRC conducts interviews or meetings:

Do:

• Be polite and professional
• Stick to facts
• Admit what you don't know
• Take notes

Don't:

• Volunteer information beyond questions asked
• Make hasty admissions
• Become defensive

Settlement Options

If HMRC finds errors, you might settle:

Option 1: Agree and pay

• You agree the adjustment
• Pay the back-tax + interest + penalties

Option 2: Negotiate

• If you have a defensible position, negotiate
• HMRC might accept a compromise

Option 3: Appeal

• If you disagree with the assessment
• You can appeal (tribunal process)

When to Engage a Tax Adviser

Engage early if:

• The enquiry involves complex areas (property, business, trusts)
• HMRC is requesting significant information
• You have significant exposure
• You're unsure of your position

Cost vs. benefit: Adviser costs (£2k-£5k) often save more in penalties/back-tax (£10k+).

Case Study: HMRC Enquiry Response

Situation: Freelancer receives HMRC enquiry into rental income claimed.

HMRC query: Rental income claimed for 2 properties, but no rent receipt book or written tenancy agreements.

Poor response: "I didn't keep formal records. The income was correct roughly."

Better response: "We did not maintain formal rent books as the properties were managed informally with family friends. We can provide bank statements showing deposits [dates], which evidence the income received. We have attached correspondence confirming the tenancies and rental amounts."

Good response with documentation: Same as above, plus attach:

• Bank statements showing deposits
• Email correspondence confirming rental amounts
• Photographs of property
• Evidence of expenses (maintenance receipts)

Outcome: With good documentation and honest explanation, HMRC likely accepts the position without penalty.

Key Takeaway

If HMRC enquires into your return:

1. Don't panic
2. Gather all relevant information
3. Engage an adviser if uncertain
4. Respond factually and professionally
5. Establish reasonable excuse if errors occurred

Your response matters. A good response can close enquiries quickly and without penalty.