Understanding HMRC Tax Investigation
HM Revenue and Customs (HMRC) is one of the UK’s most powerful investigative authorities. It can initiate both general and complex investigations into:
- Tax underpayment
- Reporting discrepancies
- Other related matters
What Can Cause HMRC Tax Investigations?
With UK tax laws becoming more intricate, particularly for high-income earners, those with offshore holdings, or non-domiciled individuals, unintentional errors can happen. These can result in penalties or reputational issues. Our solicitors act fast to protect your interests and resolve matters efficiently.
If HMRC believes there may be discrepancies in your tax filings or underreported income, they may initiate a review.
At Axis Solicitors, our tax experts offer support to help you prepare for an HMRC investigation. Whether the investigation is routine or more serious in nature, our team of solicitors and specialist accountants provides confidential, strategic, and cost-effective guidance.
Types of HMRC Tax Investigations
HMRC holds wide-ranging powers when it comes to tax investigations. Both individuals and businesses under review need skilled representation from solicitors and accountants who understand how to engage with HMRC effectively.
Our solicitors offer discreet, cost-effective advice and representation if you’re being reviewed by HMRC. Whether you’re an individual or a business, our team can support you with:
- VAT inspections and investigations
- Code of Practice 8 (COP8) investigations
- Code of Practice 9 (COP9) investigations
- Investigations involving alleged tax avoidance
- Offshore income or asset-related investigations
Fast action is key to resolving these matters before they escalate. By engaging early and presenting a clear legal position—with cooperation where appropriate—we increase your chances of achieving a favourable resolution.
Facing HMRC Tax Investigations
If you’re subject to a tax investigation, early legal advice is essential. Our solicitors can step in at any stage to support you, whether you’re already under investigation or seeking guidance to prevent one.
While many cases are resolved quickly through correspondence, more complex matters may trigger a Code of Practice (COP) 8 or COP9 investigation.
Civil Tax Investigations
Civil investigations may be opened when:
- The amount of unpaid tax is substantial
- Complex arrangements or avoidance schemes are suspected
- HMRC prefers to resolve the matter without pursuing legal action
- A case needs further scrutiny due to irregularities or incomplete disclosures
Axis Solicitors has extensive experience in defending and advising across all types of:
- HMRC tax investigations
- Tax inquiries and reviews
- Suspected tax underreporting
- Disclosure or compliance issues
Contact us for a confidential initial consultation to understand your options.
Proactive Measures to Prevent HMRC Investigations
Preventing HMRC investigations starts with strong tax compliance and transparent business practices. While HMRC’s systems can automatically flag discrepancies, businesses, trusts, and individuals can take proactive steps to reduce their risk.
Establishing clear internal systems, accurate record keeping, and timely submissions can significantly decrease the likelihood of an enquiry.
Accurate and Up-to-Date Records
Maintaining accurate and up-to-date records is one of the most effective measures. This includes keeping detailed accounts of all income, expenses, invoices, and supporting documents such as receipts and bank statements. Regularly reconciling accounts and ensuring all financial information is correct helps prevent errors that could attract HMRC’s attention.
Complete and Timely Filings
Submitting complete and timely filings is equally important. Tax returns, VAT submissions, and payroll reports should be accurate and submitted before deadlines. Even small mistakes or late filings can trigger investigations, so proactive preparation is key.
Regular Reviews & Audits
Internal checks and audits can help catch discrepancies before HMRC does. Conducting regular reviews of accounts, payroll, and expense claims allows you to identify and correct errors early. Implementing clear policies for record retention, financial reporting, and separating business and personal finances further strengthens your compliance.
Professional Support
Professional support also plays a crucial role. Engaging qualified accountants or solicitors to review your tax returns and provide compliance advice ensures potential red flags are addressed in advance. Expert guidance demonstrates diligence and reduces the risk of errors.
Tax Compliance and Reporting
Finally, it is important to ensure all staff understand their responsibilities regarding tax compliance and reporting. Training and clear internal policies help prevent accidental mistakes and foster a culture of transparency within your business.
By taking these proactive measures, businesses and individuals can not only reduce the risk of HMRC investigations but also improve their overall financial management and peace of mind.
Consult Our Accountants & Solicitors
We bring together solicitors and accountants with deep experience in HMRC matters. This integrated approach allows us to handle all aspects of investigations and related legal processes.
With a proven track record in dealing with HMRC and specialist advisors at our disposal, we provide expert support for even the most complex tax matters.
Liability for Failure to Prevent Tax Evasion
Businesses and partnerships can be held accountable for failing to stop others from facilitating tax evasion—whether in the UK or overseas. Liability can arise even if the organisation didn’t directly participate in or know about the conduct.
This legislation places responsibility on businesses to have effective procedures in place. The best defence is showing you’ve taken reasonable steps to prevent wrongdoing. We assist clients in setting up compliance systems to reduce the risk of being held liable.
Appealing HMRC Tax Decisions
If you believe HMRC has made an incorrect decision, you typically have the right to appeal.
- Step 1: Challenge the decision directly with HMRC
- Step 2: Escalate to the tax tribunal if needed
Tax Tribunal Levels:
- First-Tier Tribunal (Tax Chamber): Reviews the case details and delivers a ruling
- Upper Tribunal (Tax and Chancery Chamber): Reviews the legal reasoning if granted permission to appeal
We ensure your case is thoroughly prepared and well-argued, with proper legal support to boost your chances of success.
Get Timely Legal Advice
Tax investigations can result in significant fines and reputational risk. It’s important to seek legal advice early. The sooner you consult our tax investigation team, the better prepared we are to build your defence and protect your position.
HMRC’s powers are extensive, and its enquiries can vary in scope. Whether it’s a civil review or a more serious investigation, we are here to provide you with the right legal and financial guidance.
We have broad experience in:
- VAT inspections
- Code of Practice 8 (COP8) reviews
- Code of Practice 9 (COP9) reviews
- Tax avoidance and underpayment matters
- International tax compliance issues
Contact our expert solicitors for further guidance and legal advice.
How to Appeal the HMRC Tax Decisions?
Acting promptly and following the correct process to appeal the HMRC tax decision can protect your finances and legal position.
- Challenge the decision directly with HMRC by requesting a review or providing additional evidence.
- Submit a formal appeal within the deadlines set by HMRC, usually within 30 days of their decision.
- Keep detailed records of all correspondence and supporting documents for your case.
- Escalate the appeal to the First-tier Tax Tribunal if HMRC’s response is unsatisfactory.
- Consider professional advice from tax solicitors or accountants to strengthen your appeal.
It will ensure your case is heard fairly and can increase the chances of a successful outcome.
Why HMRC Investigate Your Business’s Tax Compliance?
1. Discrepancies or Inconsistencies in Tax Reporting
- Mismatched figures in returns and third-party records
- Errors or unusual changes in income or expenses
- Inconsistent historical reporting
2. Late Filing and Compliance Errors
- Habitual late submission of tax returns
- Frequent amendments to filed returns
- Persistent mistakes on returns
3. Random Checks and Risk Targeting
- Selected through random compliance checks
- Data analytics spot unusual activity
- Sampling ensures sector-wide compliance
4. Third-Party Information or Tip-Offs
- Reports from banks, customers, or competitors
- Anonymous whistleblower alerts
- Data from other government bodies
5. Industry-Specific and Behavioural Risks
- Cash-heavy or high-risk industries
- Unusual expense claims or VAT refunds
- Sudden income or profit swings
Possible Consequences of an HMRC Tax Investigation
1. Additional Tax Liabilities
- You may be required to pay back taxes that HMRC identifies.
- Unreported income or errors can increase your overall tax burden.
- Settling liabilities promptly can reduce long-term financial impact.
2. Interest on Unpaid Taxes
- HMRC can charge interest on any outstanding amounts.
- Interest accumulates from the original due date until payment is made.
- Prompt resolution helps minimize these additional costs.
3. Financial Penalties
- Penalties can vary depending on the severity of the issue.
- They may be imposed for late filing, underpayment, or inaccurate reporting.
- Professional guidance can help negotiate or reduce fines.
4. Reputational Risk
- Public exposure of tax issues can affect personal or business reputation.
- Clients and partners may question your financial integrity.
- Early action can prevent unnecessary damage to your professional standing.
5. Legal Proceedings
- Serious cases may lead to formal legal action or court proceedings.
- Criminal charges are possible in instances of deliberate tax evasion.
- Expert legal support strengthens your defence and helps manage outcomes.
