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Tax Returns and Enquiries

Learn what happens when you send in your tax return, how enquiries into tax return work, and to do in case an HMRC enquiry is made into your tax return.

Last updated: 06 November 2023

What happens when you send in your tax return?

When you submit your tax return HMRC will initially check for obvious errors, such as the figures not adding up, but the return will not be looked at closely. If you have submitted a paper return before 31 October you will be sent a calculation of the tax due. If you have calculated the tax due yourself you will either receive confirmation that the return has been processed or you will be sent a calculation indicating where the figures differ from yours.

How do enquiries into tax return work?

HMRC usually has 12 months from submission of the form to open a formal enquiry into your tax return, although this will be extended if you submit your return late.

Most enquiries are opened because the inspector knows or suspects something is wrong with the return, but there are also a number of random enquiries each year. The inspector won’t disclose which is the case.

The inspector will write to you and your accountant, asking a series of questions or requesting documentary evidence of entries on your return. Once the enquiry is complete, you will be notified whether you need to pay more tax, that nothing needs changing or, occasionally, that you have paid too much tax.

If more tax is due, interest will be charged and the inspector may also impose penalties, which can amount to 100% of the extra tax, and 200% where offshore disclosures are involved.

Making Tax digital

From April 2022, all VAT registered businesses are required to file income and expenses information on a quarterly basis, using digital software.

From April 2026, all sole trader businesses and landlords (i.e. from property letting) with turnover above £50,000 per annum will have to register for MTD for income tax and file quarterly summaries of income and expenses as well as the annual tax return using digital software.

Learn more about the Government's plans for the Making Tax Digital.

Make use of the MU's Tax Investigation Insurance

MU offers its members Tax Investigation Insurance allows you to claim a fee reimbursement of up to £125,000 in the event of a HMRC investigation or dispute. MU members are covered by tax investigation insurance automatically.

Find out about Tax Investigation insurance

How to deal with an HMRC enquiry

Effective handling of an investigation can make an enormous difference in the time taken and the amount of tax or penalties you have to pay. You may choose to take your accountant with you o, let him/her handle it alone. 

Here are few ideas that may help you deal an enquiry: 

  • Don't be obstructive. Instead, try to find out what the Inspector’s concerns are and alleviate them so as to head off the enquiry. 
  • Don't try to fob the Inspector off. It's essential that you take him or her seriously and provide all of the relevant facts and details. 
  • If you're being investigated, note that this may well also include an investigation of your spouse, family and personal affairs. 
  • If you're asked for your personal bank statements, review them before submitting them to the Inspector so that you can provide analysis with the statements. Don't simply hand over any records that are requested, provide summaries and references to help the Inspector understand. 
  • It's usual for the Inspector to ask for a meeting with you. 
  • Before the meeting, talk with your accountant and get him/her to scrutinise your information and question you on the pointers the Inspector is likely to raise. 
  • Make sure that you are familiar with your own documentation. 
  • The Inspector will usually require capital statements. These should show your assets and liabilities from a few years ago to the present. The aim is to show the Inspector there are no undisclosed sources of income or assets. Don't wait for the Inspector to request them and make sure to include any cash balances. 
  • HMRC will treat any unexplained receipts, deficits on cash accounts or unsubstantiated receipts as additional income, so make sure all items are properly explained. 
  • Go through your living expenses for the current year and compare them with expenses in previous years, making allowances for any special factors, such as holidays, new kitchen units etc. Any major differences need to be explained. 
  • If HMRC start an interview with the words ‘you are not obliged to say anything but...’ terminate it immediately and call a solicitor straight away. HMRC prepares notes of meetings and you should be entitled to a copy. 
  • If you do strike a compromise with the Inspector, then consider the effects of interest and penalties on the total payable. 
  • As a general rule, it's rarely advisable to formally agree a settlement at interview. 
  • Always give yourself time to go away and think about the Inspector’s proposals. You may perhaps have forgotten that you received a loan from a relative during the period under investigation or you were sick and received state benefits. 
  • Always agree a settlement in writing, either via your accountant or yourself. 
  • The maximum penalty is 100% of the tax lost. This can be reduced, depending on the circumstances leading to the error. 
  • You don't have to accept what you are told by the Inspector, but you must try to discuss how the penalty level is arrived at. You may be able to persuade the Inspector to add more weight to some of the points that are in your favour. 
  • If you are worried about incurring additional accountancy fees, remember that any tax and penalty could far exceed them. 

If you prepare your case well, you could minimise accountancy fees as well as tax and penalties. Please note, it is always possible that the Inspector may return your books with a letter saying that they are entirely satisfied with your records and no amendment is necessary.

Contact the Musicians' Union today

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