How to Handle an HMRC Tax Investigation (UK)

A brown envelope lands on your desk and routine work stops. The questions arrive first, confidence second. The way you respond decides how long the enquiry lasts and how much it costs. Here is a clear path to move from request to resolution.

What this section covers

A step-by-step guide to How to Handle an HMRC Tax Investigation (UK). You will see what common letters mean, which documents to prepare, how to communicate, typical timelines, and when to involve advisors. It suits UK businesses and US-headquartered groups with UK entities, including teams that use offshore accounting support.

1) Understand the letter you received

“Nudge” or education letter

HMRC flags a risk area and asks you to review and correct if needed. No formal information powers are used. You should still check the point and reply.

Compliance Check letter

Formal notice that HMRC is checking a return or a specific risk. It lists the period and topics under review and may request documents.

Schedule 36 information notice

A legal request for records and explanations. It specifies what to provide and by when. Missing the deadline can lead to penalties.

Code of Practice 8 (COP8)

Used for complex avoidance concerns. Technical, document-heavy, and often slower to close.

Code of Practice 9 (COP9)

Used where HMRC suspects deliberate behaviour. Managed under the Contractual Disclosure Facility. You must seek specialist advice.

Action: Identify the letter type and the legal footing. Calendar the response date on the same day.

2) Set your response plan in the first 48 hours

• Nominate a single point of contact for HMRC.
• Open a secure folder with a clean index.
• Freeze changes to books for the periods under review.
• If you work with offshore teams, assign maker and checker roles and agree handoff times.

3) Collect the right documents early

Core pack

• Filed tax return and computations for the year under enquiry
• Trial balance, GL extracts, and management accounts
• Bank statements and reconciliations
• Key contracts, invoices, and payment proofs

Topic-specific

• VAT: VAT returns, digital links evidence, partial exemption method
• Payroll: RTI submissions, PAYE records, benefits and expenses logs
• Corporation tax: fixed asset register, interest calculations, R&D files
• Transfer pricing: intercompany agreements, benchmarking, adjustments

Keep filenames short and indexed, for example:
A1_Contract_SaaS_2024-04-01.pdf, R1_GL_to_Return_TieOut_FY2024.xlsx.

4) Draft a clear, short cover letter

Purpose: Frame the issues, tie each answer to an exhibit, and request the outcome you want.

Include:

• Reference line with UTR, period, and HMRC reference
• One paragraph of context
• Issue-by-issue answers in two to three sentences each
• Exhibit index with page counts
• Contact details

Tone: Factual, neutral, and complete. Avoid speculation. If something needs time, state the date you will deliver it.

5) Build reconciliations that close the loop

Create simple schedules that connect your GL and source documents to the filed return.

• Revenue tie-out: GL revenue to return line, with adjustments for deferrals and contra.
• Expense sampling: A table linking sampled invoices to ledger entries.
• VAT link: Sales and purchase listings to VAT return totals, with digital links noted.
• Payroll: Gross-to-net summary with employer costs and RTI totals.

Each schedule should fit on one tab and show totals that match the return.

6) Communicate like a project manager

• Confirm receipt of the letter and propose a call if items need scoping.
• Use a single email thread with numbered questions and answers.
• Keep an action log with owners and due dates.
• If anything is unclear, ask HMRC to confirm the specific records they need.
• Avoid sending unfiltered data dumps. Provide the minimum set that proves the point.

7) Typical timelines and what to expect

• Initial response: Two to four weeks from the letter date.
• Follow-up questions: One to three cycles depending on complexity.
• Closure: Agreement, amendment, or no change. Complex matters can run for several months.

If deadlines are tight, request a short extension early and give a date you can meet.

8) When to involve advisors

• The letter is COP8 or COP9.
• HMRC questions involve transfer pricing, R&D, complex VAT, or residence and PE analysis.
• You find an error that spans multiple periods.
• You lack capacity to prepare reconciliations and an indexed evidence pack.

Advisors can draft the response, prepare schedules, manage calls, and agree a practical closure route.

9) Controls for teams with offshore support

• Use a standard exhibit index and file path across all enquiries.
• Enforce maker-checker review on every schedule and letter.
• Restrict access to personal data and export logs from source systems.
• Hold a brief pre-submission review call to walk the pack end to end.

10) Final quality checks before you send

• Every HMRC question maps to a clear answer.
• Every answer cites at least one exhibit.
• Totals in reconciliations match the return and ledger.
• Dates and entity names are consistent across documents.
• Contact details are on page one of the cover letter.

Summary

Move fast on structure, slow on claims. Know the letter type, collect only what proves your case, and answer with short explanations backed by indexed evidence. This reduces follow-ups and helps you close on the facts.

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