How enquiries work for agents, advisers and your clients

HM Revenue & Customs (HMRC) has a responsibility to ensure that individuals and businesses are paying the correct amount of tax or receiving the right amount of benefit. There will be occasions when we make enquiries, inspections and visits - more formally referred to as compliance checks - of you and your clients to make sure this is the case.

In general terms, HMRC will make compliance checks for three reasons:

to ensure a specific tax return or claim is correct
to check that any payments are being made and reported correctly
to discourage evasion and make sure the tax system is operating fairly, some checks are made on a random basis.

In most cases, starting a compliance check does not necessarily mean that HMRC believes there are serious problems - many are routine.

This guide will give you an overview of the processes for the main areas of tax and benefits that you may be handling for clients. It also covers the changes made to how HMRC carries out checks, effective from 1 April 2009.

On this page:

Overview of compliance checks
Working with clients and HMRC on checks
New compliance checks from 1 April 2009
Tax credits enquiries
Investigations where fraud is suspected
More useful links

Overview of compliance checks

HMRC believes that most of its customers are honest and treats everyone with respect.

In general something will have triggered a check. For example, it is usually that the figures entered on a return appear to disagree with each other, such as a very small business suddenly makes a very large claim for VAT or one with a large turnover declares a very small amount of tax. The only way HMRC can find out whether the return is correct is by making a check.

If the check shows that there is nothing wrong, HMRC will bring it quickly to an end.

If the check shows that something is wrong, we will work with you and your clients to put things right. If any tax has been overpaid, it will be repaid with interest. Any tax underpaid will be charged with interest. HMRC may also issue an assessment or amend the relevant return depending on the type of tax involved. In some instances, an error in the tax will mean another tax also has to be corrected, for example an error in charging excise duty on goods sold generally means the VAT on the sale will have been charged on the wrong amount too.

You can appeal any assessment or amendment on your client’s behalf if you believe you have grounds to do so.

Appeals and tribunals - an overview for agents and advisers

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Working with clients and HMRC on checks

If you are already authorised to act for your client, you can continue to represent them during the course of the check. The legal responsibility for correctly making returns and payments remains with your client.

You may also be asked by a potential new client to represent them if we have opened a check into their tax affairs.

In both cases, it’s a good idea to have your responsibilities agreed in writing with your clients in a formal engagement letter.

It’s also a good idea to look at checks on a case-by-case basis - some checks may take considerable time. And some, by their nature, will be more detailed than others. You may wish to consider offering clients insurance against professional costs incurred as a result of a compliance check. Or you may wish to refer checks to specialists in this field.

Handling a check efficiently and quickly is in everyone’s interests - you, your clients and HMRCs. However, how much you and your client co-operates with HMRC is at your discretion. Bear in mind that if the enquiry results in a penalty it may be reduced where you and your clients have co-operated with HMRC. In general, the more cooperation, the lower the penalty.

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New compliance checks from 1 April 2009

The way HMRC manages compliance checks changed on 1 April 2009 for:

Income Tax
Capital Gains Tax
VAT
PAYE
Corporation Tax
the Construction Industry Scheme

The new systems, provided by the Finance Act 2008 make a number of key changes, including:

a single set of powers for HMRC when carrying out checks on these taxes to visit and inspect premises, assets and records and asking taxpayers and third parties for information and documents
safeguards for HMRC’s customers

You can find out more about the changes effective from 1 April 2009 by using an e-learning package. It takes less than half an hour to complete and provides an overview of the new systems.

Use the new compliance checks e-learning package

Find out more in the HMRC Compliance factsheets

If you wish to check technical and operational guidance on the new systems, you can use the Compliance Handbook. This is written for HMRC staff, but it will show you how the new processes work and will continue to be updated.

Compliance Handbook

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Tax credits enquiries

HMRC may make enquiries into any tax credits claims made by your clients to make sure the right amounts are being paid. If you’re already authorised to handle tax credits claims for your clients, you can represent them in any enquiry. HMRC will, however, send any initial enquiry notice to your client only.

Read more about how HMRC checks a Tax Credits claim in the guide below.

Tax credits checks

You can find detailed information about tax credits enquiries in the Tax Credits Claimant Compliance Manual. While this is written mainly for HMRC staff, it will show you how the enquiry process works and what HMRC will be looking to find out.

Tax Credits Claimant Compliance Manual

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Investigations where fraud is suspected

If HMRC suspects any irregularities with your client’s affairs for any tax, your client will be invited to attend a meeting to try to clear matters up. As your client’s agent or adviser, you are not obliged to attend the meeting, although it may be helpful for you to do so. If any penalties are raised, the level of co-operation received from your client through you will be taken into consideration.

If HMRC is not satisfied with the outcome of the meeting and any disclosures you and your client make, a full investigation will be started.
You can find out more about investigations where fraud may be suspected in Code of Practice 9

Code of Practice 9

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