- HMRC compliance checks and enquiries for Corporation Tax
- Appealing against an HMRC Corporation Tax decision
- Corporation Tax penalties
- Corporation Tax interest charges
HMRC compliance checks and enquiries for Corporation Tax
HM Revenue & Customs (HMRC) wants to ensure that the Corporation Tax system is operated fairly and that their customers pay the right amount of Corporation Tax at the right time. To check this, HMRC makes enquiries into certain Company Tax Returns, including some that are picked at random.
If HMRC makes an enquiry into your company or organisation's Company Tax Return it doesn't necessarily mean that they think your return is incorrect.
This guide explains what happens if HMRC makes an enquiry into your Company Tax Return. It also tells you how to appeal against HMRC amendments.
HMRC is changing the way they carry out Corporation Tax enquires. This guide will be amended to take account of these changes when they're introduced.
On this page:
- When HMRC may make an enquiry and what it can cover
- Timing of enquiries into Company Tax Returns
- What happens when HMRC makes an enquiry
- Paying Corporation Tax during an HMRC enquiry
- Possible outcomes of an HMRC enquiry
- Your right to appeal during and after an enquiry or to apply to end an enquiry
- When HMRC can't open an enquiry but finds something wrong
- Changes to HMRC enquiries
- More useful links
When HMRC may make an enquiry and what it can cover
When HMRC may make an enquiry into your Company Tax Return
When you file your Company Tax Return, you are telling HMRC how much Corporation Tax your company or organisation is due to pay. This is known to HMRC as your company or organisation's 'self assessment'.
Sometimes HMRC may want to ask questions about the figures in your Company Tax Return form or in supporting documents such as supplementary pages, company accounts and calculations. HMRC calls this 'making an enquiry'.
Before HMRC can make an enquiry, they must advise your company or organisation, in writing, that they intend to do so. HMRC calls this 'opening an enquiry'.
When HMRC opens an enquiry this doesn't necessarily mean your company or organisation has done anything wrong. Sometimes HMRC just needs more information to understand your figures. HMRC routinely checks randomly selected Company Tax Returns to make sure they're correct. HMRC also randomly selects Company Tax Returns for enquiry to ensure the Corporation Tax system is operating fairly.
What an HMRC enquiry can cover
HMRC can make an enquiry into your company or organisation's:
- Company Tax Return - including company accounts, tax computations and other supporting documents and calculations
- claims or elections you make separately from your return
- amendments you make to your return, claim or election
HMRC starts the enquiry process by sending you a written 'notice of enquiry'. A notice of enquiry only allows HMRC to ask questions about your company or organisation's Company Tax Return, claim or election. If HMRC wants to ask questions about your personal tax position as a director, shareholder, member or trustee, they must make a separate enquiry.
HMRC can only make one enquiry into a particular Company Tax Return. But if you make an amendment to your return, HMRC can then make an enquiry into that amendment too.
Find out more about what HMRC can enquire into
Timing of enquiries into Company Tax Returns
For Corporation Tax accounting periods ending after 31 March 2008, HMRC must normally send you a notice of enquiry within 12 months of receiving your Company Tax Return. Different deadlines may apply when:
- your accounting period ends on or before 31 March 2008
- you file your Company Tax Return late
- you amend your return
- you make a claim separately from your return
- information you gave HMRC about your company was deliberately misleading
Find out more about the timing of Corporation Tax enquiries
What happens when HMRC makes an enquiry
At the start of an enquiry
When HMRC sends a notice of enquiry to your company, you - and your Corporation Tax agent if you've got one - will be told whether HMRC is making an enquiry into:
- the whole of your Company Tax Return - including company accounts, tax computations and other supporting documents
- one or more specific areas or aspects of your return
- a claim you've made separately from your return
At the same time HMRC will tell you:
- what information is needed
- the deadline for providing this information
- your company or organisation's rights and responsibilities
What information HMRC can request from your company or organisation
The information your company or organisation will need to supply for an enquiry will depend on what HMRC is enquiring into.
But HMRC can only ask you to provide information or documents that they need to check your company or organisation's Corporation Tax position.
You (or your tax adviser) should normally be able to provide any information on which your Company Tax Return was based.
Time limits for supplying information
HMRC will normally ask you to provide the documents and information it needs within 30 days. If you think you need more time it's important that you contact HMRC straightaway to discuss this. You'll find contact details on the notice of enquiry HMRC sends you.
What happens if your company or organisation doesn't supply the information requested
If you don't supply the information HMRC has requested, HMRC will issue a formal legal notice requiring you to provide it. If you don't then provide the information, you may have to pay a standard penalty of £300. You may also have to pay additional penalties of up to £60 per day until you supply the information.
You can appeal against this notice or any penalty charged by HMRC for not supplying the outstanding information.
Full enquiries
HMRC may ask about only a few aspects of your Company Tax Return. But they may decide to conduct an extensive examination of all areas of your company's tax affairs. These more detailed enquiries are known to HMRC as 'full enquiries'.
Full enquiries generally involve an in-depth review of the records and calculations on which your return was based. Full enquiries can sometimes lead to a review of earlier Corporation Tax accounting periods.
Criminal investigations
HMRC takes a serious view of companies or organisations who try to evade paying Corporation Tax by deliberately filing inaccurate documents and returns. In some rare but very serious cases HMRC may seek to prosecute your company or organisation.
Find out more about Corporation Tax enquiries
Read HMRC's policy for criminal investigations
Paying Corporation Tax during an HMRC enquiry
During an enquiry, HMRC may ask you to make a payment on account towards any additional Corporation Tax they think your company or organisation may need to pay as a result of the enquiry.
You don't have to agree to make a payment on account. But if you do, you'll reduce the amount of interest you'll have to pay if, at the end of the enquiry, your company or organisation does owe more Corporation Tax.
HMRC may also make an amendment to your Company Tax Return during the enquiry if it finds that additional tax is due and believes your company may not pay it. You may then have to pay the additional Corporation Tax that's due.
HMRC can also make amendments or assessments that may result in additional Corporation Tax due for earlier years. You then must pay the additional Corporation Tax that's due.
Find out more about paying additional Corporation Tax during an HMRC enquiry
Corporation Tax interest charges
Possible outcomes of an HMRC enquiry
At the end of the enquiry, HMRC will normally send you a letter (called a closure notice) to tell you that the enquiry has finished. What happens then depends on whether the enquiry showed that:
- nothing is wrong
- your company or organisation has paid too much Corporation Tax
- your company or organisation hasn't paid enough Corporation Tax
If nothing is wrong
If there's nothing wrong with your Company Tax Return or claim, HMRC will tell you that the enquiry is over. In this case there won't be any changes to your return or claim or the amount of Corporation Tax you need to pay.
If you've paid too much Corporation Tax
If HMRC's enquiry shows that your company or organisation has paid too much Corporation Tax, HMRC will:
- ask you to amend your Company Tax Return to reflect the lower figures
- repay the overpaid Corporation Tax to your company
- pay interest on the overpayment - HMRC will normally pay your company interest on the overpaid tax from the date your company paid its Corporation Tax (or the normal due date for payment if later) up to the day HMRC makes the repayment
If you've paid too little Corporation Tax
If your company or organisation has paid too little Corporation Tax, HMRC will try to agree with you the changes and amendments needed. They will ask you to amend your Company Tax Return and pay any Corporation Tax due within 30 days of the date on your closure notice.
If you don't make the necessary changes or amendments within 30 days, HMRC will do so and you'll be asked to pay the additional tax due.
Interest charges
At the end of the enquiry, your company or organisation will normally have to pay interest on any extra Corporation Tax it owes.
Interest is charged, from the day after your company or organisation's normal due date (normally nine months and one day after the end of your Corporation Tax accounting period) until you pay all the additional tax that's due.
Corporation Tax interest charges
Penalties for inaccurate Company Tax Returns
If during an enquiry HMRC finds that you filed an inaccurate Company Tax Return or claim, your company may have to pay a penalty.
Get more information about penalties for filing inaccurate Company Tax Returns
Making a settlement with HMRC for the additional tax due
Sometimes, HMRC's enquiry will be more extensive and may cover several accounting periods. So your company might have to pay extra Corporation Tax along with any interest charges and possibly a penalty.
In this case it's usually easier to make an agreement with HMRC to bring the enquiry to an end. This is known to HMRC as a 'contract settlement'. Making a contract settlement saves you from having to deal with several separate closure notices, Corporation Tax amendments or assessments and penalties.
Find out more about contract settlements
Your right to appeal during and after an enquiry or to apply to end an enquiry
You can appeal against amendments, assessments and penalties issued by HMRC during and following an enquiry.
You can also appeal to stop an enquiry if you feel there aren't any grounds for it to continue.
Appealing against an HMRC Corporation Tax decision
When HMRC can't open an enquiry but finds something wrong
If the time limit for making an enquiry has passed or HMRC has already made an enquiry into your Company Tax Return for a particular accounting period, HMRC may still need to amend an incorrect figure in your Company Tax Return. HMRC can do this by making either:
- a discovery assessment
- a discovery determination
Discovery assessment
If HMRC finds out that your Company Tax Return is wrong, they can make an assessment to collect the extra Corporation Tax your company should have paid. This is known as a 'discovery assessment'.
HMRC can make a discovery assessment up to six years after the end of your Corporation Tax accounting period - or 21 years after the accounting period if the mistake was because of your company's careless or fraudulent behaviour.
Discovery determination
HMRC will make a discovery determination instead of a discovery assessment if correcting the mistake means that your company won't have to pay more tax for the accounting period the assessment relates to, but may have to pay more tax for a different period.
This could be because your company has over-claimed losses or some other tax relief but there's still no Corporation Tax to pay for that particular accounting period, even after correcting the figures.
Example
Your Company Tax Return for the accounting period ended 31 December 2008 shows a trading loss of £60,000. There's no Corporation Tax to pay and you carry the loss forward to set against the profits of a later accounting period.
HMRC finds out that the loss should only be £10,000. Your company has still made a loss so it won't have to pay any Corporation Tax for the accounting period ending on 31 December 2008. But HMRC will make a discovery determination to tell you your company can only carry forward a loss of £10,000.
The time limits for making a discovery determination are the same as for making a discovery assessment.
Find out more about discovery determinations
HMRC compliance checks
HMRC is changing the way it carries out checks into your company or organisation's Corporation Tax affairs.
Read more about HMRC compliance checks
More useful links
HMRC checks into company directors' and shareholders' personal tax affairs
Appealing against an HMRC Corporation Tax decision
Read how HMRC carry out civil investigations of fraud
Read more about changes to the timing of HMRC Corporation Tax enquiries
Read about changes to the timing of enquires for large and medium-sized groups
