HM Revenue & Customs (HMRC) wants to make sure that the Corporation Tax system is operated fairly and that their customers pay the right amount of Corporation Tax at the right time. To make sure this happens, HMRC makes enquiries into certain Company Tax Returns. These are known as 'compliance checks'.
This guide provides a general overview of how compliance checks work for Corporation Tax and what happens when HMRC makes an enquiry into your Company Tax Return. It also provides links to guidance for large companies who are dealt with by HMRC’s Large Business Service or Local Compliance (Large and Complex) teams.
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HMRC can check something with you before or after you file your return. But a compliance check will only to be carried out when HMRC has identified a risk in a company or organisation's tax position, or when a check is required as part of HMRC's random enquiry programme.
The current legislation and processes provide:
When you file your Company Tax Return, you're 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 (which includes your company accounts, tax calculations and other supporting documents such as supplementary pages). HMRC calls this kind of compliance check '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 can make an enquiry into your company or organisation's:
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.
During a review of your Company Tax Return, other tax risks may come to light - for example with your VAT or PAYE responsibilities. Generally, if this happens, the HMRC Officer dealing with company review will co-ordinate any further enquiries, within the HMRC compliance checks process.
HMRC must normally send you a notice of enquiry within 12 months of receiving your Company Tax Return. Different deadlines may apply when:
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:
At the same time HMRC will tell you:
The information your company or organisation will need to supply during a compliance check 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.
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.
If you don’t have the information that HMRC has requested, or you think their request is unreasonable or not relevant to the check, please let them know immediately.
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.
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.
During a compliance check, 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's self assessment during the compliance check if they find that additional tax is due and they believe your company may not pay it. They may then ask you 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.
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:
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 HMRC's enquiry shows that your company or organisation has paid too much Corporation Tax, HMRC will:
If your company or organisation has paid too little Corporation Tax, HMRC will try to agree with you the changes and amendments needed.
HMRC will amend your Company Tax Return and ask you to pay any Corporation Tax due within 30 days of the date on your closure notice. You can appeal HMRC’s amendment and you’ll find out how to do this later in this guide.
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.
If during an enquiry HMRC finds that you filed an inaccurate Company Tax Return or claim, your company may have to pay a penalty.
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 penalties.
In this case it may be more convenient to both you and HMRC to make an agreement which has the effect of bringing 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.
You can appeal against amendments, assessments and penalties issued by HMRC during and at the conclusion of a compliance check.
You can also ask HMRC to stop a check in certain circumstances. If HMRC don't agree with your reasons, they can ask an independent tribunal to decide if the check should stop.
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:
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 to correct a careless error up to six years after the end of your Corporation Tax accounting period - or 20 years after the accounting period if the mistake was a deliberate error.
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 it may affect the tax for a different period or the tax liability of another company.
This could be because your company has over-stated the 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. Or if the mistake affects another company’s tax position, for example a group’s trading loss figure.
Your Company Tax Return for the accounting period ended 31 December 2009 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 2009. 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.
HMRC may need to check something with you before you submit your return. This may happen for example when they're following up a previous compliance check to ensure that your record-keeping system has improved or to check the conditions set when a penalty was suspended.
This type of check is known as a 'pre-return' check. Unless you ask them to check something, HMRC must have identified a risk before they can carry out a pre-return check. This means they must think there's a potential loss of tax at stake.
Large companies with more complex tax and duty arrangements have an HMRC Customer Relationship Manager in either the Large Business Service or Local Compliance (Large and Complex) or a Customer Co-ordinator in Local Compliance (Large and Complex). The Customer Relationship Manager or Customer Co-ordinator is responsible for the overall customer relationship and for bringing together all aspects of the company's tax affairs.
Whilst HMRC's compliance check powers are the same for all, the approach for large business is focused on individual risk assessment and engagement (including real time dialogue). You can read more about HMRC's approach to large business by following the links below.