So, you’ve received a UK tax enquiry letter ….

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Hello all, 

Welcome back to our regular tax blog.

I could write a book on this next subject of HMRC enquiries, and I was once even called “Mr Tax Enquiry” based on the number of enquiries I had worked on. I can write out the full details of the process but that does not make for a good blog, and I would rather show you the headlines of how the process works.

So, what do you do if you receive an enquiry letter from the UK tax man (HMRC)?

What’s an enquiry letter?

HMRC will send you a notice that they are examining a particular recent tax return.  HMRC take a small percentage of UK tax returns and audit them in greater detail.  

Why do they do this?

HMRC are searching for examples of taxes underpaid, income unreported, or understated.  Basically, they are looking for mistakes and possible extra tax.

Why have they chosen me?

There are plenty of possible reasons.  A mistake in last year’s tax return, a tax return that was filed late, a tax return which is not clear, a complicated expatriate compensation package that HMRC wish to understand.

Am I in major trouble?

No, you should not be in major trouble.  A tax enquiry can focus upon a single expense report, or a tax relief claim which has not been defined properly.  In other words, an enquiry letter does not always address every entry on a return.

What is the penalty for errors?

It depends on the issue but a typical penalty ranges from 5-12% of the tax owed.  HMRC just want to collect the taxes owed then they apply this small-ish fine.

Let’s look at some examples of tax enquiries that we have managed in recent years.

The worried American

An US national client was challenged over the number of days that she had worked outside the UK.  We had reported 110 days on her tax return.  She was very concerned about receiving the HMRC letter, but we knew this was a normal check-up which required supporting documents.

We gathered additional evidence from flight boarding passes, work diaries, meetings notes, emails.  We were able to support fully the 110-day claim.

HMRC accepted the evidence that we provided and did not pursue our client any further.  The tax relief claim on foreign workdays was justified.

South America

We had a case of a client from Argentina who had lived in London for 20 years.  He inherited his parents’ home three years ago in Buenos Aires.  He retained the house as a rental property but did not report the rents in the UK.  He did not know it was taxable here.

This was not strictly an enquiry letter because our client realised his error and he reported himself to HMRC without prompting.  In HMRC process terms, this is known as a disclosure of offshore income.  Our work was to help the client to gather the correct information to satisfy HMRC.  We achieved this by providing rental data, rental expenses, details of foreign taxes paid.

The moral of this story is that HMRC were pleased to encounter (and they were very fair with) a fully compliant client.  He was willing to jump through all the hoops and deliver ALL the required information.  This is often all that is required – a full clear prompt disclosure from an accountant.

So, should you be quaking about a tax enquiry?

Not necessarily.  Tax enquiries are a process or project that can be managed by you, plus an experienced tax accountant.  HMRC are happy to deal with tax professionals on enquiries because of our years of experience.  From the client’s point of view, we can deliver lower tax bills and penalties by standing up for you eg when HMRC are mistaken.

Oliver Heslop is an expatriate tax director with 28 years’ tax experience and he owns this tax firm.
He partners with Peter Ferrigno and his number is +44 (0) 203 282 1649 or