HMRC Compliance Checks: Powers, Rights and How to Respond

An HMRC compliance check is a review by HM Revenue & Customs (HMRC) of your tax returns, records and affairs to make sure you have paid the right tax at the right time and claimed only the reliefs you are entitled to. HMRC explains in its “About compliance checks” factsheet (CC/FS1a) that checks are part of its routine work to ensure the tax system is operating correctly, and that they can result in you paying more tax, less tax or no change at all.

A compliance check can focus on an individual, partnership, company or other business structure and may cover taxes such as income tax, corporation tax, PAYE and VAT. Checks range from straightforward questions about a single item on a return to wider reviews of several years’ filings and related records.

At the outset, HMRC will normally write to you to say it is opening a check, identify the tax and period under review and set out the information it wants. At this early stage, it is often sensible to take specialist advice from experienced HMRC tax dispute solicitors.

Why HMRC Opens Compliance Checks

HMRC can open a compliance check for several reasons, including risk‑based selection, random sampling, and information received from third parties. Risk indicators include inconsistencies between different returns, unusual trading patterns, or mismatches between your figures and data from employers, banks or overseas tax authorities.

HMRC’s systems also use data‑matching and analytics to flag cases where the reported position appears unusual compared with similar taxpayers. In some situations, checks are triggered by specific intelligence suggesting that tax may have been understated or that reliefs may have been claimed incorrectly.

A check does not automatically mean you have done anything wrong; HMRC’s own guidance recognises that many checks end with no adjustments or with errors corrected by agreement. However, the way you respond can influence HMRC’s view of your behaviour and any penalties, so careful handling is important. For complex tax disputes, the specialist team at LEXLAW has extensive experience advising on HMRC matters.

HMRC’s Legal Powers: Schedule 36 Finance Act 2008

HMRC’s main powers to obtain information and inspect records during a compliance check are set out in Schedule 36 to the Finance Act 2008. Under Schedule 36, an HMRC officer may by written notice require a person to provide information or produce documents that are reasonably required to check a tax position or to collect a tax debt.

There are different types of “information notice”, including a taxpayer notice (addressed to the person whose tax is being checked) and third‑party notices (addressed to, for example, banks or business counterparties). HMRC can also use a “financial institution notice” to obtain specified information directly from financial institutions subject to statutory conditions.

Taxpayer Rights During a Compliance Check

You have the right to be represented, meaning you can appoint a professional adviser or another person to act on your behalf in dealing with HMRC.

You are entitled to understand what HMRC is checking, which taxes and periods are under review, and why particular information has been requested. You should receive clear explanations of HMRC’s concerns and, if HMRC believes something is wrong, an explanation of why it thinks that and what needs to be put right.

If HMRC proposes to charge penalties or issue assessments, you generally have the right to ask for an internal review and, if necessary, to appeal to the independent First‑tier Tribunal (Tax Chamber) under the Tribunals, Courts and Enforcement Act 2007 and the relevant tax and penalty provisions. LEXLAW frequently represent clients in HMRC reviews and tribunal appeals, drawing on experience of HMRC procedures and advocacy before the tax tribunals.

How Compliance Checks Can Escalate

Many compliance checks are resolved by agreement with minor adjustments or no change, especially where the taxpayer has taken reasonable care and co‑operates. However, some enquiries expand significantly if HMRC finds evidence of serious inaccuracies, concealment or suspected evasion.

Escalation of an HMRC compliance check can involve extending the review to earlier tax years, issuing additional or broader Schedule 36 notices, and conducting more detailed scrutiny of bank accounts, ledgers, and financial transactions. Such measures increase the scope and intensity of the investigation, requiring careful management and professional advice.

In more serious cases, HMRC may move into civil fraud procedures, such as a Contractual Disclosure Facility process under its Code of Practice for suspected fraud, or consider a criminal investigation where it suspects deliberate tax evasion. Where escalation is likely, early specialist advice can be crucial in managing risk, controlling disclosure and protecting against unintended admissions.

Managing Risk During a Compliance Check

Managing a compliance check effectively requires both technical tax knowledge and a strategic approach to HMRC’s information requests. Good record‑keeping and clear explanations often help resolve matters more quickly and reduce the risk of penalties.

Where requests seem excessive or unclear, professional advisers can help you discuss them with HMRC and, where appropriate, negotiate adjustments to the scope or timing. The Tax Team at LEXLAW are used to liaising with HMRC officers, narrowing information requests and helping clients strike the right balance between co‑operation and protection of their legal position.

Key Takeaways on HMRC Compliance Checks

HMRC compliance checks are a routine but significant part of the UK tax system, used to confirm that taxpayers have paid the right amount of tax and complied with their obligations. Under Schedule 36 to the Finance Act 2008, HMRC can require information, documents and, in some cases, access to business premises, but only where this is reasonably required and subject to legal safeguards and protections such as legal professional privilege.

Understanding both HMRC’s powers and your rights helps you respond proportionately and reduces the risk of unnecessary escalation or penalties. Where the issues are complex, the amounts at stake are significant, or there is concern about potential fraud allegations, obtaining early advice from specialist HMRC tax disputes lawyers is often the most effective way to protect your position and work towards a fair, efficient resolution.