Once you have sent in your tax return, HM Revenue and Customs processes that information. You are responsible for making sure the information is correct. When they process the return, HM Revenue and Customs may make corrections to the return, where there are obvious errors.

HM Revenue and Customs has the right to open an enquiry into any return. An enquiry means HM Revenue and Customs asks questions about your return, to check that the information is correct and complete.

Because any return can be selected for an enquiry, you need to keep all the documents and information you used to prepare your tax return until the time allowed to HM Revenue and Customs to make an enquiry is past. HM Revenue and Customs can seek a maximum penalty of £3,000 for not keeping these records, though this is not applied automatically.

Why have they picked my return?

Your return may be one of the small sample of returns which are selected at random for an enquiry. Or HM Revenue and Customs may select it on the basis of risk, because of the type of work you do or your different types of income. It may also have other information which makes them think it likely that your return may not be correct or complete. It will not inform you why your return has been selected.

What are they trying to find out?

The enquiry may be

• a full enquiry, which checks the return as a whole; or
• an aspect enquiry

An aspect enquiry checks the information on one or more specific points. For instance, HM Revenue and Customs may have information perhaps about interest from a building society which is not consistent with the information on your return. It will ask for more information or explanations specifically about this.

What happens in an enquiry?

HM Revenue and Customs must follow detailed procedures under the law in conducting an enquiry. For example, it must write to you to tell you that your return has been selected for an enquiry. It must do this within the time allowed by law. HM Revenue and Customs normally has 12 months from the date you filed your return to notify you it is enquiring into your tax return. For tax years 2006/07 and earlier, HM Revenue and Customs normally had 12 months from 31 January following the end of the tax year. If you file your return after 31 January, HM Revenue and Customs may have up to 15 months from the date of filing to start the enquiry.

HM Revenue and Customs must also follow the rules set out in its free booklet Enquiries into tax returns by local offices (Code of Practice 11) which is available from all tax offices or on HM Revenue and Customs’ website. This describes what you may expect to happen during and after an enquiry, as well as explaining your rights and duties.

The enquiry is likely to involve asking you for information, documents and explanations in relation to the information given in your tax return. You may also be asked to attend a meeting, as HM Revenue and Customs is likely to say that this offers a good way for you to explain anything that is unclear.

You are not legally obliged to attend a meeting, and cannot be compelled to do so if you do not want to go. A meeting can be a very good way of sorting things out, and of satisfying HM Revenue and Customs of the accuracy of figures given on your tax return. If you are unsure about attending a meeting, you should take professional advice. HM Revenue and Customs has legal powers to compel you to produce information it may want, but it is far better to provide this voluntarily. This should help to ensure that the enquiry is completed quickly. It will also demonstrate you are being cooperative and, if anything is found to be wrong, should help to keep penalties to a minimum.

However, if you are going to a meeting, you should understand your rights. Firstly, you are entitled to know what HM Revenue and Customs wants to discuss. You may ask for a written agenda in advance of the meeting. If HM Revenue and Customs then strays from the agenda, you are entitled to insist that the meeting be brought to an end. Ensure that any information you give to HM Revenue and Customs is accurate, as you may be penalised for giving false information. So if you are asked a question – in a letter or a meeting – to which you do not know the answer, do not guess. Say that you do not have the answer and ask for whatever time you may need to find it.

If HM Revenue and Customs is making unreasonable demands or not following its Code of Practice, you are perfectly entitled to say so, and to make a complaint if necessary (for more information see Your rights as a tax payer).

Consider whether you should get professional advice on how to deal with the enquiry. If you cannot afford to pay an accountant or tax adviser, you may contact us for help. Otherwise, see the FAQ Finding an accountant or tax adviser.

How does an enquiry end?

If you think you have provided all the information HM Revenue and Customs has asked for, but the enquiry is still dragging on, you can ask an independent body called the Commissioners to direct HM Revenue and Customs to finish the enquiry. They will do this if they do not think there are reasonable grounds for continuing.

At the end of an enquiry HM Revenue and Customs will write to tell you the enquiry is finished. They will tell you if they can accept the return you made.

Otherwise, if HM Revenue and Customs considers that it has found something wrong with your tax return, but does not think that you have been negligent, they will write to tell you how they think your tax return needs to be corrected. If you do not amend the return within 30 days, HM Revenue and Customs will amend it themselves. You can appeal against this to the independent Appeal Commissioners. The amendment will revise your tax liability for the year concerned, with an interest charge on any resulting underpayment (or interest payable to you on any overpayment).

If HM Revenue and Customs considers that you have been guilty of neglect or fraud, it will want to charge penalties as well as the extra tax and interest. This is normally done by asking you to enter into a contract settlement (i.e. an agreement). Under this, you promise to pay an agreed sum to cover the tax, interest and penalties. If you cannot reach an agreement, then HM Revenue and Customs will resort to its legal powers. This is usually less favourable to the taxpayer. So it is worth trying to reach an agreement if at all possible. However, if you feel that you are being unfairly pressured to agree a figure which is unreasonable, you should consider making a complaint. (For more information, see Your rights as a taxpayer.)