TAX CORNER: HMRC has powers to open an enquiry into your tax return

Feargal McCormack

QUESTION: I run a small business and I have received a letter from an officer of HMRC stating that they intend to carry out a compliance check on my tax return. What does this mean and what powers do HMRC have?

ANSWER: An officer of HMRC can, within nine months of receiving a self-assessment tax return or a corporation tax return, amend it without opening an enquiry in order to correct:

• An obvious error or omission. ‘Obvious’ means that there can be no doubt what the correct entry should be. This could include correcting arithmetical errors, transposition of incorrect figures and errors of principle;

• Anything else that the officer has reason to believe is incorrect based on information already held and where no more information is needed.

The taxpayer (whether individual, partnership or company) has no right of appeal against a correction, but does have the right to reject it by giving notice in writing within 30 days of the date it was issued by HMRC. This means that the correction has no effect and the self-assessment is put back to the original figures.

Even if the taxpayer does not reject the correction in the time allowed, he may be in time to amend the return. In such circumstances, an Officer can only dispute the amendment by means of a formal enquiry into the amended return.

A company can reject a correction of its corporation tax return by:

• Amending its return, if it is in time to do so; or

• If it is too late to amend its return, giving notice in writing within three months of the date of issue of the correction. If the error or omission cannot be corrected in that way or the correction is rejected, an officer can only pursue the point by means of a formal enquiry.

An HMRC officer can enquire into a return, or an amendment made to a return, by giving written notice to the individual, sole trader, partnership or company concerned. The notice will:


• State that HMRC intends to start an enquiry;

• Set out whether the whole of the return is under enquiry or just one or a few specific entries;

• Explain what information and documents are required;

• Contain a time deadline by which the information and documents must be submitted or made available; and

• Enclose a copy of the factsheet setting out the business entities rights and responsibilities.

The officer is not required to state the reasons why the return in question has been selected for enquiry. The vast majority of enquiries are launched after a risk assessment has been undertaken although some random enquiries also take place.

An individual may have his tax return selected for enquiry because the officer wishes to check a certain aspect of their return, for example, the amount of interest declared.

A sole trader may have his tax return selected for enquiry because the officer wishes to conduct an in-depth enquiry into his accounts. This type of enquiry used to be called a ‘full’ enquiry. Enquiries into self-assessment returns or amendments are launched within 12 months of the return being delivered to HMRC.

If the return was delivered after the statutory filing date, the enquiry notice must be issued by January 31, April 30, July 31 or October 31 next following the first anniversary of the day on which the return is delivered.

Partnership tax returns are subject to precisely the same enquiry procedures as individual returns.

Companies are subject to enquiry procedures similar to those for individuals, sole traders and partnerships. If the return was filed on or before the filing date, HMRC may open an enquiry within twelve months from the day the tax return was delivered to HMRC.

If the return was filed late, HMRC may open an enquiry at any time up to and including January 31, April 30, July 31 or October 31 next following the first anniversary of the day on which the return was filed with HMRC.

HMRC is able to issue a discovery assessment to recover underpaid tax if it learns that a tax return is incorrect. If HMRC learns of an error that does not result in additional tax being due in the accounting period but may affect tax due in other periods, a discovery determination will be issued.

In respect to the compliance check you have recently received, I suggest you speak with your accountant and provide the necessary information requested by HMRC within the time frame given. If you are unable to meet the deadline set by HMRC I recommend you contact them to agree a deadline that works for you.

Feargal McCormack ( is partner at FPM Accountants Ltd. The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies

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