Early warning signs of an HMRC enquiry
As a taxpayer, HMRC do not formally notify you before opening an enquiry: you typically only know once a formal letter arrives. However, there are indicators that often precede or accompany the start of an investigation.
Recognising these early can give you valuable time to review records and seek advice, making the pressures more manageable.
Knowing the early warning signs will support your broader understanding of the HMRC enquiry process, including how HMRC select cases for investigation and what triggers an HMRC enquiry.
Nudge letters
- Nudge letters are the clearest sign that an enquiry is coming
- We’ve seen an increase in HMRC’s use of ‘one to many’ letters for this, including campaigns targeted at offshore income, crypto disposals, R&D claims, let property, or persons of significant control
- Nudge letters are not themselves enquiries. However, you should treat one as a clear signal that HMRC hold data suggesting undeclared income and gains, and that a formal enquiry will usually follow unless you take action
Other HMRC correspondence
- An informal information request asking you to clarify or explain a specific figure (e.g. expenses, dividends, property income, or a single transaction). These soft approaches frequently expand to a full enquiry
When you are already in an enquiry position, your correspondence from HMRC may include:
- As the formal opening notice, Aa letter (‘brown envelope’) or email referring to a ‘compliance check’ or ‘check of your tax return’, or quoting Schedule 36 FA 2008 powers
- To formally mark the opening of an enquiry, it is mandatory for HMRC to send their compliance check factsheet CC/FS1a, CC/FS1b or CC/FS1c alongside any HMRC letter
- To indicate a serious tax investigation, a letter referring to Code of Practice: COP8 for suspected tax avoidance, COP9 for suspected serious tax fraud
Being approached by a third party
- Your bank, accountant, or a third-party platform (e.g. eBay, Vinted, Airbnb, payment processors) may tell you that HMRC have requested information about you. HMRC’s Connect system routinely cross-references data from banks, Land Registry, employers, and digital platforms before HMRC open an enquiry
- As a common precursor to a VAT, PAYE or CIS enquiry, customers, suppliers, or employees being asked by HMRC about transactions with you —
- HMRC requesting Schedule 36 third-party notices to obtain documents from your bank or agent
Unannounced or pre-arranged visits
- A request for a ‘business records check’ visit or an unannounced inspection of business premises under Schedule 36 powers: often the start of a VAT or PAYE compliance intervention
- HMRC asking to visit your home, business address, or accountant’s office to inspect records
Changes in routine HMRC behaviour
- Sudden silence on a refund or repayment claim (especially VAT repayments) that you’d normally expect to be processed quickly. HMRC may have placed the claim under extended verification checks
- Silence on a tax return enquiry can also signal escalation by HMRC to a more serious type of enquiry
- Repayments being withheld or PAYE/CIS refunds delayed without clear explanation
- A previously straightforward submission suddenly being queried in detail
- Late or missing acknowledgement of a return that should have been routinely accepted
Early signs of a criminal investigation
These may include unusually detailed questioning, HMRC declining to discuss matters informally with your agent, or correspondence being routed through HMRC’s Fraud Investigation Service (FIS).
However, you will generally only know of a criminal investigation when you are invited to a voluntary interview under caution (PACE), arrested, or served with a production order or search warrant.
How to respond to early warning signs
If you become aware of any of the indicators above – particularly a nudge letter, an informal request to explain a figure, or a third party telling you HMRC has been in touch – here are four sensible steps to take:
- Preserve all relevant records. HMRC can go back four years for innocent errors, six years for careless errors and 20 years for deliberate errors.
- Carry out a pre-emptive review before HMRC’s formal window closes i.e. 12 months from the filing deadline with possible extensions where tax returns are submitted late.
- Consider a voluntary disclosure via the Digital Disclosure Service (DDS), Worldwide Disclosure Facility (WDF) or Contractual Disclosure Facility (CDF or COP9) where an error is identified. Penalties are materially lower for unprompted disclosures.
- Seek professional advice in planning your response to HMRC.
How BKL can help
Our Tax Risk & Dispute Resolution team have a strong understanding of the underlying risks that HMRC are trying to address through their investigations.
We can help you to proactively manage your tax risk, narrow the scope of enquiries and progress matters to conclusion as quickly as possible.
To discuss your situation in confidence, please get in touch with your usual BKL contact or Piyush Patel using the form below.
Our Experts
Contact Piyush
Frequently asked questions: Early warning signs of an HMRC enquiry
How do I know if HMRC are about to open an enquiry?
You may not know for certain until HMRC issue a formal enquiry notice, but several warning signs can indicate increased scrutiny. Common examples include receiving a nudge letter, being asked to explain a specific figure on a tax return, delays in processing repayments, or learning that HMRC has contacted a bank, digital platform, or other third party about you. These indicators do not always lead to an enquiry, but they should be taken seriously and reviewed promptly.
What is an HMRC nudge letter and should I be concerned?
A nudge letter is a targeted communication encouraging a taxpayer to check whether they have correctly reported income, gains, or other tax matters. While it is not a formal enquiry, it often signals that HMRC have received data suggesting a potential discrepancy. Nudge letter campaigns have focused on areas such as offshore assets, cryptocurrency transactions, rental income, R&D claims, and companies’ persons of significant control. Ignoring a nudge letter can increase the likelihood of a formal compliance check later.
Can HMRC investigate information received from online platforms?
Yes. HMRC receive and analyse data from a wide range of sources, including online marketplaces, property rental platforms, payment providers, employers, banks, and government databases. Income earned through platforms such as Airbnb, eBay, Vinted, or similar services may be compared against tax returns and other disclosures. If HMRC identify inconsistencies, they may request further information or consider opening an enquiry.
Does receiving a compliance check mean HMRC believe I have done something wrong?
No. A compliance check does not automatically mean HMRC believes deliberate wrongdoing has occurred. Many enquiries are opened simply to verify information or better understand a transaction, claim or reported figure. However, failing to respond adequately or providing incomplete information can cause a routine review to become more extensive. Professional advice can often help ensure responses are clear, accurate, and proportionate.
What happens if HMRC contact my accountant, bank, or another third party?
HMRC have powers to obtain information from third parties where relevant to a tax matter. In some cases, your accountant, bank, employer, customers, suppliers, or digital platforms may be contacted before you receive any formal correspondence. This can be an early indication that HMRC are gathering evidence or validating information. If you become aware of such contact, it is sensible to review your tax position and records without delay.
Can HMRC delay a tax repayment if it is carrying out checks?
Yes. Repayments can be delayed while HMRC conduct verification checks. This is particularly common where VAT repayments, PAYE refunds, CIS repayments, or other claims appear unusual or require further review. A delayed repayment does not automatically indicate an enquiry, but it can be a sign that additional scrutiny is taking place and that further questions may follow.
How far back can HMRC look during an enquiry?
The time period HMRC can review depends on the nature of the issue. HMRC can generally assess up to four years for innocent errors, six years where carelessness is involved, and up to 20 years where it believes errors were deliberate. This is why retaining comprehensive records is important, particularly for property income, investment income, business transactions, and complex tax affairs.
Should I make a voluntary disclosure if I find an error before HMRC contact me?
In many cases, voluntary disclosure can be beneficial. If you identify undeclared income, gains, or other inaccuracies before HMRC formally challenge them, it may be possible to disclose the issue through an appropriate disclosure facility. Unprompted disclosures generally attract lower penalties than disclosures made after HMRC has opened an enquiry. The most suitable route will depend on the nature of the issue and the circumstances involved.
What is the difference between a routine HMRC enquiry and a COP8 or COP9 investigation?
A standard enquiry or compliance check is typically used to review the accuracy of a return, claim, or tax position. COP8 investigations are generally associated with suspected tax avoidance arrangements, while COP9 investigations are reserved for cases involving suspected serious tax fraud. A COP9 letter should always be treated as a serious matter and specialist advice should be obtained immediately.
What should I do if I notice one of these early warning signs?
Acting early is often the best approach. Preserve relevant records, review the tax position being questioned, avoid destroying or altering documentation, and seek professional advice where appropriate. Early engagement can help identify any errors, prepare explanations supported by evidence, and assess whether a disclosure should be made before HMRC escalate the matter. A proactive response is usually better than waiting for a formal enquiry notice to arrive.
