At williams lester accountants, we help clients deal with HMRC tax investigations and enquiries in a calm, organised and professional way. An enquiry can be worrying, even where nothing has been done deliberately wrong. HMRC may ask questions about a tax return, VAT return, payroll records, CIS records, company accounts, director loan accounts, dividends, expenses, private use adjustments, income sources or the treatment of particular transactions.

Our role is to help you understand what HMRC is asking for, check the facts, review the records, prepare the response and deal with HMRC on your behalf where appropriate. We help gather evidence, explain the figures, identify any errors, challenge incorrect assumptions and make sure replies are clear, accurate and properly supported. The aim is always to bring the enquiry to a fair conclusion while reducing stress, disruption and unnecessary cost.

Good records are one of the strongest defences in any HMRC enquiry. If your bookkeeping, invoices, receipts, bank records, payroll records, VAT workings, CIS records and tax calculations are complete and well organised, it is much easier to answer HMRC’s questions quickly and confidently. HMRC guidance says self-employed taxpayers must keep records to work out their profit or loss and show them to HMRC if asked; those records must be accurate and must identify business transactions. 

For limited companies, records generally need to be kept for six years from the end of the company financial year they relate to, and longer in some cases, including where HMRC has started a compliance check into the Company Tax Return. Payroll records also matter: HMRC says payroll records must show accurate reporting and should be kept for three years from the end of the tax year they relate to; where full records are not kept, HMRC may estimate what is due and may charge a penalty of up to £3,000. 

The figures show why HMRC compliance activity should be taken seriously. HMRC’s latest tax gap estimate for 2023 to 2024 was 5.3%, equal to £46.8 billion of tax not collected compared with the theoretical amount due. HMRC also reported that in 2024 to 2025 it brought in £48.0 billion of tax that would have gone unpaid if HMRC had not stepped in. 

Small businesses are a major focus area. HMRC’s tax gap statistics show that small businesses made up 60% of the total tax gap in 2023 to 2024. The Corporation Tax gap was also the largest tax type component, making up 40% of the overall tax gap. For Corporation Tax specifically, HMRC estimated the total gap at 15.8%, or £18.6 billion, for 2023 to 2024. Within that, the small business Corporation Tax gap was estimated at 40.1%, or £14.7 billion. 

The cost of an enquiry is not just the tax at stake. There can be professional fees, time spent gathering records, management distraction, stress, interest and penalties. HMRC may charge penalties where a return or document contains an inaccuracy that results in tax being unpaid, understated or over-claimed, and where the behaviour was careless, deliberate, or deliberate and concealed. HMRC guidance for agents says penalties linked to lack of reasonable care can range from 0% to 30% of the extra tax due; deliberate errors can range from 20% to 70%; and deliberate and concealed errors can range from 30% to 100%. 

That is why good records are so important. They help prove what happened, support tax claims, show the business has taken reasonable care and reduce the chance of HMRC making assumptions. Poor records can make a straightforward enquiry much more difficult, because the business may struggle to prove income, costs, VAT treatment, employment records or the commercial reason for transactions.

We also recommend that clients consider taking out tax investigation insurance through us. Even where a client has done nothing wrong, responding properly to HMRC can involve significant professional time. Insurance can help cover the cost of our fees in defending and managing an enquiry, giving you access to proper support without worrying about the professional costs building up.

At williams lester accountants, we do not simply prepare replies. We help protect the client’s position, organise the evidence, communicate with HMRC, explain the technical points and work towards the best practical outcome. Strong records, early advice and the right protection can make a major difference when HMRC asks questions.