| Enquiry window (return filed on time) | 12 months from filing; in larger groups from the filing date |
| Assessment without an enquiry | 4 years, 6 years if careless, 20 years if deliberate |
| Penalty for inaccurate returns | up to 30% (careless), up to 70% (deliberate), up to 100% (deliberate and concealed) |
| Payment after the check | within 30 days, with interest |
| Appeal | usually 30 days from the decision |
| Dispute resolution | HMRC mediation (ADR) can be requested at any time |
How a check runs in the UK
HMRC calls it a compliance check. It writes or phones and says what it wants to check: the corporation tax return, the accounts, the tax computation, payroll or VAT. If your company has an agent, the letter goes to them. Most checks start with a list of questions and a request for documents.
HMRC can also ask to visit the business premises or the adviser, or invite you to its office. You may bring someone with you. At the end comes a letter with the outcome: a refund, with interest where too much was paid, or an amount due, payable within 30 days, usually with interest from the original due date.
For a company run from abroad the real challenge is timing. Documents often sit with the parent, contracts are in another language, decisions in minutes nobody has translated. The sooner that is in order, the sooner the check is over.
The time limits within which HMRC may check
For corporation tax there are two routes: the formal enquiry into the return and the later discovery assessment, which has stricter conditions.
| Situation | Time limit |
|---|---|
| Enquiry, return filed on time | 12 months from filing |
| Enquiry, company in a group that is not small | 12 months from the statutory filing date |
| Enquiry, return filed late | until the next quarter day (31.1, 30.4, 31.7, 31.10) after the first anniversary of filing |
| Assessment, normal case | 4 years after the end of the accounting period |
| Assessment, loss of tax through carelessness | 6 years |
| Assessment, deliberate | 20 years |
Finance Act 1998, Schedule 18, paras. 24 and 46
What HMRC may demand
The basis for information requests is Schedule 36 to the Finance Act 2008. HMRC can issue an information notice for information and documents reasonably required to check the company's tax position. That is broad, but not unlimited: what has nothing to do with the tax under review need not be produced.
Ignore a formal notice or an announced visit and you risk a penalty of its own, unless there is an accepted reasonable excuse such as serious illness. If you think a check is unfounded, you can explain in writing why it should end.
For dealings with the parent HMRC almost always asks about contracts, pricing and evidence of services provided. How to prepare is in transfer pricing in the UK. With directors not living in the UK, HMRC likes to check where the company is really managed; more in non-resident directors.
What mistakes cost: the penalty system
For inaccurate returns behaviour decides. Without reasonable care the penalty lies between 0 and 30 percent of the extra tax. For deliberate errors it is 20 to 70 percent, for deliberate and concealed ones 30 to 100 percent. HMRC measures reasonable care against the company: it expects a more sophisticated system from a large business than from a small limited company.
The most important sentence in the whole system: the penalty falls if you tell HMRC about the error yourself, help work out the amount and give access to the figures. How far it falls depends on the quality of your disclosure.
If HMRC suspects fraud, the check runs under a separate procedure, Code of Practice 9, as a civil investigation. At that point the matter belongs with specialist UK lawyers.
If you cannot agree
You can usually appeal against a decision within 30 days. If HMRC offers an internal review by another officer, you again have 30 days to accept it or go straight to the tax tribunal.
There is also alternative dispute resolution (ADR): a trained HMRC mediator works with you and the case officer towards a solution. You can request it at any point in a check if you disagree about the facts or the scope.
If it is about double taxation, for instance because HMRC and your tax office at home both claim the same profit, the mutual agreement procedure under the tax treaty helps; see the UK's tax treaties.
If a group's UK companies together had more than £200 million turnover or more than £2 billion balance sheet total in the previous year, a responsible person, the senior accounting officer, must certify to HMRC that tax accounting arrangements are appropriate. For the typical mid-sized subsidiary it does not matter.
Frequently asked questions
How long may HMRC still check my company's return?
For a formal enquiry into a return filed on time, twelve months from filing. After that an assessment is only possible under narrower conditions, usually up to four years after the end of the accounting period, six if careless, twenty if deliberate.
Do I have to travel to the UK as a director?
No. HMRC may ask for a visit, but most checks run in writing. A UK agent can act for the company.
What happens if I miss a deadline for documents?
With a formal notice a penalty of its own may follow, unless you have an accepted excuse. Ask for an extension before the deadline if documents have to come from abroad.
Will my tax office at home help if HMRC increases the profit?
Through the mutual agreement procedure under the treaty. How corporation tax itself works is in UK corporation tax.
Sources: GOV.UK: Tax compliance checks; legislation.gov.uk: Finance Act 1998, Schedule 18, para. 24 (enquiry window); legislation.gov.uk: Finance Act 1998, Schedule 18, para. 46 (time limits); legislation.gov.uk: Finance Act 2008, Schedule 36, para. 1; GOV.UK: Penalties, an overview for agents and advisers; GOV.UK: Disagree with a tax decision or penalty; GOV.UK: Use alternative dispute resolution to settle a tax dispute; GOV.UK: Code of Practice 9 (COP9); HMRC Senior Accounting Officer Guidance SAOG11231, SAOG11260
