HMRC opens enquiries for two reasons: because something in your return looks wrong, or because your name came out of a random sample. The second category is small and nobody can plan around it. The first is largely predictable, and most of the triggers are things a business does to itself — inconsistent figures, unexplained changes, and information HMRC already holds from somebody else.
The data HMRC already has
The starting point for understanding enquiry risk is that HMRC's Connect system cross-matches returns against an enormous volume of third-party data: bank interest, dividends, Land Registry transactions, DVLA records, Companies House filings, card payment processor data, online marketplace and platform reports, rental deposit schemes, and information exchanged automatically with over a hundred other tax authorities under the Common Reporting Standard.
The practical implication is blunt. An enquiry into undeclared rental income or an offshore account is rarely a fishing expedition — HMRC usually already knows the figure and is checking whether you will declare it. Which is why a nudge letter should be answered with a disclosure rather than a denial — but be clear about what that disclosure is worth. A disclosure counts as unprompted only where the taxpayer had no reason to believe HMRC had discovered, or was about to discover, the inaccuracy. A letter aimed at a specific source of income gives exactly that reason, so responding to one is normally a prompted disclosure. It still earns the largest reduction available in the prompted band, and it is far better than silence; what it is not is the unprompted treatment available to someone who comes forward before any contact.
What actually draws attention
- Figures that do not reconcile. Turnover in the accounts that differs from the VAT returns; wages in the accounts that differ from the payroll filings; a director's loan account in the company that does not match the personal return. These are automated comparisons and they are the single most common trigger;
- Movements without explanation. Gross margin that drops several points, a large one-off deduction, a sudden swing from profit to loss. Any of these can be entirely legitimate — and a short white space note explaining it converts a question into a non-event;
- Sector ratios. HMRC holds profitability benchmarks by trade. A restaurant reporting margins well below its peers, or a trade with a known cash element reporting minimal takings, sits outside the expected range;
- Repeated late filing and late payment, which suggests a business whose records are not under control;
- Claims that are large relative to the business — R&D relief, capital allowances, employment-related deductions — particularly where the claim arrived through a third party with a contingent fee;
- Third-party information: a report from a member of the public, a supplier's records seized in another enquiry, or a customer's own return naming you;
- Directors' lifestyles visibly inconsistent with declared income, which Connect is designed to surface.
The shapes an enquiry takes
A full enquiry examines the return as a whole and usually implies HMRC believes there is a significant problem. An aspect enquiry looks at one item — a particular deduction, a valuation, a single transaction — and is far more common. Both are opened by formal notice, and the window for opening one usually closes twelve months after the return is filed.
Beyond that window, HMRC needs a discovery assessment, which requires an officer to have discovered an insufficiency and is subject to conditions — and to the longer time limits: four years generally, six for careless behaviour and twenty for deliberate.
At the serious end sit Code of Practice 9, where HMRC suspects deliberate conduct and offers a contractual disclosure facility, and criminal investigation. Large businesses experience something different again: a continuous relationship with a customer compliance manager and a periodic business risk review that rates the group as low or high risk, with the rating determining how much attention follows.
Reducing the risk
Three habits do most of the work. Reconcile before filing — accounts to VAT returns, payroll to the accounts, personal return to the company's records. Most triggers are internal inconsistencies that nobody looked for. Use the white space. The additional information box on a return exists to explain the unusual, and an explanation given up front is treated very differently from the same explanation extracted a year later. Disclose what you find, promptly. The penalty regime is behaviour-based, and an unprompted disclosure of a careless error can reduce the penalty to nil where a prompted one cannot fall below 15%.
If a letter arrives
Check what it actually is — an enquiry notice, an information notice, a nudge letter or a routine compliance check are different things with different obligations. Note the deadline, and ask for an extension early if the records will take time; HMRC grants reasonable requests and penalises silence. Answer what was asked, in writing, without volunteering unrelated material. Never guess at an answer, because a wrong one given confidently becomes the officer's working assumption.
And take advice before characterising your own behaviour. Whether an error was careless or deliberate determines the penalty range, the assessment window and whether the matter stays civil — and that is the question the whole enquiry ultimately turns on.
Acumon handles enquiries from first letter to settlement through HMRC tax investigation and tax dispute resolution work, and runs pre-emptive reviews where a business knows its records would not survive scrutiny — the VAT side of which is covered in our guide to VAT inspections. The cheapest disclosure is always the one made before the letter.