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How compliance checks work for agents and advisers

HM Revenue & Customs (HMRC) has a responsibility to ensure that individuals and businesses are paying the correct amount of tax or receiving the right amount of benefit. There will be occasions when HMRC make enquiries and/or carry out inspections and visits - more formally referred to as compliance checks - to make sure this is the case.

In general terms, HMRC make compliance checks to ensure a specific tax return or claim is correct and/or to check that any payments are being made and reported correctly. Another reason is to discourage evasion and make sure the tax system is operating fairly. For that reason some checks are made on a random basis.

Starting a compliance check does not necessarily mean that HMRC believes there are serious problems - many are routine.

This guide will give you an overview of the processes for the main areas of tax and benefits that you may be handling for clients.

On this page:

Overview of compliance checks

HMRC believes that most of its customers are honest and aims to treat them all with respect.

In general something will have triggered a check. For example, it is usually that the figures entered on a return appear to disagree with each other. For example, a very small business suddenly makes a very large claim for VAT or one with a large turnover declares a very small amount of tax. The only way HMRC can find out whether the return is correct is by making a check.

If the check shows that there is nothing wrong, HMRC will bring it quickly to an end.

If the check shows that something is wrong, HMRC will work with you and your clients to put things right. If any tax has been overpaid, it will be repaid with interest. Any tax underpaid will be charged with interest. HMRC may also issue an assessment or amend the relevant return depending on the type of tax involved. In some instances, an error in the tax will mean another tax also has to be corrected, for example an error in charging excise duty on goods sold generally means the VAT on the sale will have been charged on the wrong amount too.

You can appeal any assessment or amendment on your client's behalf if you believe you have grounds to do so.

Appeals and tribunals - an overview for agents and advisers

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Working with clients and HMRC during a check

If you are already authorised to act for your client, you can continue to represent them during the course of the check. The legal responsibility for correctly making returns and payments remains with your client.

You may also be asked by a potential new client to represent them if HMRC has started a check into their tax affairs.

In both cases, it's a good idea to have your responsibilities agreed in writing with your clients in a formal engagement letter.

It's also a good idea to look at checks on a case-by-case basis - some checks may take considerable time. And some, by their nature, will be more detailed than others. You may wish to consider offering clients insurance against professional costs incurred as a result of a compliance check. Or you may wish to refer clients to specialists in this field.

Handling a check efficiently and quickly is in everyone's interests - you, your clients and HMRC. However, how much you and your client co-operate with HMRC is at your discretion. Bear in mind that if the check or enquiry results in a penalty it may be reduced where you and your clients have co-operated with HMRC. In general, the more co-operation, the lower the penalty.

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New compliance checks

The following table shows the date when the new compliance checks process came into effect for each relevant tax and duty.

New compliance checks process commencement dates

From 1 April 2009

From 1 April 2010

Capital Gains Tax

Aggregates Levy

Corporation Tax

Climate Change Levy

Construction Industry Scheme (CIS)

Inheritance Tax

Income Tax

Insurance Premium Tax

Pay As You Earn (PAYE)

Landfill Tax

VAT

Petroleum Revenue Tax

 

Stamp Duty Land Tax

 

Stamp Duty Reserve Tax

The new compliance checks legislation makes a number of key changes for these taxes and duties including:

  • a single set of powers for HMRC when carrying out checks to: visit and inspect premises, assets and records and to ask clients and third parties for information and documents
  • safeguards for HMRC customers
  • common time limits for raising assessments and making claims

HMRC have published a series of factsheets to explain step-by-step how the new compliance checks framework works. During a check, an HMRC Officer may give your client one or more of these factsheets to help them understand what is happening and what their rights are.

Find out more in the HMRC Compliance factsheets

If you wish to check technical and operational guidance on the new systems, you can use the HMRC Compliance Handbook. This is written for HMRC staff, but it will show you how the new processes work and will continue to be updated as the legislation changes.

You may also wish to work through the HMRC staff online learning modules that are also available on the HMRC website.

Compliance Handbook

HMRC online learning for tax agents and advisers

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Tax credits enquiries

HMRC may make enquiries into any tax credits claims made by your clients to make sure the right amounts are being paid. If you're already authorised to handle tax credits claims for your clients, you can represent them in any enquiry. HMRC will, however, send any initial enquiry notice to your client only.

Read more about how HMRC checks a tax credits claim in the guide below.

Tax credits checks

You can find detailed information about tax credits enquiries in the Tax Credits Claimant Compliance Manual. While this is written mainly for HMRC staff, it will show you how the enquiry process works and what HMRC will be looking to find out.

Tax Credits Claimant Compliance Manual

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HMRC's criminal investigation policy

It is HMRC's policy to deal with fraud by using civil investigation procedures, wherever appropriate. Criminal investigation is reserved for cases where HMRC needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate.

Find out more about HMRC's criminal investigation policy by following the link below.

Find out more about HMRC's criminal investigation policy

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More useful links

New compliance checks homepage

HMRC penalties and how they work

Publishing details of deliberate tax defaulters

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