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# HMRC Is Investigating Me, What to Do Now
You've had "that" brown envelope. You're scared, which is normal, but you've got more control than you think if you stay calm and organised.
1. First moves: what to do today
Read the letter properly and note exactly what HMRC is asking about, which tax year, which tax type, CIS, expenses, a specific figure, or the whole return.
Do not ignore it. Do not lie. Do not shred, edit or destroy records. Destroying evidence can turn a tax problem into a fraud investigation.
Write down the deadline for replying and put it in your phone calendar.
If you've got an accountant, send them a clear photo or scan of the entire letter immediately and ask them to handle the response.
If you need more time to get records together, you or your accountant can ask HMRC for an extension. They often agree if you ask early and reasonably, a short email or phone call explaining why is usually enough.
2. Types of HMRC investigation
Most CIS workers will encounter one of these:
Aspect enquiry · HMRC is looking at one specific part of your return: expenses, CIS income, bank interest, a particular figure that doesn't match their records.
Full enquiry · they're looking at the whole tax return, all income and all claims. Less common but more serious.
Random check / compliance check · you've been picked as part of a routine or sector-wide campaign. This does not necessarily mean you've done anything wrong.
CIS compliance check · they're checking that CIS is being operated correctly: registrations, deductions, monthly returns, verification of subcontractors. This usually targets contractors rather than subcontractors, but you may be asked to provide supporting information.
The letter will usually say whether it's a "check" or a formal "enquiry" into your return. That distinction matters for how deep they can go and what powers they have.
3. What usually triggers it in construction
Common triggers for CIS workers:
Income mismatch · the figures contractors report to HMRC under CIS don't match what you've declared on your self-assessment return. HMRC cross-references these automatically.
Unexplained cash deposits · large or frequent cash going into your bank account with no matching invoices or CIS statements.
Expenses that don't fit the pattern · very high expense claims compared to your turnover, or expense ratios significantly different from what HMRC sees as typical for your trade and income level.
Tip-offs · ex-partners, former employers, disgruntled competitors or former employees reporting you. HMRC has an anonymous reporting line and uses it.
Sector campaigns · construction is classified as a "high-risk" sector for tax compliance. HMRC runs regular targeted campaigns across the industry.
Random selection · sometimes you've just been picked at random. The letter doesn't always mean they already think you've done something wrong.
4. Your rights during an investigation
HMRC has significant powers, but you are not powerless.
You have the right to professional help. You can appoint an accountant or tax adviser to deal with HMRC on your behalf. HMRC must deal with your representative if you've authorised them.
You don't have to answer questions on the spot. You can say you want everything in writing, or that your adviser will respond on your behalf.
You can ask what exactly they're looking at and request reasonable time to gather your records.
HMRC must follow their own Charter (Your Charter, gov.uk/government/publications/your-charter). It says they must be fair, treat you with respect, explain their decisions, and only pursue what's proportionate.
If you believe an officer is being unreasonable, heavy-handed, or not following the Charter, you can make a formal complaint. Reference the Charter specifically in your complaint, it carries weight internally.
5. What HMRC can and can't demand
They have teeth, but there are limits.
They can ask for: records relevant to the tax they're checking, invoices, CIS payment and deduction statements, bank statements, mileage logs, expense receipts, business records, contracts.
They can issue a formal information notice (under Schedule 36, Finance Act 2008) if you don't provide what they've reasonably requested. There are penalties for failing to comply with an information notice without a reasonable excuse.
They can visit your business premises to inspect records and business assets. But for most self-employed CIS workers, your "premises" is your home or your van.
For a standard compliance check or aspect enquiry: you do not have to let HMRC into your home on the spot. You can ask them to put their information requests in writing instead. They cannot force entry without a tribunal-approved warrant, which they'll only get if they have grounds to suspect serious fraud or obstruction.
If they suspect fraud: they may escalate to a criminal-style investigation under Code of Practice 9 (COP9) and interview you under caution. At that point, you absolutely need specialist professional representation, this is not a DIY situation.
6. Penalties: how they're calculated
HMRC cares about two things: how big the error is, and how you behaved.
No penalty (0%) · if you took reasonable care and made an innocent mistake, or if you disclosed the error yourself before HMRC contacted you.
Careless errors · penalties of up to 30% of the additional tax owed. Reduced further if you cooperate and help HMRC quantify the error.
Deliberate errors · penalties of up to 70% of the additional tax.
Deliberate and concealed · penalties of up to 100% of the additional tax. This is the "you knew it was wrong and you tried to hide it" category.
All penalties can be reduced based on the quality of your disclosure, how quickly you told HMRC, how much you helped them, and how much access you gave to your records. HMRC calls this "telling, helping, and giving access."
"Reasonable care" for a CIS worker usually means:
- You kept your CIS statements, invoices and bank records
- You recorded your mileage with dates and destinations
- You asked for help where you weren't sure (even asking a mate who knows tax is better than guessing)
- You didn't make up numbers or claim expenses you didn't incur
- You filed your return on time and based it on actual records
If you can show you took reasonable care, that's your strongest defence against penalties even if there turns out to be an error.
7. Voluntary disclosure: getting ahead of it
If you know you've got undeclared income, wrong expense claims, or incorrect returns, you're better off admitting it before HMRC digs it up themselves.
Telling HMRC about problems before they contact you about them is called unprompted disclosure. It qualifies for the lowest penalty rates, often 0-10% for careless errors.
HMRC's Digital Disclosure Service (DDS) lets you register to disclose unpaid tax and settle everything in one process:
- You notify HMRC that you want to make a disclosure
- They give you a reference number
- You calculate what you owe · tax, interest, and penalties · across all affected years
- You submit the disclosure with payment, or agree a payment plan
If you've already received a letter about the same issue, it's no longer "unprompted", but being open and cooperative still reduces penalties significantly compared to making HMRC do all the work.
Your accountant can handle the DDS process for you and make sure the calculations are right.
8. Time limits: how far back can they go?
How far HMRC can look depends on what they think you did:
| Behaviour | Time limit |
|---|---|
| Reasonable care (honest mistake) | 4 years from end of the tax year |
| Careless / negligent | 6 years from end of the tax year |
| Deliberate evasion / fraud | 20 years from end of the tax year |
On top of that: for a normal enquiry, HMRC usually has 12 months from the date your return was filed to open an enquiry into that tax year. After that window closes, they need specific grounds to make a "discovery assessment" (Taxes Management Act 1970, s.29), they must show they couldn't reasonably have known about the issue from the return and information available to them.
If you filed your 2024/25 return on 31 January 2026, HMRC's enquiry window for that year closes on 31 January 2027.
9. When to get professional help
You don't always need to spend thousands. But you need to be smart about when to DIY and when to bring someone in.
Get an accountant or tax adviser involved when:
- It's a full enquiry into your whole return or across multiple years
- HMRC is talking about "deliberate" behaviour, large penalties, or significant underpaid tax
- They want to visit you, inspect all your records, or interview you in person
- The amounts involved are more than you can comfortably afford to get wrong
- You've received anything mentioning Code of Practice 9 or "under caution"
You may be fine handling it yourself when:
- It's a simple aspect enquiry · for example, "please send us evidence of your £800 tools claim"
- You have the receipts and records to back up what you declared
- You reply clearly, on time, and only answer what they've actually asked
If money is tight:
- TaxAid gives free tax advice to people on low incomes · 0345 120 3779
- Tax Volunteers supports older and low-income taxpayers · taxvol.org.uk
- LITRG (Low Incomes Tax Reform Group) has clear online guidance at litrg.org.uk
- Some accountants will do a fixed-fee initial review of an HMRC letter for £100-200 · cheaper than guessing
10. What happens at the end
Investigations do end. They don't hang over you forever.
HMRC reviews your records, asks questions (sometimes several rounds), and eventually tells you what they think is wrong and how much additional tax they say you owe.
You'll receive a calculation showing:
- Additional tax · the amount they say was underpaid
- Interest · charged automatically from the date the tax was originally due (currently at the Bank of England base rate plus 2.5%)
- Penalties · based on behaviour (see section 6)
This calculation may be negotiable. If you can show you took reasonable care, or if their figures are based on assumptions rather than evidence, push back through your accountant.
For formal enquiries, HMRC issues a closure notice when they're finished, confirming their conclusions and final amounts.
If you can't pay in one go: you can ask for a Time to Pay (TTP) arrangement: monthly instalments agreed with HMRC. Call the Payment Support Service on 0300 200 3835 before the payment deadline. Interest still runs, but they won't take enforcement action while a TTP is in place.
If you disagree with their decision: you can appeal within 30 days of the assessment. You can ask for an internal HMRC review, or go to the First-tier Tribunal (Tax Chamber) · which is independent of HMRC.
What to do next
- Read the letter carefully and note the deadline
- Contact your accountant · or TaxAid/LITRG if you don't have one
- Gather the records HMRC has asked for · don't send more than they've requested
- Reply on time, or request an extension early
- If you know there are errors in past returns, consider voluntary disclosure through the DDS before HMRC finds them
Sources
- Taxes Management Act 1970, s.9A (power to enquire), s.28A (closure notices), s.29 (discovery assessments) · legislation.gov.uk/ukpga/1970/9
- Finance Act 2008, Schedule 36 (information notices) · legislation.gov.uk/ukpga/2008/9/schedule/36
- Finance Act 2007, Schedule 24 (penalties for errors) · legislation.gov.uk/ukpga/2007/11/schedule/24
- HMRC Your Charter · gov.uk/government/publications/your-charter
- HMRC Compliance Handbook · gov.uk/hmrc-internal-manuals/compliance-handbook
- HMRC Code of Practice 9 (COP9) · gov.uk/government/publications/hmrc-your-guide-to-making-a-disclosure-cop9
- Digital Disclosure Service · gov.uk/guidance/admitting-tax-fraud-the-contractual-disclosure-facility
- Construction Industry Scheme · gov.uk/what-is-the-construction-industry-scheme
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