What is a compliance check?
A compliance check is when HMRC takes a closer look at a tax return you have already sent. They want to be sure the figures add up and that you paid the right amount, not too much, not too little. People also call it an "enquiry". It does not mean you have done anything wrong. Some checks are picked at random, others because a number looked odd to them.
How does it start?
HMRC writes to you. The letter tells you what they want to look at and what records they need to see. You do not get a knock on the door out of the blue. If you have an accountant or someone who files for you, the letter can go to them too, and they can deal with HMRC on your behalf.
How far back can HMRC go?
HMRC can usually open a check up to 12 months after you send your company tax return in. So once that year is up, a return you filed on time is normally settled.
Two things change that. If you filed your return late, the window to open a check lasts longer. And if HMRC thinks something is seriously wrong, they can look back further than the usual 12 months. Filing on time and keeping your figures honest is what keeps the door shut.
What will HMRC ask to see?
They ask for the records behind your figures. For a small company that usually means:
- Your accounts for the year, the summary of money in and money out.
- The tax calculation that turned your profit into a tax bill.
- The company tax return itself.
- Payroll records, if you pay yourself or anyone else a wage.
They may also ask to visit your business, or ask you to come to them. You can have your accountant with you, and you do not have to face it on your own.
How do I respond?
You send HMRC what they asked for by the date in the letter. If you kept clear records, this is mostly a gathering-and-sending job. If you use an accountant or a filing service, they handle the back-and-forth. If you ever need more time, you can ask HMRC for it.
How does it end?
A check ends one of three ways:
- Nothing changes. Your figures were right, and that is the end of it.
- You owe more. If you underpaid, HMRC asks you to pay the extra, normally within 30 days. You will usually also pay interest, counted from the date the tax was originally due. If the mistake was careless or deliberate, there can be a penalty on top.
- You get money back. If you paid too much, HMRC repays you, and you may get a little interest on the amount you were owed.
So a check is not automatically a bill. It can just as easily end with a refund, or with no change at all.
A real example
Say your company filed a return showing £20,000 of profit, and you paid the Corporation Tax on that. A few months later HMRC opens a check and asks to see your records.
- If everything matches, the check closes with no change. You pay nothing extra.
- If they find you missed £20,000 of income, your profit was really £40,000. You would owe the tax on that extra £20,000, plus interest from the date it was originally due, and possibly a penalty if the slip was careless.
- If they find you forgot a £5,000 business cost, your profit was lower than you thought, and you would get a refund of the tax you overpaid.
The figures here are made up to show the shape of it. The point is simple: good records decide which of these three you land on.
How do I protect my company?
Keep your records. Keep them for 6 years from the end of the financial year they belong to. If HMRC opens a check, hold onto them until the check is finished, even if the 6 years is up.
"Records" means the proof behind your figures: your bank statements, invoices, receipts, and what each cost was for. If you can prove a cost is real and was strictly for the business, a check has little to argue with. Good records turn a scary letter into a quick admin job. (A cost still has to be a genuine business cost to count, a receipt for something personal will not pass just because it is real.)
Can I argue if I think HMRC is wrong?
Yes. If HMRC decides you owe more and you disagree, you can appeal the decision. You do not have to accept it just because it came from HMRC. There is also a way to ask for an independent person to help sort out a disagreement. For a genuine dispute over a larger sum, an accountant is worth having in your corner.
How SimpleReturns helps
We work out your figures from your bank statements and the costs you give us, and we keep a clear record of every number and where it came from. If HMRC ever asks how a figure was reached, the answer is already written down. We cannot stop HMRC from running a check, nobody can, but we make sure your return is honest and backed up, which is the whole game.