What’s a compliance check? 

Contrary to what you might have heard, a compliance check is not a tax enquiry. The latter is a review of a tax return that you’ve filed with HMRC, while a compliance check is a review of your current tax records. Sanctions, such as financial penalties for errors HMRC uncovers in a compliance check, are far less common than for a tax enquiry. A compliance check is aimed at making sure you’re on track to make a correct tax return.

Don’t underestimate the likelihood of being picked for a check. HMRC carries out around 300,000 every year. The vast majority are made on businesses, especially those with employees or subscontractors.

HMRC’s new service

The compliance check service is primarily aimed at those without an accountant or tax advisor, but even if you do have one we think it provides useful information (click here for Further information). That said, the guidance is lightweight and comes across slightly condescending in places. Its best features are that it gives you an outline of what to expect, what happens at the conclusion of the check and what help HMRC can offer if you have issues which prevent you from engaging with the process properly, e.g. poor health or a disability.

In practice, nearly all compliance checks for businesses start with a letter and questionnaire about the nature of your activity and how you do it, e.g. whether you have employees, use subcontractors and the records you keep. Take care in answering as it sets the tone for the check and largely determines what steps HMRC will take next, e.g. ask for documents, request to visit your premises or keep the check at a low level. If you’re unsure about answering, take advice from an accountant before responding.