5 Stages of a Tax Investigation: What to Expect at Every Step
Published: 12 May 2026Did you know that the first thing most taxpayers do when they receive an HMRC enquiry letter is delete emails? That single action can turn a routine compliance check into a serious fraud investigation.
A tax investigation follows a defined process with clear legal timelines, specific powers at each stage, and penalty rates that depend entirely on your cooperation. Here is what you need to know at every stage, and what your adviser should be doing throughout.
In this article
Stage 1: The Opening Letter
The letter formally opens an enquiry under s9A of the Taxes Management Act. HMRC must issue it within 12 months of your filing deadline. After that window closes, they can still act through a discovery assessment, looking back 4 years for innocent errors, 6 years for careless errors, and up to 20 years for deliberate evasion.
The letter will specify whether this is an aspect enquiry covering a single area or a full enquiry covering everything. Aspect enquiries typically resolve within 3 to 6 months. Full enquiries take an average of 18 months or longer.
Preserve everything from the period in question, including emails, invoices, bank statements, and draft documents. Nothing should leave your possession without first passing through your adviser.
Stage 2: Information Requests and Document Submission
HMRC will typically request bank statements, VAT returns, invoices, payroll records, and business contracts for the period under review. If they suspect income has been redirected away from business accounts, they can extend requests to your personal bank accounts.
HMRC can obtain records directly from banks, clients, and suppliers without your permission. Failing to comply with an information notice carries penalties of up to £300, plus £60 per day for continuing non-compliance.
Stage 3: HMRC Review and Analysis
HMRC will cross-reference your submitted documents against filed returns to identify gaps in declared income, inflated expenses, and inconsistencies in VAT. Where discrepancies appear, they issue follow-up notices or request a fact-finding meeting. They can also visit your business premises with advance notice to review physical records, stock, and assets.
One tool most clients never hear about is Alternative Dispute Resolution (ADR). If discussions with HMRC stall, you can request ADR, which uses an independent HMRC facilitator to resolve most civil cases.
It is free, it is available before the closure notice stage, and your adviser should raise it the moment discussions become circular. Cases that escalate to the First-tier Tribunal take significantly longer and cost considerably more.
Stage 4: The Assessment and Penalty Decision
Once HMRC issues its closure notice, it sets out the additional tax owed, the statutory interest, and the calculated penalties under the Finance Act 2007, Schedule 24.
| Error type | Penalty range | Key variable |
|---|---|---|
| Careless error | 0% to 30% | Lower for unprompted disclosure |
| Deliberate underpayment | 20% to 70% | Cooperation reduces the rate applied |
| Deliberate and concealed | 30% to 100% | Offshore matters can exceed 200% |
Once the closure notice lands, you have 30 days to appeal internally, request a statutory review, or notify the First-tier Tribunal. That clock does not pause while you consider your options.
How much could your Schedule 24 penalty be?
Enter the underpaid tax amount and select your error type to see an estimated penalty range based on Finance Act 2007 Schedule 24.
Stage 5: Settlement, Appeal, or Tribunal
Most investigations conclude with a contract settlement, a formal written agreement, interest, and penalties owed. A settlement is not a criminal conviction and does not appear in any public register. Where immediate payment is not possible, you can agree on a Time to Pay arrangement before the settlement is signed.
If agreement cannot be reached, you can appeal to the First-tier Tribunal, which can overturn or reduce assessments. You can also apply for directions requiring HMRC to issue a closure notice if the investigation has run for an unreasonable length of time.
Final Thoughts
Keep digital records complete and accessible for at least 6 years. If you review your last four years of returns and correct errors before HMRC asks, that qualifies as unprompted disclosure, which can reduce a careless error penalty from 30% to near zero.
The most common regret after a tax investigation is not what was wrong on the return. It is waiting too long before involving an adviser. Every stage in this process has a decision point, and the ones made in the first 48 hours tend to determine everything that follows.
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Frequently Asked Questions
How long does an HMRC tax investigation take? ▼
An aspect enquiry typically resolves in 3 to 6 months. A full enquiry averages 18 months or longer. COP8 and COP9 cases can take several years. Under s28A TMA 1970, a taxpayer can apply to the First-tier Tribunal for a direction requiring HMRC to issue a closure notice if the investigation has run for an unreasonable length of time.
How far back can HMRC investigate? ▼
Discovery assessments allow HMRC to look back 4 years for innocent errors, 6 years for careless errors, and 20 years for deliberate evasion. HMRC must open a Self Assessment enquiry within 12 months of the filing deadline under s9A TMA 1970; discovery assessments are used once that window has closed.
What typically triggers an HMRC tax investigation? ▼
Common triggers include inconsistencies between filed returns and third-party data, unusually high expense claims relative to sector norms, large year-on-year income fluctuations, VAT repayment claims, and information from tip-offs or connected investigations. Some enquiries are opened at random under HMRC's compliance programme.
What are the penalty rates under Finance Act 2007 Schedule 24? ▼
0–30% for careless errors (lower for unprompted disclosure); 20–70% for deliberate underpayment; 30–100% for deliberate and concealed behaviour. Offshore matters can exceed 200%. Full cooperation throughout the investigation is the most effective way to keep the applied rate at the lower end of each band.
Can I appeal an HMRC tax investigation decision? ▼
Yes. Once HMRC issues a closure notice, you have 30 days to appeal internally, request a statutory review, or notify the First-tier Tribunal (Tax Chamber). The Tribunal is independent of HMRC and can overturn or reduce assessments. Alternative Dispute Resolution is also available before the closure notice stage and resolves most civil cases that use it.
What is the Contractual Disclosure Facility? ▼
The Contractual Disclosure Facility (CDF) is the offer made under COP9. It gives the taxpayer 60 days to accept — admitting deliberate behaviour and agreeing to make a full disclosure — in exchange for immunity from criminal prosecution. Silence or rejection removes that immunity and allows HMRC's Fraud Investigation Service to commence a criminal investigation without further notice.