What is an audit?

If you are to be audited, HMRC will write or call you to inform you of the audit and request any records they want to assess. HMRC audits are conducted in person - at an HMRC office or your home/place of work, or an adviser’s office. You can have your accountant or legal advisor with you during the audit.

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What happens during an HMRC audit

HMRC can audit any of the following records:

The tax you’ve paid
Your tax return on Self Assessment
Company tax return
Accounts and tax calculations
PAYE records if you have employees

It is important to note that you will be liable to pay a fine if you refuse to show any requested records or refuse a visit for the HMRC audit. You can only refuse a visit and not pay a fine in the case where you are seriously ill or a close to you person has passed away.

In case you think the HMRC audit should be stopped or you do not agree with the records they are checking, you can apply for alternative dispute resolution (ADR) online.

When the HMRC audit is completed, the tax authority will notify you of the results. There are three outcomes of an HMRC audit:

Your tax records are in order, and you have nothing to pay or receive back overpaid tax
HMRC finds that you owe tax - you will have to pay the owed amount within 30 days. You also normally pay interest from the day the tax was due
HMRC finds that you have overpaid tax - you will be repaid. You might also receive interest on the amount you’re owed.

If you claim mileage deductions, you can see our HMRC mileage guide, where you will find information on what records you need to keep in order to be HMRC compliant.

If the HMRC audit finds that you underpaid tax, you might also have to pay a penalty. HMRC decides to penalise you or not by looking at the reason why you have underpaid tax, if you informed HMRC as soon as you realised this to be the case and if you were helpful during the audit.

In case you disagree with the HMRC audit findings, you can appeal the decision.

FAQ

How often does HMRC audit self-employed?

In recent years HMRC has become more likely to audit self-employed individuals, as they crack down on the estimated sums the treasury loses every year from incorrect tax filings. In order to avoid being audited for common mistakes in your practice, it is generally recommended you use an accountant and make sure everything you file is correct.

What triggers an HMRC audit?

An HMRC audit can be triggered in a range of different situations. If you submit your tax return late, pay taxes late, or make errors in your return, the HMRC might be alarmed. However, more likely cases when the HMRC would start an audit are if the authority was tipped off, there was a significant variation of your tax return compared to the previous year’s one, or the business costs you declare are unexpectedly high for your industry.

Does HMRC do random audits?

HMRC sometimes does random audits, even if a business has submitted the correct and compliant tax return.