If you have received a letter from HMRC asking to review your business records, don’t worry. An HMRC record check is, in most cases, a straightforward process where HM Revenue and Customs reviews your books and statutory records to confirm that tax has been calculated correctly.
At The Taxcom, we are a Manchester-based UK tax advisory and accountancy firm that regularly supports small business owners through HMRC record checks, tax enquiries and complex decisions such as salary vs dividends planning.
Let’s guide you on how to prepare for and deal with the HMRC record check and tax investigations.
What is HMRC Record Check?
Depending on which taxes are in scope, this may be called a business inspection HMRC visit, a VAT inspection, a PAYE review, an employer compliance check or a general HMRC compliance check. The terminology varies, but the underlying purpose is the same: HMRC wants to see that your record keeping meets legal standards and that the figures on your returns match your underlying documents.
It is important to understand the distinction between:
- A routine HMRC record check focused on the accuracy of records and processes.
- A targeted HMRC tax investigation where HMRC already suspects underpaid tax or deliberate behaviour.
A routine HMRC business records check often starts with questions about the records you keep, the systems you use (such as cloud bookkeeping or Making Tax Digital software for VAT) and whether your business meets its legal record-keeping obligations. It does not mean HMRC believes you have done anything wrong.
Here are a few key terms worth knowing before we go further:
- Record check: A review of your business’s books, invoices, bank records and returns to confirm accuracy.
- Business inspection: A visit to your premises (or accountant’s office) where a compliance officer physically reviews documents, stock or daily procedures.
- Compliance officer: The HMRC official who conducts the check. They carry identification and will explain the purpose of their visit.
- Schedule 36 Information Notice: A formal legal power under the Finance Act 2008 allowing HMRC to request specific documents or information to check your tax position.
You can also verify your tax records using HMRC’s official digital services, and we encourage every business owner to check their tax records with HM Revenue and Customs online before a visit takes place.
Why HMRC Carries Out Record Checks and Business Inspections
HMRC’s core aim with any record check is straightforward: to ensure the right amount of tax is paid at the right time, and to fix record-keeping problems before they turn into serious non-compliance. With the UK tax gap estimated at around 5.3% of theoretical liability (approximately £46.8 billion in 2023-24), compliance checks are a central part of HMRC’s strategy to close that gap.
Common triggers for an HMRC record check include:
- Discrepancies between VAT returns and accounts or bank statements
- Irregular PAYE submissions or late RTI filings
- Large or unusual repayment claims, especially from smaller businesses
- Industry-specific risk profiles or benchmarking data that flags your sector
- Information from third parties or a previous history of late filing or errors
Some HMRC record checks are random sampling exercises, particularly for sectors with high cash turnover. Being selected does not automatically mean HMRC believes something is wrong with your business.
What happens during an HMRC compliance check from HMRC’s perspective typically involves:
- Verifying that business records match submitted returns
- Checking that statutory records (such as company registers and PAYE records) exist and are kept for the required retention periods
- Assessing whether processes for VAT, PAYE and corporation tax are robust
It is worth knowing that your HMRC account shows your current and previous tax codes, and you can view your employment income and tax paid for the previous 5 years in your HMRC account. You should compare HMRC records with your own supporting documents to ensure accuracy, as even small mismatches can trigger further questions.
Even where there was no deliberate intent, penalties for inaccurate records can apply. Poor systems can lead to tax underpayments plus interest and, in more serious situations, HMRC tax investigations into your affairs. Under current rules, penalties for failure to keep or preserve required records can reach up to £3,000 per failure in serious cases.
Routine HMRC Record Check vs Tax Investigation
- A routine record check usually covers 1 to 4 years, focuses on record quality and is often resolved quickly.
- A tax investigation is triggered by suspected deliberate errors, can go back 6 to 20 years, involves deeper scrutiny and may result in significantly higher penalties.
What Records HMRC Will Want to See?
HMRC expects businesses to keep complete, up-to-date records for at least the statutory retention period. For VAT-registered businesses and limited companies, that means at least six years. For sole traders filing under Self Assessment, records must be kept for at least five years after the 31 January Self Assessment deadline for the relevant tax year.
- General business records include sales invoices, purchase invoices, till rolls, bank statements, petty cash logs, mileage logs, contracts and loan agreements. These form the backbone of any HMRC record check because they allow the compliance officer to trace income and expenditure back to your returns with accurate small business bookkeeping.
- VAT records go further. HMRC will expect to see your VAT account, digital VAT records for Making Tax Digital, output and input tax summaries, export and import paperwork, and partial exemption calculations if relevant. The requirements are set out in detail in VAT Notice 700/21
- Payroll and PAYE records cover employee contracts, payslips, P60 and P45 forms, RTI submissions (Full Payment Submissions and Employer Payment Summaries), expense and benefits records, and CIS records where applicable. If you are an employer, a PAYE review will focus heavily on whether you have reported national insurance contributions correctly and on time.
- Company and statutory records include share registers, board minutes, dividend vouchers, evidence supporting salary vs dividends decisions for directors, and key tax computations. If you run a limited company, HMRC may ask to see how directors’ remuneration was decided and documented.
Keep all these documents ready and your business will be prepared for the HMRC record checks.
How the Business Inspection Process Works?
The process typically starts when the business receives a formal notification letter or email from HMRC outlining which taxes are in scope, which periods they want to check and suggested dates for the review.
The letter may state whether HMRC plans a business premises visit, a meeting at the accountant’s office or a remote digital audit using uploaded documents. When submitting records digitally, you can submit documents in batches of 10 files or fewer when responding to compliance checks.
What Happens During a Visit
During a visit, compliance officers introduce themselves, show ID and explain the purpose of their attendance. They may tour the business premises, view stock or observe till procedures. Officers then review sample invoices and bank transactions to see if they match tax returns. They may also interview the business owner and key staff about systems and controls.
For example, a small retailer undergoing a VAT inspection might be asked to produce till Z-reads, sales invoices for the previous tax year and purchase records. A contractor running a limited company might face a PAYE review covering how they allocated salary vs dividends, their RTI submissions and whether CIS deductions were handled correctly.
Unannounced Visits
HMRC can carry out an unannounced visit, mainly in serious VAT or excise risk cases such as suspected cigarette or alcohol duty fraud.
Your rights during an unannounced visit include checking the officer’s ID, contacting your accountant before answering detailed questions, and in many cases requesting to rearrange if key decision-makers are not present. HMRC cannot force entry to private dwellings without a warrant.
HMRC also holds formal powers under Schedule 36 of the Finance Act 2008 to issue information notices demanding specific documents, even outside of an open enquiry. If you receive one of these, it is important to respond within the stated deadlines.
How to Check Your Own Records Before HMRC Does
Before any HMRC visit, it is highly advisable to review your national insurance record online using HMRC’s online services. This proactive step can help you identify gaps and address any discrepancies in your records before HMRC raises them.
Accessing Your HMRC Records
To check your HMRC records, you will need:
- Government Gateway login details
- Your National Insurance number
- Valid photo ID for identity verification
Once logged in, you can:
- Download and print your employment history
- Use the HMRC mobile app for quick record checks
- Review income tax details and national insurance contributions for each tax year
Check Your National Insurance Record
Your National Insurance (NI) record is crucial as it determines your State Pension eligibility and amount. Key points include:
- You need at least 10 qualifying years to receive any State Pension.
- A full new State Pension requires 35 qualifying years.
- Gaps in your NI record can affect your pension amount.
You can request a printed National Insurance statement by mail or use other ways specified by HMRC.
Filling Gaps in Your NI Record
Most people use voluntary national insurance contributions to complete their national insurance credits. You can pay voluntary contributions to fill gaps, specifically:
- Voluntary Class 3 contributions for gaps in the last six tax years.
- Note that not all gaps need filling; check your State Pension forecast before making payments.
Additional Ways to Request Records
- You may request a Subject Access Request for detailed personal records held by HMRC.
- Written requests can be sent to HMRC using the address provided on the GOV.UK website.
Important Notes
- HMRC does not handle criminal record checks such as DBS checks.
- The goal of this review is to ensure all relevant details are covered, gaps are identified, and issues are addressed before the compliance officer’s visit.
Taking these steps will give you greater control and confidence during an HMRC record check or business inspection.
Step-by-Step Preparation Checklist and Possible Outcomes
The time between receiving the HMRC letter and the actual visit is crucial. Use it wisely and the check is far more likely to go smoothly. Here is what we recommend at The Taxcom.
Preparation Checklist
- Reconcile all accounts up to the latest completed VAT period and year-end, making sure bank balances, sales and purchase ledgers agree with submitted returns. Any income that has been paid into your accounts should be traceable to a corresponding entry in your records.
- Confirm your digital bookkeeping and Making Tax Digital software are fully updated, with all invoices and receipts attached or clearly cross-referenced.
- Organise paper and electronic records by tax year and tax type so HMRC can quickly see the information they request. A well-organised filing system signals that you take your obligations seriously.
- Review sensitive areas such as director loan accounts, large cash withdrawals, mixed personal and business expenses, and historic salary vs dividends decisions. If you cannot explain a transaction, the compliance officer will ask about it.
- Check that PAYE, CIS and VAT registrations are correct for your current tax year activities and that all returns have been filed by their deadlines.
- Brief key staff on how to interact politely with HMRC compliance officers, answering factual questions and referring anything complex to the owner or accountant.
Records to Keep for Common Risk Areas
- Mileage logs for business vehicle use (date, destination, purpose, miles)
- Till Z-reads for retail businesses (daily totals, refunds)
- Signed dividend vouchers for director payments (date, amount, shareholder details)
Sign into your Government Gateway account to review your employer PAYE records and revenue summaries. If you are a Government Gateway user, you can also use your Government Gateway user ID to check that your tax codes and employment records match your own records for the current tax year and previous tax year. This simple task can help you spot problems early.
Possible Outcomes of an HMRC Record Check
Satisfactory
Records are in good order, and HMRC issues a letter confirming no further action or only minor recommendations. Many businesses achieve this outcome when they have maintained clear, up-to-date records.
Improvement needed
HMRC writes with suggestions to improve record keeping or minor tax adjustments, often without penalties if the errors were non-deliberate and cooperation was good. You may receive a follow-up letter asking you to address specific weaknesses within a set number of weeks.
Inaccurate records or tax underpayment
HMRC raises formal assessments for extra tax, interest and potentially penalties for careless or deliberate errors. Inaccuracy penalties can range from up to 30% of lost revenue for careless errors to 100% for deliberate and concealed errors, with separate penalties for inaccurate records in more serious cases. You may also be asked to claim less in future or to apply corrections to past returns.
Early professional HMRC compliance check help can reduce penalties by demonstrating that the business takes its obligations seriously and has acted to correct issues quickly.
How The Taxcom Supports You During the HMRC Record Check
At The Taxcom, we regularly help clients who have received a letter from HMRC navigate the process with minimal disruption to their business. When you work with us, we can represent you throughout the entire process, including:
- Attending the meeting in person or online
- Dealing directly with the compliance officer on your behalf
- Managing follow-up correspondence and negotiating realistic payment arrangements where extra tax is due
- Reviewing HMRC’s findings and challenging anything that appears incorrect
Whether it is a straightforward HMRC record check or a more complex employer compliance check, our team handles the technical conversations so you can focus on running your business.
If you have received a letter from HMRC or simply want to make sure your records are in the best possible shape, Get a Consultation from The Taxcom today. The conversation is confidential and there is no obligation.
FAQs about HMRC Record Checks
Can I refuse an HMRC business premises visit during a record check?
You can usually ask to move the meeting to your accountant’s office or agree to send records digitally, but refusing outright without good reason may lead HMRC to use formal information powers such as a Schedule 36 Information Notice. If officers arrive unannounced, you are entitled to check their identification and contact your adviser before answering detailed questions.
How far back can HMRC look during a routine record check?
For most routine checks, HMRC focuses on the last one to four years. However, they can legally go back up to six years where problems are identified, and up to 20 years in cases of deliberate behaviour or failure to notify. Keeping complete records for at least six years is essential for all businesses.
Will an HMRC record check always lead to extra tax or penalties?
No. Many HMRC record checks end with no extra tax assessed, especially where records are complete and small errors are corrected promptly. Prompt engagement with HMRC and professional support can significantly reduce the risk of higher penalties or a tax refund being clawed back.
Do I need an accountant present during an HMRC record check?
It is not a legal requirement, but we strongly recommend it. HMRC compliance officers are specialists, and technical conversations about tax law, salary vs dividends planning or VAT rules can be complex. Having The Taxcom present allows you to focus on explaining how your business operates while we handle detailed tax discussions.
What should I do if I disagree with HMRC’s findings after a record check?
You can ask for a detailed explanation, provide additional evidence, request an internal review or appeal to an independent tribunal within the time limits stated in the letter. Do not ignore letters or deadlines, because missing appeal windows makes it much harder to challenge assessments.