Why has HMRC opened an enquiry into my company tax return?

HMRC opens corporation tax enquiries for a mix of reasons, and receiving a letter doesn't mean it thinks you've done anything wrong. Some enquiries are opened entirely at random as part of HMRC's compliance programme, simply to test that the self-assessment system is working as intended across different types of company.

Most, though, are risk-based. HMRC's systems compare your return against previous years, against industry benchmarks, and against data it holds from other sources, including Companies House filings, VAT returns, and information received from banks and payment platforms. A sudden drop in profit, a large increase in costs, or a mismatch between turnover reported for VAT and for corporation tax can all flag a return for review.

Sometimes the trigger is simpler still: a claim that looks unusual for a company of your size, a repeated pattern across several years, or even nothing more than the return falling due for a periodic check. HMRC does not have to tell you which of these applied, and often it won't.

Under paragraph 24 Schedule 18 Finance Act 1998, HMRC must give the company formal written notice that it is opening an enquiry, and it must do so within the enquiry window, normally 12 months from when the return was delivered, or from the filing date if the return was late.

That notice will confirm which return is under enquiry and, usually, roughly what area HMRC wants to look at first, but it is not a full explanation of every concern HMRC holds. HMRC deliberately keeps its opening letters fairly general so it can widen the enquiry if the first round of questions raises further issues.

If the enquiry window has passed and HMRC still wants to look at an earlier return, it needs a different power: a discovery assessment, which comes with its own conditions and, usually, a higher bar to meet.

The fastest way to understand HMRC's real concern is to read the opening letter closely and, if it's not clear, ask HMRC directly what triggered the check and what documents it wants first. HMRC caseworkers will usually give more detail than the opening letter alone once asked.

It also helps to review the return yourself before responding, looking specifically at anything that changed significantly from the prior year, any estimated or provisional figures, and any related-party transactions such as director's loans, rent paid to a connected landlord, or intercompany charges. These are the areas HMRC's risk models flag most often.

A corporation tax enquiry doesn't stop the company trading and doesn't automatically mean you owe more tax. Many enquiries close with no changes at all, once HMRC has seen the supporting records it asked for.

What matters is how the enquiry is handled from here. Respond within the deadlines set, keep your explanations consistent with the figures in the accounts, and avoid giving HMRC more than it has actually asked for, since a broad, unstructured response can open up new lines of questioning.

If the enquiry letter mentions a specific area, such as director's remuneration, expenses, or a particular transaction, get that area reviewed properly before you reply, rather than answering from memory.

There's no fee simply for being enquired into, but responding properly takes time, and most directors need professional help pulling records together and dealing with HMRC correspondence.

If the enquiry uncovers an error, the company may face additional tax, interest under the rules referenced at https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments, and a behaviour-based penalty under Schedule 24 Finance Act 2007 depending on how the error arose.

Growth plan clients have free tax investigation insurance included, covering our fees for handling a corporation tax enquiry from the first letter through to closure. See /fees for how the plans compare.

Don't ignore the opening letter or assume it will go away if you don't reply; the deadlines in it are real, and missing them can lead HMRC to raise its own assessment of what it thinks you owe.

Don't send HMRC bulk records without reviewing them first. Sending unfiltered bank statements or invoices can raise questions about items HMRC wasn't even asking about.

Don't assume a random enquiry stays narrow. If your response reveals something else that looks wrong, HMRC can and will widen the scope.