Introduction To The Complex Terrain Of Tax Investigations

Why might HMRC be investigating me or my company? HMRC will investigate you or your company when it believes that there is evidence that insufficient tax may have been paid. This suspected underpayment may relate to an improperly claimed tax relief, expense deduction or a failure to account for PAYE or VAT. This can happen even after you have shuttered your company or business.

Where you have made a claim or filed your tax return based on professional advice, HMRC are unlikely to allege that you have been careless or deliberate and treat the matter as a civil case, and you can challenge their conclusion on appeal to the tax tribunal if you wish to. Matters become more serious where HMRC believe that you have intentionally under-reported your tax liability, for example by failing to account for sales revenue or claiming reliefs or deductions that either weren’t available or lack evidence to support them.

In these cases HMRC may either open a criminal investigation into your behaviour leading to an interview under caution or possible arrest and seizure of computers, funds etc. or issue you with a COP 9 letter under which they inform you that they suspect you of tax fraud but will treat the matter as civil rather than criminal if you admit the tax fraud and offer a full disclosure. If you reject the COP 9 offer then HMRC will investigate you anyway and that may turn into a criminal investigation if evidence of dishonesty is discovered.

What Should I Do If HMRC Opens a Tax Investigation Against Me?

Normally your best response will be to co-operate with HMRC but seek out a good, tax investigation specialist to support you through the investigation and represent you with HMRC. Not only do HMRC generally prefer it when you are professionally represented by an experienced tax adviser but co-operating in this way will reduce the possible penalties later on at the conclusion of the investigation if it turns out that you owe tax.

If you have a psychiatric condition that makes it awkward for you to deal with HMRC or file tax returns (often known as “brown envelope syndrome”) you should reveal this and if necessary, obtain a psychiatrist’s report as evidence of your condition.

How Can Tax Investigation Specialists Support My Case?

An experienced tax investigation specialist can review your tax position and advise on whether HMRC have a good case against you or not and what action to take. They can act as your go-between with HMRC and this means that you can avoid the stress of dealing with the HMRC investigator personally.

They can also advise you on your rights and push back if HMRC unfairly seek to widen the scope of their investigation or make allegations that are unsupported by the evidence.

What Are the Differences Between Civil and Criminal Tax Investigations?

A civil tax investigation does not involve an accusation of tax fraud which in simple terms means that there is normally no risk of financial freezing orders, fines or jail time which can feature in a criminal tax investigation.

A civil tax investigation will usually be carried on via email and meetings without a formal or set structure and may conclude with a contract of settlement or an appeal to the tax tribunal. A criminal investigation may involve formal interviews under caution, search and arrest under the Police and Criminal Evidence Act 1984 or its Scots and Northern Irish equivalents or recovery of assets related to tax fraud under the Proceeds of Crime Act 2002 

How Does HMRC Detect and Investigate Crypto Tax Evasion?

If you are UK tax resident and have made gains on crypto then HMRC state that “the vast majority” of disposals of crypto are subject to capital gains tax (see more on capital gains cryptocurrency at HMRC cryptocurrency Crypt020050).

If you do not declare these gains in your self-assessment tax return then HMRC are likely to investigate you because they receive regular reports from UK based crypto exchanges and can automatically compare that data with what you have told them in your tax return.

From January 2026 under the Crypto Asset Reporting Framework or “CARF”, HMRC will begin receiving transaction and identity data from non-UK based exchanges based in the 67 countries (including the US) that have so far indicated their willingness to participate. 

You can read more about crypto tax investigations here.

Does Liquidating My Company Prevent A Tax Investigation?

In a word: No. In fact, shuttering your company and moving any cash and assets out of it may act like a red flag to a bull where you are seen to be trying to put the assets out of the reach of creditors including HMRC. You can read lots more about this in my blog. Don’t do it!

How Long Do Tax Investigations Typically Take?

How long a tax investigation takes depends on a wide range of factors and there is no standard answer. For example, I am advising in tax investigations at the moment which go back 20 years and this length of time is especially the case where a taxpayer has engaged in marketed tax avoidance schemes with many users and where HMRC are having to challenge them methodically and deal with each user on an individual basis.

Typically and depending on the extent of taxpayer co-operation and the availability of evidence, a criminal tax investigation may last 18-24 months but if it leads to criminal charges and a non-guilty plea then at the time of writing, cases are being listed for 2029, three years hence. Generally, HMRC investigations grind on at their own pace and always seem to take much longer than seems necessary.

One thing is generally certain with HMRC though which is that “The mills of the gods grind slowly, yet they grind exceeding small,” as said by the Roman philosopher, Sextus Empiricus. In other words, however long it takes, HMRC do eventually get to the bottom of the detail and so it’s best to offer up your best defence.

When Is It Crucial to Seek Legal Advice from a Tax Barrister?

A tax barrister should be engaged early on in any serious tax investigation so that you are fully and properly advised of the powers that HMRC have and their limits, your rights against HMRC, the merits of the investigation and crucially with an eye to what happens if the outcome cannot be agreed with HMRC and the legal proceedings that may then become necessary whether that be a civil appeal to the tax tribunal, an arrest or interview under caution, assets seizure or criminal prosecution.

A lawyer’s advice in relation to potential legal proceedings will also be legally privileged unlike some other types of adviser and so you have the assurance that your discussions with the barrister are protected from disclosure.

Conclusion 

In any serious tax investigation whether civil or criminal it will be wise to engage tax investigations specialists and ideally a tax barrister with experience of tax investigations, tax appeals, interviews under caution and financial freezing and confiscation orders. Patrick Cannon represents a wide variety of clients involved in tax investigations ranging from clients caught up in film partnership schemes, inheritance tax issues, civil penalties for fraudulent evasion of VAT levied on company directors, crypto gains non-reporting and COP 9 investigations arising from non-filing of tax returns and payment of tax.

For tax advice and representation in an HMRC investigation with one of the UK’s leading specialist tax advisers, please contact Patrick Cannon here.