What To Do If HMRC Investigates Your Tax Return

Most self-employed tradespeople file their Self Assessment, send it off, and don't think much more about it. HMRC investigations happen to other people.

Until they don't.

HMRC has ramped up compliance activity in the construction and trade sectors significantly in recent years. CIS workers, sole traders with variable income, and anyone whose return looks different from one year to the next can find themselves on the receiving end of an enquiry, even when everything is completely above board.

What does an HMRC investigation actually look like?

An enquiry can range from a single question about one line of your tax return to a full examination of several years' worth of accounts. Even a routine compliance check typically involves gathering records, writing formal responses, and working out exactly what HMRC is asking for.

Most tradespeople instruct an accountant to manage the process on their behalf. That professional time adds up fast, and you're paying for it whether you've done anything wrong or not.

What does Tax Enquiry Insurance cover?

Tax Enquiry Insurance covers the professional accountancy and legal fees incurred by an appointed consultant when responding to an HMRC enquiry. That includes income tax and corporation tax investigations, PAYE compliance checks, IR35 enquiries, and VAT disputes.

At Rhino, the policy is administered by ARAG and includes access to a dedicated tax advice helpline on 0116 243 7892, available weekdays 8:30am to 5:30pm, so you can get professional guidance when you need it most, at no extra cost.

What isn't covered?

Tax Enquiry Insurance doesn't cover the cost of preparing your annual tax return in the first place, HMRC fines and penalties imposed after an investigation, or tax avoidance schemes. Criminal tax prosecutions are outside the scope of the policy, as are enquiries arising from late-filed returns.

This policy does not pay for your own accountant to handle the enquiry - a consultant is appointed to your case by the insurer, whose fees are then covered by the insurance policy.

Is there a waiting period?

Yes. The insurance doesn't cover disputes or circumstances that existed before the policy start date. There's also a 30-day notification window after the policy expires: claims arising after expiry need to be notified within 30 days.

If you take out a new policy and change your mind, there's a 14-day cancellation window with a full refund, as long as no claims have been made.

How much does it cost?

Tax Enquiry Insurance at Rhino starts from £35 a year. For most tradespeople, that's less than an hour's labour on site, and considerably less than the cost of an accountant managing an HMRC investigation without cover in place.

If you're self-employed and filing your own tax returns, it's one of the more sensible things you can spend £35 on. Get a quote here.