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HMRC internal manual

Compliance Handbook

How to do a compliance check: quantifying tax underpaid

You should consider carefully how you intend to arrive at the figure of tax and/or duty underpaid at the end of your compliance check.

In the simplest of cases there may be minor inaccuracies in just one tax period/duty accounting period that can be agreed easily and the resulting tax and/or duty underpaid is quantifiable without difficulty. At the other extreme there may be many linked persons, duties and tax periods involved requiring specialist advice and/or significant help from the person’s agent.

In some cases you may have to use certain techniques to arrive at the underpaid tax, such as a mark-up exercise.

Whatever methods you use to quantify underpaid tax and/or duty you need to be sure that the method is reasonable and that the figures you produce could be justified at an appeal hearing before the tribunal.

You must clearly explain the findings of your check and how you have quantified the unpaid tax, see CH279000 and try to resolve any issues or disputes that arise, see CH280000.

If you have established an understatement of profits in a full business compliance check and have not already obtained a statement of assets and liabilities, you should do so before concluding your check, see EM3540.