Gary Brothers explains how and why HMRC escalates cases – and how advisers can stop it.
For many general practice accountants an HMRC enquiry is something of a nuisance. It is time-consuming, often inconvenient, but ultimately manageable: answer the questions, provide the records, reconcile the figures, and in due course the matter should resolve.
That, at least, is the expectation.
What tends to unsettle advisers is not the enquiry itself, but the moment it appears to change character. The language shifts. The tone hardens.
Questions begin to move beyond transactions and into decision-making, behaviour, intent. At some point, sometimes abruptly but sometimes almost imperceptibly, the enquiry is no longer about checking a return.
It has become something else.
When that happens the reaction is often the same.
Nothing, from the adviser’s perspective, appears to justify it.
The numbers are not especially large. The client has engaged. Information has been provided. There has been no obvious trigger. And yet the case now sits in a very different place: allegations of deliberate behaviour are being raised, or the possibility of a COP9 process is introduced.
From the outside, escalation can feel arbitrary. From the inside, it rarely is.
Having spent time on both sides of these cases, the pattern that emerges is relatively consistent. Escalation is not, in most instances, driven by the tax at stake. It is driven by something less tangible but far more influential: HMRC’s evolving assessment of behaviour. That assessment is formed not only by what the taxpayer has done, but by how the enquiry itself is handled by the client, and very often by the adviser.
Understanding that dynamic is increasingly central to managing enquiries effectively.
Illusion of ‘routine’ enquiry
There is a tendency within the profession to categorise enquiries as either routine or serious, as though they occupy distinct and stable categories. In practice, HMRC does not operate in those terms. Cases sit on a spectrum, and more importantly, they move along it.
An enquiry that begins as a relatively straightforward compliance check can, over time, become something far more serious without any single decisive event. No dramatic discovery is required. What changes instead is HMRC’s level of confidence.
That confidence is shaped incrementally. Each response, each explanation, each delay or inconsistency contributes to an internal assessment of risk.
These assessments are rarely visible to the adviser at the time they are being formed. They take place behind the scenes, informed as much by instinct and experience as by evidence.
By the time more formal language appears, such as references to “deliberate behaviour”, the position has already shifted. The escalation is not the beginning of a new phase; it is the outcome of what has gone before.
How confidence is lost
What is striking in many escalated cases is that there is no single moment at which things go wrong. Instead, confidence tends to erode gradually.
One of the most common contributors is inconsistency This does not necessarily arise from dishonesty. It is often the product of imperfect memory, evolving understanding, or the simple fact that different individuals respond to different aspects of the enquiry. Over time, however, small discrepancies begin to accumulate. From HMRC’s perspective, the question becomes not whether an explanation is incomplete, but whether it is being constructed.
Delay has a similar effect.
In practice, delays are often unavoidable. Clients need time to gather information, advisers need time to review it, and extensions are part of everyday enquiry work. The difficulty is that repeated delay, however reasonable in isolation, creates a pattern. Patterns invite interpretation. What may be, in reality, administrative friction can begin to look like avoidance or lack of control.
There is also a tendency, particularly in more complex cases, to equate cooperation with volume.
Large quantities of information are provided, sometimes in the hope that transparency will resolve suspicion. In fact, the opposite can occur. Without a clear narrative to guide it information becomes something for HMRC to interrogate rather than accept. Gaps are easier to identify. Inconsistencies become more visible. The exercise becomes one of testing rather than understanding.
Perhaps most interesting is the impact of premature technical argument at an early stage.
There is an understandable instinct to defend a position by reference to law, to case authority, to principles of burden and proof. Yet in the early stages of an enquiry HMRC is not usually engaged in legal analysis.
It is trying to understand what happened. Introducing technical argument before that understanding is established can feel disproportionate, even evasive. It changes the tone of the interaction in a way that is not always helpful.
None of these factors, taken individually, is decisive. Together, they shape a narrative, one in which HMRC’s confidence becomes progressively weaker.
Recognising the shift
One of the more difficult aspects of managing enquiries is identifying when that internal shift has already occurred.
HMRC does not formally announce that a case has moved from low risk to high risk.
Instead, the change reveals itself indirectly. The most reliable indicator is a subtle but important change in the nature of the questions being asked.
Early enquiries tend to focus on transactions: what was received, what was paid, how figures were calculated. As confidence diminishes the focus begins to move. Questions turn to why decisions were made, how records were kept, what controls were in place. There is often a growing interest in matters that sit outside the immediate return such as lifestyle, personal expenditure or the broader financial picture.
At that point, the enquiry is no longer purely about accuracy.
It is about behaviour.
Other signs may follow: repetition of earlier questions, requests that feel disproportionate, or a tone that suggests a lack of acceptance of what has already been provided.
By the time formal steps are taken, and that can be referral to a specialist team or consideration of deliberate penalties for example, the underlying view is usually well established.
The adviser’s position
It is easy to think of the adviser as standing slightly apart from this dynamic, acting as an intermediary between HMRC and the client. In reality, the adviser is very much part of the picture.
HMRC does not simply assess the taxpayer; it forms a view of the adviser’s approach.
That view is rarely articulated, but it influences how the case is handled. Caseworkers are, in effect, asking themselves whether the adviser appears to understand the issues, whether they are exercising control, and whether their responses can be relied upon.
Where correspondence appears fragmented, overly defensive, or disconnected from the underlying facts, confidence is affected accordingly. This is not a question of professionalism in a formal sense, but of perceived credibility. An adviser who appears measured, consistent and engaged can stabilise a case. One who appears reactive or overly combative can, unintentionally, accelerate its deterioration.
This is particularly relevant in larger firms or teams, where multiple individuals may contribute to correspondence.
Without careful coordination, tone and content can vary in ways that are immediately obvious to HMRC, even if they are less visible internally.
The role of narrative
At the centre of all of this is narrative. Every enquiry, regardless of its complexity, requires an explanation that makes sense of the facts. What happened is rarely enough on its own. There must also be an account of why it happened, and crucially why it does not suggest something more serious.
Where that narrative is absent HMRC will construct one.
Do you want to leave them to form their own conclusions?
It will do so using the information available, but also through inference. Once formed, that narrative can be difficult to displace, particularly if subsequent explanations appear to adapt in response to it.
The challenge for advisers is to provide sufficient context early enough to shape that narrative, and retain consistency, without overloading the process with unnecessary detail. It is a question of balance. Too little explanation invites speculation; too much, without structure, invites scrutiny.
Problem of imperfect disclosure
No discussion of escalation is complete without acknowledging the role of the client.
Clients under enquiry are rarely at their best. They may be anxious, defensive, or reluctant to revisit past decisions. It is not uncommon for information to emerge gradually, or for explanations to shift as recollection improves or as the significance of certain facts becomes clearer.
Left unmanaged, this creates precisely the kind of inconsistency that undermines credibility. The difficulty is that clients do not always recognise the importance of consistency in the way that HMRC does.
This places a significant responsibility on the adviser. It is not enough to relay information; it must be tested, challenged and, where necessary, refined before it is presented. That process can be uncomfortable, particularly where it involves questioning a client’s account.
Nonetheless, it is essential.
Advisers who take explanations at face value in the early stages often find themselves dealing with the consequences later, when inconsistencies are exposed through HMRC’s own enquiries.
Managing the direction of travel
If escalation is understood as the product of accumulated signals, then it follows that those signals can, to some extent, be managed.
The early stages of an enquiry are particularly important. First impressions, in this context, carry weight. A response that is timely, coherent and proportionate does more than answer a question, it establishes a baseline of credibility.
Equally, there is value in recognising when the nature of an enquiry is changing, and adjusting your approach accordingly. Where HMRC’s focus shifts to behaviour it is rarely effective to continue responding purely at a transactional level. The underlying concerns need to be addressed directly, front on and as robustly as the circumstances dictate or allow.
There is also a point, in some cases, at which it becomes sensible to seek a second view.
This is not an admission of difficulty, but a recognition that escalation, once established, can be difficult to reverse. Early intervention is often less costly and more effective than attempting to correct course later.
Conclusion
Escalation in HMRC enquiries is often experienced as something unexpected, even arbitrary. In practice, it is usually the result of a gradual shift in perception, shaped by a series of relatively small signals.
Many of those signals are within the adviser’s control.
That is not to suggest that escalation can always be avoided. Some cases will, by their nature, attract closer scrutiny or even deserve it.
What can be managed, however, is the context in which that scrutiny takes place.
The central point is a simple one.
Tax disputes are not determined solely by the underlying figures. They are shaped, often decisively, by how those figures are explained, how the process is handled, and how credibility is established and maintained over time.
For advisers, that requires a shift in perspective. An enquiry is not just a technical exercise to be worked through. It is a process to be managed, strategically and carefully, from the outset.
In the current environment that distinction matters more than ever.
- Gary Brothers, Principal, Gary Brothers Consulting