The brown envelope asks about one year. Your other return cares about all of them

Figures relate to tax year 2025-26 (UK) · 2025 (US)

The letter is polite and fairly short. HMRC is checking your return for one tax year and would like to see some records.

Handled sensibly it is usually a contained problem. The part people miss is that an HMRC enquiry which changes your British figures also changes the credit you claimed in America, and that second return does not update itself.

Key takeaways

• HMRC can open a check into any return within a set window.
• That window extends sharply where a return was careless or deliberate.
• A discovery assessment can reach much older years.
• Any adjustment to British tax moves your American credit position.
• You generally have to amend the American return as well.
• Penalties depend on behaviour rather than on the amount.
• Answering fully and early reduces almost every outcome.

What is an HMRC enquiry?

An HMRC enquiry is a formal check into a tax return, opened by written notice. According to the published guidance, HMRC does not need a reason to open one. It picks many at random rather than because something looks wrong.

Some checks cover the whole return.

Others look at a single figure only.

How long does HMRC have to open one?

An HMRC enquiry must start within twelve months of the date you filed, where the return went in on time. Filing late moves the deadline rather than removing it, so a return submitted in March gives HMRC until the following March to act.

That window closes automatically once it passes.

After it, HMRC needs a different route in.

What is a discovery assessment?

It is that different route, used where the normal window has closed. HMRC can go back four years as standard, six years where a return was careless, and twenty years where behaviour was deliberate.

The behaviour determines the reach, not the sum involved.

Twenty years covers more than most people have records for.

A worked example

The figures below are illustrative and use round numbers to show the mechanics.

Claire is American and lives in Manchester. A compliance check disallows £6,000 of expenses she claimed against her consultancy profit two years ago.

Her British tax rises by roughly £2,400 once she settles the adjustment and the interest. That is the end of the British side.

Her American return for that year claimed a credit based on the old lower figure. More British tax paid means a larger credit available, so an amendment there may actually refund money.

Which way does the American adjustment go?

It depends on what moved. More British tax usually means a larger foreign tax credit and a smaller American bill, while a British refund works the other way and can create American tax to pay.

A refund is the dangerous direction here.

People rarely think to amend after good news.

The two processes compared

Neither authority tells the other what it has done.

Do you have to tell the IRS?

Not directly, but the numbers have to end up right. Where a British adjustment changes the foreign tax you actually paid, the credit claimed on the American return no longer matches reality and needs correcting.

Our guide to amending a US return covers the process.

The adjustment year is the one to amend.

What if the British tax is still disputed?

Then wait before amending, because a credit follows tax actually paid rather than tax under argument. Amending on a figure that later changes again simply means doing the work twice.

Note the deadline for the American amendment though.

A long dispute can run past it.

How are penalties worked out here?

By behaviour rather than by amount, which is the key thing to understand. A genuine mistake attracts nothing, carelessness attracts a moderate percentage, and deliberate conduct attracts a great deal more.

Telling HMRC before they ask reduces every band.

Cooperation during the check reduces it further.

What should you hand over?

Exactly what the letter asks for, and not a great deal more. Answering the actual question fully tends to close a check quickly, while volunteering unrelated material tends to open new lines of enquiry nobody was pursuing.

In our practice that is the most common own goal.

Scope discipline shortens the whole process.

Can HMRC ask about offshore income?

Yes, and it increasingly does, because information arrives automatically from other countries. American accounts and investments reported under international exchange agreements show up on the British side without you doing anything.

Our guide to the FATCA letter covers the flow the other way.

Offshore cases carry higher penalty bands.

How long does a check take?

A simple HMRC enquiry closes within a few months, while a full check into business accounts can run well over a year. The pace depends mostly on how quickly you answer each request.

Delay on your side extends it more than anything.

Chasing records early is time well spent.

Can you appeal the outcome?

You can, through an internal review first and then an independent tribunal if that does not resolve it. Both routes have strict deadlines, usually thirty days from the decision you are challenging.

A review costs nothing and often works.

The tribunal is the step after that.

Does an enquiry affect your US filing deadlines?

Not at all, and that catches people. The American return is still due on its own timetable whatever is happening here, and an unresolved British check is not a reason to file late there.

File on the best figures you have.

Amend once the British position settles.

What about the years either side?

An HMRC enquiry often spreads to the same point across several years once it finds something. Where an expense category was wrong in one year it was usually wrong in others, and that is how a single year check grows.

Each year then needs its own American amendment.

The work multiplies quickly across both sides.

Should you use an adviser?

For an HMRC enquiry beyond a single straightforward question, yes. The cost is usually modest against the penalty bands. An adviser who handles both returns spots the American consequence while you are still drafting the British answer.

Representation also keeps the correspondence focused.

Doing it alone works for simple checks.

What if you cannot pay the adjustment?

Ask for time rather than ignoring it, because HMRC agrees these arrangements routinely. Interest keeps running either way, but an agreed plan stops enforcement action and keeps the penalty position where it was.

The conversation is easier before the deadline passes.

Silence is what escalates matters.

What triggers an HMRC enquiry?

Often nothing at all, since a proportion are chosen at random each year. The rest come from risk scoring, which flags figures that sit oddly against the rest of your return or against other people in the same trade.

Large swings between years draw attention.

So do round numbers that look estimated.

Is a nudge letter the same thing?

No, and the difference matters. A nudge letter invites you to check something yourself and carries no formal status, whereas an HMRC enquiry is opened by notice and starts a process with defined rights on both sides.

Ignoring a nudge letter often produces a real check.

Responding to one usually closes the matter.

Can they look at your bank accounts?

They can request statements, and they can obtain them from the bank directly in some circumstances. For an American filer the awkward part is that overseas accounts are already visible through automatic exchange of information.

Nothing is gained by leaving an account out.

The data usually arrives before the question does.

Does an enquiry affect your foreign tax credit basket?

It can, where the adjustment changes the type of income as well as the amount. Moving profit between categories can shift British tax into a different basket on the American side, which changes how much of it you can actually use.

Our guide to Form 1116 income baskets covers the categories.

The character of the adjustment matters, not just its size.

What happens at the end of a check?

You receive a closure notice setting out the final figures and any amendment to your return. That document is the formal end of the HMRC enquiry and the starting point for everything you then do on the American side.

Nothing is final until it arrives.

Keep it somewhere you can find in five years.

Can a check be reopened later?

A closed year generally stays closed, which is the point of the closure notice. New information about a different issue can still support a discovery assessment, but the same point cannot simply be revisited.

Finality is worth having in writing.

That is why the notice matters so much.

What if you have also filed late in America?

Deal with that separately and ideally in parallel. A British check does not create an American problem by itself, but it often prompts people to look properly at their other filings for the first time.

Our guide to streamlined filing covers the catch up route.

Doing both at once saves repeating the record gathering.

How to handle a check

1. Note the date on the letter and the deadline it sets.
2. Confirm which tax year and which figures are in scope.
3. Gather exactly the records requested and nothing beyond them.
4. Reply within the deadline, asking for more time if needed.
5. Agree the final adjustment and settle the tax and interest.
6. Work out what the new British tax figure does to your credit.
7. Amend the American return for the same year once settled.

What records matter most?

The correspondence itself, the final closure notice showing the agreed figures, and proof of the tax actually paid. That last document is what supports the revised credit on the American side.

A closure notice is the definitive record.

Keep it with that year file permanently.

Mistakes and penalties we see during an HMRC enquiry

The first is settling the British adjustment and never revisiting the American return.

The second is sending far more material than the letter actually asked for.

The third is missing the thirty day deadline to request a review.

The fourth is amending in America before the British figure is final.

How US UK Tax Accountants helps

We handle the correspondence, keep the scope tight, and model what each proposed adjustment does to your American credit before you agree to anything. Then we amend the other return once the British position settles.

Where a check closed years ago and nobody amended anything, we look at what remains open. Our US federal return service covers the filing.

If a letter has arrived and you file on both sides, get in touch before replying. The first response sets the tone for everything after it.

Last reviewed 6 October 2026. This article is general information and not personal tax advice. Every check turns on its own facts, so take advice on yours before responding.