Imagine you find a letter from the Inland Revenue on your doormat. You open it unperturbed, after all, your self-assessment return was filed on time and the accountant did not mention any problems. But the letter informs you that you are the subject of a HM Revenue & Customs inquiry and tells you to reply immediately with key financial documents.

The conclusion, several years and thousands in accountant’s fees later, could be a huge bill for unpaid taxes, interest, and penalties.

So what should you do if you find yourself the subject of a Revenue inquiry?

Alan Pink, a tax consultant in Tunbridge Wells, says first know what you are dealing with. Revenue inquiries usually happen because there is a small query on a return but many are simply random. Inspections are more serious: here the Revenue suspects large-scale evasion. The self-employed and business owners comprise the vast majority of cases.

Unless it is an inquiry of the simplest kind you are facing, Pink says, it is best to seek advice before doing anything.

“To start with the Revenue will ask for documents, and, perhaps, a meeting. Be careful: you’re not legally obliged to supply documents that are not strictly relevant, and you have no obligation to attend a meeting. But you could be fined £60 a day for withholding relevant papers.”

In investigations, the Special Compliance Office has the power to confiscate property and data it deems necessary. Once the Revenue has looked at the case, often a clear picture will emerge of an honest mistake — expenses have been misfiled, perhaps — and a settlement is reached. But even relatively simple inquiries can last three years, Pink says, via a seemingly endless series of questions from the Revenue, and can easily cost around £10,000 in accountancy fees. It is possible to buy insurance against investigation, which pays all fees but not the tax itself.

When no settlement can be agreed, usually because the Revenue feels that information is still being hidden, things can get really nasty: “We have a guilty until proven innocent system,” Pink says. “If the Revenue can’t pin the matter down it will just say, ‘we estimate you owe this much’ and that’s the figure you’ll have to pay unless you can disprove it.

“I have a case now where the Revenue claims my client received dividends from a company. How can he prove that he didn’t?” The appeal process, involving general and special commissioners, High Court, Court of Appeal, and even the House of Lords, will mean further fees for representation. Angela Brooks Wong founded TaxRelief in 2003, to help taxpayers to fight unfair Revenue claims, and she has experience of just how wrong the Revenue can go.

First, she advises, the self-employed should ensure faultless record-keeping. The Revenue can go back six years in a standard inquiry, and 20 where intentional evasion is suspected. Good records are not only demanded by law, but will help to limit the inspector’s claims. Informed negotiation, she says, can bring estimates down to earth.

What can taxpayers do to ensure that a simple inquiry will not turn into a crisis? Brooks Wong advises going to the taxman before he comes to you. “Go to your local tax office and ask all about how you should keep records, what expenses you can claim, everything. Return a month later to check your system. They’re obliged to provide this information and to give you the time.”