What should a sole trader do if HMRC requests clarification on figures?

What to do when HMRC asks you to clarify your figures

Getting a letter, secure message, or phone call from HMRC asking you to “clarify” figures on your tax return can feel unsettling, especially as a sole trader. It’s easy to jump to worst-case conclusions. In reality, many HMRC queries are routine: a number looks unusual compared with previous years, a total doesn’t appear to match the information HMRC already holds, or a figure has been entered in the wrong box. A clarification request is not automatically an investigation, and it is often resolved quickly if you respond calmly, provide what is asked for, and keep good records.

This article walks through what a UK sole trader should do if HMRC requests clarification on figures. It focuses on practical steps: understanding what HMRC is asking, assembling the right evidence, replying in a clear way, and reducing the chances of the issue escalating. It also covers what to do if you suspect you’ve made a mistake, how to handle gaps in records, and when professional support can be a smart move.

Stay calm and treat it as a process, not a crisis

Your first job is to slow things down mentally. HMRC queries can be stressful, but stress leads to rushed replies, missing attachments, or defensive language that muddies the waters. A controlled, methodical response is usually what gets the fastest outcome.

Think of it like a mini-audit on a specific point. HMRC wants to understand how you arrived at a figure. If you can show the “chain” from your records to the number on the return, you’re doing the right thing. Most clarifications are about reconciling totals, confirming a one-off event, or explaining a variance. That is all manageable for a well-run sole trader.

Confirm the request is genuine

Before you send information, make sure the request is actually from HMRC. Scams sometimes imitate HMRC communications. A genuine request will normally come through an official channel: a letter addressed to you with your Unique Taxpayer Reference (UTR), a message in your HMRC online account, or a call where the agent follows HMRC security procedures.

If you received an email that asks you to click a link, download a file, or provide personal details, be cautious. HMRC generally does not ask for sensitive information through unexpected emails. The safest approach is to log into your HMRC account directly (without using the link in the message) and check for correspondence there, or call HMRC using a phone number from the official GOV.UK website. Don’t use the number provided in a suspicious message.

Read the request carefully and identify exactly what’s being questioned

HMRC clarification requests can be very specific (“Please explain the basis of your mileage claim”) or broad (“Please provide evidence supporting expenses claimed”). Your response will be much better if you translate the request into a short checklist of what HMRC needs to see.

Start by extracting:

1) The tax year and the return or report they are referring to.

2) The exact figures in question (turnover, cost of sales, travel, subcontractors, capital allowances, etc.).

3) The period covered (some sole traders use accounting years that don’t match the tax year).

4) The deadline for response and the method for replying (post, online message, email in limited cases, or phone).

Then ask yourself: is HMRC asking for clarification (an explanation), evidence (documents), or both? Many times they want both: a narrative explaining the figure and documents that support it.

Check the response deadline and diarise it immediately

HMRC letters typically give a time limit to respond. Missing the deadline can increase the risk of follow-up action or escalation. Put the deadline in your calendar, and aim to send your reply a few days before it.

If you genuinely cannot meet the deadline (for example, you are waiting on a bank statement, recovering from illness, or key information is with an old accountant), contact HMRC as soon as possible to request an extension. Be polite, factual, and clear about what you need and when you expect to provide it.

Gather your records before you draft a response

A common mistake is to start writing to HMRC before you’ve assembled the underlying records. That can lead to vague explanations or figures that don’t reconcile. Build your evidence pack first, then draft the explanation with confidence.

For a sole trader, the evidence usually comes from these categories:

Sales and income: invoices issued, till reports, booking system exports, platform statements (e.g., online marketplaces), payment processor summaries, bank receipts, cashbook entries.

Allowable business expenses: supplier invoices, receipts, fuel logs, mileage records, home office calculations, mobile/Internet bills with business-use percentages, software subscriptions, insurance documents, marketing invoices, professional fees.

Banking and cash: business bank statements, personal bank statements if business income/expenses ran through them, PayPal/Stripe/Square statements, petty cash records, cash deposit slips.

Assets and capital allowances: purchase invoices for equipment, vehicles, tools, computers, furniture; details of private use; dates of purchase and use in the business.

Payroll and subcontractors (if applicable): CIS statements, invoices from subcontractors, proof of payments, any verification of subcontractor status, and supporting ledgers.

VAT records (if registered): VAT returns, VAT account, purchase and sales ledgers, partial exemption calculations if relevant.

Keep the evidence you send tightly aligned to what HMRC asked about. You can have additional backup ready, but avoid dumping hundreds of pages at HMRC unless requested. Over-supplying irrelevant material can slow down the review and create new questions.

Reconcile the figure: show how your records map to the tax return

HMRC is usually trying to see whether the figure on your return is supported by your books and records. Your goal is to make that link obvious.

A very effective way to do this is to prepare a short reconciliation for the specific item. For example:

Turnover reconciliation: total invoices issued for the year + other income (interest, grants if taxable, refunds treated as income) minus credit notes = turnover on the return. If you use cash basis, it may be total payments received rather than invoices issued.

Travel expense reconciliation: mileage claim based on business miles x approved mileage rate, plus parking/tolls (if claimed separately), excluding any commuting miles, equals travel total.

Materials/cost of sales reconciliation: opening stock + purchases - closing stock = cost of goods sold, with stock valuation method explained.

Even if you use simple spreadsheets, a clear reconciliation can dramatically reduce back-and-forth. Attach the reconciliation as a single-page summary. Then provide selected supporting documents.

Understand what HMRC often queries for sole traders

While any figure can be queried, certain areas tend to trigger clarification requests because they are common sources of errors or abuse. Being aware of these helps you anticipate what HMRC wants to see.

1) Turnover that doesn’t match third-party data

HMRC receives information from various sources, including banks, platforms, employers, and sometimes payment processors. If your declared turnover seems inconsistent with what HMRC expects, they may ask how you calculated it.

Common causes include:

- You used the wrong accounting basis (cash vs accruals) compared with how you normally keep records.

- You netted off fees/commissions incorrectly (for example, declared sales after platform fees rather than gross sales).

- You included transfers between accounts as income or excluded genuine income.

- You mixed personal and business transactions in one account and misclassified items.

In your response, explain your basis and provide a summary of income sources, plus statements or reports that support the totals.

2) Expenses that look high compared with turnover

High expenses are not automatically wrong. A business can have thin margins, start-up costs, or a one-off investment year. But expense ratios can trigger queries, particularly in categories like travel, motor costs, “other expenses,” and home office use.

The best approach is to explain the commercial reason for the expense level and show evidence. For example, if you had a large marketing push, provide the campaign invoices and mention it was intended to generate future revenue. If you had unusually high repairs because equipment failed, show the repair invoices and explain the event.

3) Motor costs and mileage claims

Vehicle claims are a classic area of confusion. Sole traders sometimes mix commuting and business travel, or claim both mileage rates and actual costs. Your response should show which method you used and why it’s appropriate.

If you used mileage rates, provide:

- Total business miles for the period.

- How you tracked miles (logbook, app, diary, calendar, job sheets).

- Examples of typical trips (client A to client B, deliveries, site visits).

If you claimed actual running costs, provide:

- The vehicle’s business-use percentage and how you calculated it.

- A breakdown of costs included (fuel, insurance, repairs, VED, finance interest where allowable), and costs excluded.

Be careful to exclude normal commuting from home to a permanent workplace, and explain any “home as office” situations if you rely on that to justify travel.

4) Home office and use-of-home claims

Use-of-home expenses can be legitimate and often modest, but the calculation method matters. If HMRC queries it, they may want to see:

- Which method you used (simplified flat rate based on hours, or actual costs apportioned by rooms and time).

- The underlying household bills used if you claim actual costs.

- The business-use proportion and any private-use adjustment.

Your response should be transparent and conservative. Overly aggressive use-of-home claims can attract extra scrutiny. If you’ve made a reasonable, documented calculation, that’s what you show.

5) “Other expenses” or round numbers

Large totals in a catch-all category, or totals that are heavily rounded, often invite queries. HMRC may suspect estimates rather than actual recorded expenses.

If you have a large “other expenses” figure, break it down into subcategories (for example: training, subscriptions, small tools, postage, bank charges). Show a summary and provide a few key invoices/receipts.

If your records were estimated, be honest. Explain why and how you estimated. But understand that HMRC may disallow expenses that cannot be supported.

Prepare a clean, organised response pack

Once you’ve gathered your records and reconciled the queried figure, prepare your response so it is easy to read. HMRC officers are more likely to accept your explanation quickly if it is structured and tidy.

A strong response pack often includes:

1) A cover letter or message: referencing HMRC’s letter date, your UTR, the tax year, and the specific figure(s) queried.

2) A short explanation: a few paragraphs describing your business context, accounting basis used, and the reason for any unusual movements.

3) A reconciliation summary: a one-page table or bullet list that shows how you got from records to the figure on the return.

4) Supporting documents: only what is necessary, clearly labelled (for example: “Appendix A – Bank statements April–June”, “Appendix B – Mileage log summary”, “Appendix C – Marketing invoices”).

5) A polite closing: offering to provide further information if needed and asking them to confirm when the matter is resolved.

If submitting electronically, use PDF where possible, and name files sensibly. If posting, send copies rather than originals and consider tracked post. Keep a full copy of everything you send, including screenshots of online messages and the submission confirmation.

Write the explanation like you’re guiding someone through your numbers

HMRC is not asking for a persuasive essay. They want clarity. Avoid emotional language, defensiveness, or speculation. The tone should be professional, calm, and factual.

For example, a good explanation might say:

- “I use the cash basis and record income when received into my business account.”

- “The increase in travel expenses this year relates to a new contract requiring weekly site visits in Manchester from June to December.”

- “The figure on the return is the total of the attached income reports from Platform X and direct invoices, reconciled to bank receipts.”

Try to keep it short: a few paragraphs plus the reconciliation. Long narratives can obscure the key point, which is evidence and traceability.

If you find an error, decide quickly how to correct it

Sometimes HMRC asks for clarification and, while preparing your response, you realise you made a mistake. That’s not uncommon. What matters is how you handle it.

If the error results in underpaid tax, you should generally disclose it and correct it. The approach depends on the circumstances:

- If the return can be amended within the amendment window, you can submit an amendment and tell HMRC you have done so, explaining the change.

- If you are outside the amendment window, you may need to notify HMRC and follow their process for correcting errors, which could involve making a voluntary disclosure.

Being proactive usually helps. HMRC tends to view voluntary correction more favourably than leaving the issue unresolved. If the error is material or complex, this is a point where professional advice can be valuable, because the wording and process matter.

If the error results in overpaid tax (for example, you accidentally overstated income or understated expenses), you can still correct it. HMRC’s interest is correct tax. Again, you may be able to amend the return within the relevant timeframe.

What if your records are incomplete?

Not every sole trader has perfect records, especially in early years of trading. If HMRC asks for clarification and you don’t have complete receipts or logs, don’t panic and don’t invent evidence. Instead, be honest and provide what you do have, along with a reasonable explanation.

Practical steps if records are incomplete:

- Rebuild the timeline using bank statements. Often you can identify transactions and obtain duplicate invoices from suppliers.

- Use emails and order confirmations to support purchases.

- Use calendar entries, job sheets, or client correspondence to support travel claims or project-related expenses.

- If you used cash, reconstruct a cashbook as best you can and explain your method.

HMRC may accept reconstructed records if they are credible and consistent. However, expenses that cannot be evidenced may be disallowed. The more transparent and methodical your reconstruction, the better the chance of a fair outcome.

When to involve an accountant or tax adviser

You can respond to many clarification requests yourself, especially if the query is narrow and you have decent records. However, there are times when getting help is sensible:

- HMRC’s questions are broad, repeated, or feel like they are moving toward a deeper check.

- The figures are large, the tax at stake is significant, or the business structure is complicated.

- You suspect an error that could involve penalties or interest.

- The query involves tricky areas like capital allowances, mixed private/business use, stock valuation, or CIS issues.

- You struggle to communicate clearly and want someone experienced to handle the narrative and the evidence presentation.

A professional can help you prepare a clean response, correct mistakes properly, and avoid accidentally providing confusing information. Even a short consultation can help you choose the safest route.

Keep your communication channel consistent and documented

Use the method HMRC requests for responding. If they ask you to reply via your online account, do that. If they ask for documents by post, follow the instructions. Avoid switching channels unless necessary.

Document everything:

- Keep copies of letters and messages.

- Note dates and times of calls, the name of the HMRC officer (if provided), and what was discussed.

- Keep proof of posting or electronic submission.

If a phone call is involved, follow up in writing summarising what was agreed, especially if you are allowed to send a secure message. Written records reduce misunderstandings.

Be careful about what you send: relevance, privacy, and scope

HMRC is entitled to ask for evidence relevant to your tax position, but that doesn’t mean you should send everything you own. Over-sharing can introduce irrelevant private transactions or unrelated information that prompts new questions.

Some tips:

- If sending bank statements that include personal transactions, consider whether you can provide the relevant pages or highlight business items. If you highlight, do it cleanly and do not obscure amounts. If you cannot separate personal and business, you may need to provide statements but be prepared to explain personal items are non-business.

- Avoid sending documents containing third-party personal data unless necessary (for example, client addresses or personal details). Where possible, provide summaries or redact sensitive personal data that is not relevant to the figure being checked.

- If HMRC asks for “invoices,” provide invoices, not your entire email archive. Stay focused.

Scope matters. If HMRC asked about travel, your response should not drift into unrelated expense categories unless they are directly connected. Keep the conversation narrow and controlled.

Explain unusual fluctuations with business context

Clarification requests often arise because a figure has changed significantly from one year to the next. A short, sensible business explanation can be as important as the documents.

Examples of legitimate reasons for changes include:

- A new contract requiring travel, subcontracting, or extra materials.

- A change in pricing, business model, or product mix.

- A one-off purchase of equipment or a major repair.

- A period of illness leading to lower turnover.

- Switching accounting methods, year-end dates, or record-keeping systems.

When explaining fluctuations, use dates and plain facts. “From May to September I operated at reduced capacity due to illness” is more helpful than “Business was slow.” If you have supporting records (contract start dates, equipment invoices, etc.), include them.

Double-check your return entries for common box mistakes

Sometimes the issue is not the underlying record but how the figure was entered on the tax return. Sole traders can accidentally place numbers in the wrong boxes or apply a sign (plus/minus) incorrectly.

Before replying, review your return and look for:

- Turnover entered net of refunds when it should be gross with refunds treated correctly.

- Expenses entered twice (for example, motor expenses and mileage both claimed for the same travel).

- Capital expenditure claimed as revenue expense without correct capital allowance treatment.

- Private use not adjusted for in mixed-use costs.

- Income or expenses recorded in the wrong accounting period if using accruals.

If you identify a box-entry error, correcting it may be the quickest way to resolve the query.

Responding online: practical formatting tips

If you reply through an HMRC secure message system, you may have limited space and limited file formats. Keep the message concise and attach PDFs where possible.

A helpful structure for an online message:

Paragraph 1: Identify yourself (UTR), the tax year, and the HMRC letter reference/date.

Paragraph 2: State the figure in question and your explanation in one or two sentences.

Paragraph 3: Refer to attachments and summarise what each shows (e.g., “Attachment 1 is a turnover reconciliation; Attachment 2 is bank statement pages showing receipts; Attachment 3 is the platform income report”).

Paragraph 4: Offer to provide further information if required and ask them to confirm receipt.

Remember: the aim is to make it easy for the HMRC officer to tick the box that the figure is explained and supported.

After you send your response: what to expect

Once HMRC receives your clarification and evidence, there are a few possible outcomes:

- They accept your explanation and close the query, sometimes confirming in writing or via your online account.

- They ask follow-up questions or request additional documents to fill a gap.

- They propose an adjustment (for example, disallowing an expense) and explain the revised tax position.

- In rarer cases, the query expands into a more formal compliance check.

If HMRC proposes an adjustment and you disagree, you can ask for the reasoning and provide additional evidence. Keep the tone cooperative but firm. If the issue becomes contentious or technical, professional advice is often worthwhile.

Reduce the chance of future clarification requests

Even if your current query is resolved, treat it as a prompt to strengthen your record-keeping. Good habits reduce both HMRC attention and your stress at tax time.

Some practical improvements for sole traders:

Separate bank accounts: Use a dedicated business account. It makes reconciliation easier and reduces confusion.

Use bookkeeping software or consistent spreadsheets: Record income and expenses regularly, not just at year-end.

Keep digital copies of receipts: Photograph or scan receipts as you go. Store them by month and category.

Maintain a mileage log: If you claim mileage, record trips contemporaneously using an app or a simple logbook.

Document business-use percentages: If you apportion costs (phone, home office, vehicle), keep a note of how you calculated the split.

Review your draft return: Before filing, check totals and look for unusual ratios or large “other” figures that might raise questions.

These practices help you respond quickly if HMRC asks questions again, because you can produce a tidy evidence pack without scrambling.

Common mistakes to avoid when replying to HMRC

When a sole trader is under pressure, a few predictable mistakes crop up. Avoiding them can save you time and money.

1) Ignoring the request: Silence makes things worse. Respond by the deadline or request more time.

2) Sending a vague explanation: “That’s what my accountant said” or “That’s what I spent” is not a clarification. Provide a reconciliation and supporting evidence.

3) Becoming defensive or argumentative: You can disagree without being combative. Stick to facts and evidence.

4) Providing inconsistent figures: If you send a breakdown that doesn’t match the return, you create new questions. Reconcile carefully first.

5) Over-claiming or stretching definitions: Claims like “all my car use is business” are risky unless you can support them. Conservative, well-supported claims are safer.

6) Altering documents: Never edit invoices or statements to “make them look clearer.” If you need to annotate, do it separately and keep the original intact.

7) Not keeping a copy: Always retain what you sent. You may need it later.

If HMRC’s query feels like it is escalating

Sometimes clarification requests are the first step toward a broader compliance check, especially if HMRC believes there may be significant errors. Signs that a query is expanding include repeated requests across multiple categories, a request for complete bank statements for an entire year, or questions that go beyond the original issue.

If this happens, your best move is still to stay organised and cooperative, but you should consider getting professional support. A tax adviser can help you understand the scope of HMRC’s powers and the best way to provide information while protecting your position. They can also help you prepare for possible adjustments and ensure you meet deadlines.

Even if the matter escalates, many cases conclude without dramatic outcomes when the taxpayer is transparent, records are credible, and any errors are corrected properly.

A simple template for your response structure

Below is a practical structure you can copy into a letter or secure message (adapt it to the exact request):

Opening: Identify the HMRC letter date/reference, your UTR, your name, the tax year, and the business name (if any).

Issue summary: State the figure(s) being clarified and where they appear on the return.

Explanation: Briefly explain how you calculated the figure (cash basis or accruals; method used for apportionment; why the figure changed).

Reconciliation: Provide a short breakdown showing the total and how it is derived.

Evidence: List attachments or enclosures and what each one demonstrates.

Closing: Offer further information if required and request confirmation when the query is closed.

Using a consistent structure helps HMRC process your response quickly and reduces the risk that they overlook something important.

Final checklist before you send

Before you reply, run through a final checklist:

- Have you confirmed the request is genuine?

- Are you responding via the channel HMRC specified?

- Have you identified exactly which figure(s) they are querying?

- Does your reconciliation match the tax return figure exactly?

- Are your supporting documents relevant, legible, and clearly labelled?

- Have you kept copies of everything you’re sending?

- Is your tone factual and professional?

- Are you meeting the deadline (or have you requested more time)?

If you can answer “yes” to the above, you are in a strong position. HMRC clarification requests are usually resolved through clear explanations and good evidence. As a sole trader, the most powerful thing you can do is show that your figures are based on real records and a reasonable method, and that you take compliance seriously without overcomplicating it.