First, do not panic. An enquiry does not automatically mean HMRC believes you have done something wrong. Returns can be selected at random, because of a risk indicator, or because a particular item looks unusual. The important thing is to respond calmly, on time, and with evidence rather than guesswork.
HMRC will normally start with a written opening letter. It should say that an enquiry has been opened, whether it is an aspect enquiry into one or more specific items or a full enquiry into the whole return, and who your caseworker is. It will ask for information and documents and give a deadline. Read that letter carefully and keep it with your return. If anything is unclear, ask HMRC to clarify the scope before you send a large bundle of papers.
For a consultancy, the records most often requested are sales invoices and contracts, bank statements, expense receipts, and workings for any estimates or apportionments. HMRC may also ask about private expenditure, drawings, travel and subsistence, use of home, and any capital items treated as expenses. Send copies that are indexed to the questions asked, explain any difference between your bank deposits and your invoiced income, and do not create or backdate documents. If a record no longer exists, say so plainly and provide the best alternative evidence you have.
Timescales vary widely. A straightforward aspect enquiry may be settled in weeks, while a full enquiry with several rounds of questions can take many months. HMRC will usually close the enquiry with a closure notice. That may confirm the return, amend it, or lead to additional tax and interest. Penalties depend mainly on behaviour and disclosure: a genuine mistake disclosed promptly is treated very differently from careless or deliberate behaviour, so do not ignore letters or miss deadlines. If you disagree with a closure decision, you can usually appeal within 30 days of the notice.
Practically, I would authorise an accountant to deal with HMRC if you have not already done so, keep a single file of everything sent and received, and reply in writing. If a deadline is too tight, ask for more time before it expires rather than sending an incomplete answer. A clear, complete first response often shortens the enquiry considerably.
