Tax audit or compliance check? What freelancers should do (US, UK, Canada)

A letter or a call says the tax agency wants to look at your return. It's stressful, but it's a process with clear steps, and good records make it easier. Here's what the IRS, HMRC and the CRA each say about how a check starts, what they ask for, how long you have, what happens if something is wrong, and how to disagree.

General information, not tax or legal advice. Not written or reviewed by a lawyer or an accountant. The short answer, the side-by-side summary, the what-to-have-ready table, the steps, the habits list and all the wording are ours; the official items come from the US, UK and Canadian government pages linked below. They are general rules for individuals and businesses, and none of them is a freelance law. US state audits, sales taxes, payroll, companies, criminal investigations, Quebec and other countries were not checked. Official pages were read on 2026-10-17.

The short answer

1. Check it's real first. The IRS says it starts audits by mail, not by phone. HMRC may call or write. The CRA usually phones and then sends a letter, and says you can call back to confirm.
2. Don't ignore it. The IRS says it will finish the audit without your reply, HMRC can use legal powers to get documents, and the CRA asks you to respond by its deadline.
3. Ask for more time early if you need it, the way the letter tells you to.
4. Send what's asked, organised, as copies. Invoices, receipts, bank statements and logs are typical items.
5. Keep filing and paying your other returns and tax while the check runs.
6. If you disagree, act in time. Each country has its own review, objection or appeal routes and deadlines.

On this page

• 1. First: is it really the tax agency?
• 2. United States: IRS audits
• 3. United States: the records the IRS asks for
• 4. United Kingdom: HMRC compliance checks
• 5. United Kingdom: mistakes and penalties
• 6. Canada: CRA audits
• 7. If you disagree
• 8. Side by side
• 9. What to have ready
• 10. Step by step
• 11. Habits that make a check easier
• Free tools and kits
• Where the sources differ
• When to get advice
• Related
• Sources

1. First: is it really the tax agency?

• US: "Should your account be selected for audit, we will notify you by mail. We won't initiate an audit by telephone." (IRS: IRS audits, page date 17-Feb-2026).
• UK: "We’ll call or write to you to tell you what we want to check and why. We’ll also write to your authorised tax agent, if you have one." (GOV.UK: HMRC compliance checks: help and support, page date 2025-12-12). "We carry out some types of checks over the phone. If you want us to write to you instead, you can ask us to do this if we phone you." (HMRC: CC/FS1a, page date 2025-04-30).
• Canada: "A CRA auditor will usually contact you by phone to begin the audit process. The auditor will also send you a letter confirming details of the audit." "You may not be comfortable speaking to the auditor until you have confirmed that they are from the CRA. In that case, you may end the call, and then call the auditor or the team leader back. You can also wait until you receive the audit confirmation letter before providing additional information." (CRA: Business audits, page date 2025-04-17). "The auditor will present you with a valid identification card upon arrival, and then start the audit." (CRA: RC4188, page date 2023-10-16).

Scammers also pretend to be tax offices, by phone, text and email. Don't use a phone number or link from the message itself: find the contact details on the agency's own website. Our guide to fake tax office contacts has the official pages on spotting and reporting them.

2. United States: IRS audits

• What it is: "An IRS audit is a review/examination of an organization's or individual's books, accounts and financial records to ensure information reported on their tax return is reported correctly according to the tax laws and to verify the reported amount of tax is correct." "Selection for an audit does not always suggest there's a problem."
• How it's done: "The IRS conducts audits either by mail or through an in-person interview to review your records." "If we conduct your audit by mail, our letter will request additional information about certain items shown on the tax return such as income, expenses, and itemized deductions."
• What they ask for: "The IRS will provide you with a written request for the specific documents we want to see." "The law requires you to keep all records you used to prepare your tax return – for at least three years from the date the tax return was filed."
• Sending your reply: "For any delivery service you may use, always request confirmation that the IRS has received your response."
• More time: for audits by mail, the IRS page says to fax or mail a written request using the details on the letter. "We can ordinarily grant you a one-time automatic 30-day extension. We will contact you if we are unable to grant your extension request." "However, if you received a "Notice of Deficiency" by certified mail, we cannot grant additional time for you to submit supporting documentation."
• If you don't reply: "If you don’t respond by the date shown on the letter or notice, we will complete our audit and send you an audit report with our proposed changes to your tax return."
• How far back: "Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don't go back more than the last six years." "You don't have to agree to extend the statute of limitations date. However, if you don't agree, the auditor will be forced to make a determination based upon the information provided."
• Your rights: "These rights include:"
  • A right to professional and courteous treatment by IRS employees.
  • A right to privacy and confidentiality about tax matters.
  • A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
  • A right to representation, by oneself or an authorized representative.
  • A right to appeal disagreements, both within the IRS and before the courts.
• How it ends: "An audit can be concluded in three ways:"
  • No change: an audit in which you have substantiated all of the items being reviewed and results in no changes.
  • Agreed: an audit where the IRS proposed changes and you understand and agree with the changes.
  • Disagreed: an audit where the IRS has proposed changes and you understand but disagree with the changes.
  "If you agree with the audit findings, you will be asked to sign the examination report or a similar form depending upon the type of audit conducted." "If you owe money, there are several payment options available." (IRS).

If you owe tax at the end and can't pay it all at once, see can't pay your tax bill? for IRS payment plans. Self-employment income and expenses are reported on Schedule C: see Schedule C for US freelancers. State tax audits weren't checked.

3. United States: the records the IRS asks for

• "When conducting your audit, we will ask you to present certain documents that support the income, credits or deductions you claimed on your return. You would have used all of these documents to prepare your return. Therefore, the request should not require you to create something new."
• "Note: Never mail original records. Send us copies."
• "Organizing the records you bring or send us will speed the process and prevent errors or misunderstandings. Organize them by year and type of income or expense, and include a summary of transactions."
• "No record can stand on its own. You must include the circumstances surrounding any document you send."
• From the IRS list of examples: "Receipts – Present these by date with notes on what they were for and how the receipt relates to your business." "Bills – Include the name of the person or organization receiving payment, the type of service and the dates you paid them." "Logs or diaries – These might show the dates and locations of your travel as well as the business purpose and mileage." (IRS: Audits records request, page date 17-Jan-2026).

How long to keep records in each country, and a simple receipt system, are in how to track freelance expenses.

4. United Kingdom: HMRC compliance checks

• What it is: "A compliance check (sometimes known as a ‘tax enquiry’) is when HMRC checks your tax position."
• Why it might start: "We have the right to check whether any tax return is accurate and complete. However, certain things may prompt us to start a compliance check into your tax affairs. For example, if you:"
  • enter figures on a tax return that seem to be wrong
  • make a claim for a large VAT refund when your turnover is low
  • declare a small amount of tax when your turnover is high
• While it runs: "If we’ve started a check, you should continue to file your tax returns and pay any taxes due." "If you need to speak to us about your compliance check, contact the officer who’s dealing with your case. Their details will be on the letter we sent you about the check."
• What they may ask: "During the check we may ask you to:"
  • send us any information or documents that we need
  • meet with us to discuss your tax affairs and records (you do not have to meet us if you do not want to)
  • let us inspect your business premises, assets and records
  "If we request something that you think is not reasonable or relevant, let us know." "If you do not send information or documents that we’ve asked for, we may use legal powers to get them. We’ll do this by sending you an information notice. If you get an information notice, you must give us what we’ve asked for, or we may charge you a penalty."
• More time: "If you need more time, tell us. We may agree to this if there’s a valid reason. For example, if you’re seriously ill, or someone close to you has died."
• An agent: "You are responsible for giving us accurate information. If you have a tax agent acting on your behalf, make sure they have all the relevant facts." (GOV.UK).
• From the HMRC factsheet: "You cannot choose to ignore an information or inspection notice if we give you one." "We’ll only ask to visit your home if you run your business from there." "We may observe, monitor, record and retain internet data which is available to anyone." "When we’ve completed the check, we’ll either send you one or more ‘decision notices’ or agree a contract settlement with you." "If you think you may have problems paying, tell the officer dealing with the check straightaway." (HMRC: CC/FS1a, About compliance checks).
• How it ends: "If the check shows there’s nothing wrong, we’ll end it as quickly as possible. If you’ve overpaid tax, we’ll repay this to you along with any interest due." "If you’ve underpaid tax, you’ll need to repay this. We’ll charge you interest and may also charge you a penalty." (GOV.UK).

The factsheet's examples of open source material include internet sites, blogs and social networking sites with no privacy settings, so a public freelance website counts. Self Assessment itself, including deadlines and the self-employment pages, is in UK Self Assessment for freelancers. How far back HMRC can check wasn't on the pages we read.

5. United Kingdom: mistakes and penalties

• Reasonable care: "We won’t charge you a penalty for an inaccuracy if you took reasonable care to get things right, but your return or document was still wrong. Some of the ways you can show that you took reasonable care include:"
  • keeping accurate records
  • checking with a tax adviser or with us if you’re not sure about anything
• Careless: "This is where you failed to take reasonable care to get things right."
• Telling HMRC first: "If you tell us about an inaccuracy before you have any reason to believe that we’ve discovered, or about to discover it, we call this an ‘unprompted disclosure’." "The minimum penalty for an unprompted disclosure is lower than the minimum penalty for a prompted one." (HMRC: CC/FS7A, Penalties for inaccuracies in returns and documents, page date 2026-07-21).
• Helping during the check: "We’ll consider how much you cooperated with us when deciding if we can reduce a penalty. In general, the more help you give, the lower the penalty will be." (GOV.UK). "If you know or suspect that there’s something wrong, to get the maximum reduction possible, you must:"
  • tell us everything you know about it immediately
  • work with us to calculate the right amount of tax
  (HMRC: CC/FS1a).
• Using an adviser: the factsheet lists, among your obligations, "an obligation to take reasonable care to get things right — if you have an adviser, you must still take reasonable care to make sure that any returns, documents or details they send us on your behalf are correct" (HMRC: CC/FS1a).

The factsheet sets out penalty ranges and a worked example; we haven't repeated the rates here, so read them on the HMRC page. Deliberate errors and criminal investigations are outside this guide.

6. Canada: CRA audits

• What it is: "When the Canada Revenue Agency (CRA) audits a business, it closely examines the business’ books and records to make sure they support the amounts as filed in tax returns, which in turn ensures the business pays the appropriate amount of taxes and receives any amounts to which it is entitled."
• How files are chosen: "The CRA’s risk-assessment systems identify tax returns that are considered to be at high risk for non-compliance."
• Your records: "If your books and records are available electronically, the auditor will normally ask for your electronic records before meeting with you." "For security reasons, auditors cannot receive files by email." (CRA: Business audits).
• What an auditor examines: "These include the following:"
  • information available to the CRA (such as filed tax returns, credit history, and property details)
  • your business records (such as ledgers, journals, invoices, receipts, contracts, rental records, and bank statements)
  • your personal records (such as bank statements, mortgage documents, and credit card statements)
  • the personal or business records of other individuals or entities not being audited (for example, a spouse or common-law partner, family members, corporations, partnerships, or a trust [settlor, beneficiary, and trustee])
  • adjustments made by your bookkeeper or accountant for tax purposes
  "The auditor will give you a detailed receipt for any borrowed documents and return them as soon as possible." (CRA: RC4188, What you should know about audits).
• Checking income another way: "The CRA will generally use an indirect verification of income method when there are indications of one or more of the following:"
  • The books and records are prone to error. This can be the case when one person does most of the accounting, or when the main functions in a business are done by one person or by a small group of related persons.
  • The business and personal bank accounts may have been used interchangeably.
  • The taxpayer’s lifestyle does not seem to match the income reported to the CRA.
  • The business is in a sector that is considered to be at high risk for unreported income.
  • The business consistently reports income lower than other similar businesses in the same sector.
  (CRA).
• Missing records: "If you no longer have certain records, speak with the auditor or the auditor’s team leader to find alternate methods to confirm the amounts reported on the return(s)." (CRA). "If you no longer have certain records, you have to try to get copies from the parties that created them (for example, financial institutions or suppliers)." "Good records and co-operation with the auditor will reduce the time it takes to do an audit."
• Your responsibilities: "By law, you have to keep adequate books and records to determine your tax obligations and your entitlements. Generally, books and records must be kept for a minimum of six years." "If you use a computer for your accounting records, you must keep your books and records in an electronically readable format, even if you also keep them on paper. Using the services of a tax professional does not relieve you of your responsibilities." "For an audit, you must make available to the auditor all of your relevant records (both paper and electronic) and supporting documents, and provide complete and timely explanations to the auditor’s questions." (CRA: RC4188).
• Deadlines: "It's important that you respond to us by the deadline we give you." "Let us know before the deadline by contacting the CRA office or representative identified on the letter to discuss your situation." (CRA: What to do if the CRA is asking you for information, page date 2019-08-16).
• At the end: "If the auditor determines that changes need to be made to the tax return(s), you will have 30 days to respond to the auditor’s written summary of the audit findings. You may agree or disagree with the proposed findings." (CRA). "If an adjustment results in more tax being owed, the auditor can give you an estimate of the amount before the CRA issues a notice of assessment or notice of reassessment. This will give you the opportunity to avoid interest charges by paying all or part of what you owe right away, rather than waiting for a notice." (CRA: RC4188).

Self-employment income and expenses go on Form T2125. The CRA's list above mentions business and personal bank accounts being used interchangeably; keeping business and personal spending easy to tell apart in your records makes an audit simpler. If you owe tax at the end and can't pay it all, see can't pay your tax bill? for CRA payment arrangements.

7. If you disagree

• US: "You can request a conference with an IRS manager. The IRS also offers mediation - alternative dispute resolution (ADR) or you can file an appeal if there is enough time remaining on the statute of limitations." (IRS: IRS audits).
• UK: "You’ll usually have 3 options. Within 30 days, you can:"
  • send new information to the officer dealing with the check and ask them to take it into account
  • have your case reviewed by a different officer
  • appeal to an independent tribunal
  "You can apply for alternative dispute resolution if you do not agree with our decision. You can also use this during the check, if you disagree with what we’re checking. This does not affect your right to appeal." (GOV.UK). GOV.UK's appeals guide: "You can challenge some decisions about:"
  • a penalty (for example if you paid your tax late or filed your tax return late)
  • your tax bill (for example Income Tax, Corporation Tax, VAT)
  • a claim for tax relief
  • a request for information or to check your business records
  "You may be able to delay paying the bill or penalty until the matter has been resolved." (GOV.UK: Disagree with a tax decision or penalty, page date 2014-11-24).
• Canada: "If you disagree with the adjustments proposed by the auditor, you are encouraged to contact the auditor to try and resolve disagreements. If issues remain unresolved, you can contact the auditor’s team leader to discuss them further." "If you want to dispute your reassessment, you have the right to object. When you file an objection, you have to explain why you disagree and include all relevant facts and supporting documents." "Note that, in most cases, interest charges still apply to an amount owing while it is in dispute." (CRA: Business audits).

Deadlines for appeals and objections are strict and are set out on the letters and official pages; we haven't checked the full appeal and objection procedures for this page.

8. Side by side

Our summary of sections one to seven, not official wording. Companies, payroll and sales taxes are left out.

9. What to have ready

Only send what the letter asks for, but have these to hand (our summary of the official pages above, not an official checklist):

10. Step by step

1. Check the contact is real before you send anything, using the agency’s own website or the number on an official letter.
2. Note the deadline and what period and items are being checked.
3. Ask for more time early if you need it, the way the letter says.
4. Gather the records they ask for, and send copies, never originals.
5. Organise them by year and type, with a short summary and a note on anything unusual.
6. Answer what you’re asked, clearly and on time; ask the officer if a request isn’t clear.
7. If you find a mistake yourself, tell them about it and work out the right figure with them.
8. Keep filing and paying on time while the check runs.
9. Read the findings carefully; agree, or use the review, objection or appeal routes in time.
10. If you owe tax at the end and can’t pay it all, ask about paying over time straight away.

Our order of steps, based on sections one to seven; your letter comes first if it says something different.

11. Habits that make a check easier

• Log every invoice with its date, client, amount and the date it was paid.
• Keep every receipt and write what it was for while you still remember.
• Keep a mileage or travel log as you go, not at year end.
• Keep business and personal spending easy to tell apart in your records.
• Keep digital records in a format you can still open years from now.
• Keep a copy of each return with the figures and notes behind it.

Our list. For when income and expenses count, see cash vs accrual accounting.

Free tools and kits

• Our free invoice generator, receipt generator, expense and receipt log (Canada) and mileage logs for the US, the UK and Canada run in your browser; nothing you type is sent or saved. They help you keep records as you go; none of them deals with an audit for you.
• Our paid Freelance Billing Kit by Small Rows (US$12, one-time) keeps two lists that are useful in a check: the Invoices tab has each invoice's number, client, issue date, amount paid and paid date, and the Expenses tab logs the date, category, description and amount of each cost, with yearly totals by category. It doesn't store receipts or bank statements, check your return, or deal with the IRS, HMRC or the CRA for you.
• All three kits together: the All-Kits Bundle by Small Rows (US$24, one-time).

Where the sources differ

• Names: the IRS and the CRA say audit; HMRC says compliance check, sometimes called a tax enquiry.
• First contact: the IRS says it won't start an audit by phone; HMRC may call or write; the CRA usually phones first and then sends a confirmation letter.
• How far back: only the IRS page we read gives a general look-back; the GOV.UK and CRA pages we read don't. The CRA says records must generally be kept for a minimum of six years and the IRS says at least three years from filing for the records you used, but those are record-keeping rules, not audit limits.
• Penalties: HMRC's factsheet explains how helping and telling it about mistakes first can lower a penalty. The IRS and CRA audit pages we read don't set out penalty rules.
• Disagreeing: the IRS offers a manager conference, mediation or an appeal; GOV.UK gives three options within a time limit; the CRA points to talking with the auditor and team leader, then an objection to the reassessment.
• Old page dates: some pages show dates from years ago (in Sources). We go by the wording on the day we checked.
• What we did not check: US state tax audits; IRS appeal and Tax Court procedures in detail; how far back HMRC can check, and the rules for HMRC information notices; HMRC penalty rates beyond pointing to the factsheet; the CRA objection process in detail; GST/HST, VAT and sales tax audits; payroll; companies and corporations; criminal investigations; Revenu Québec; the EU and other countries.

When to get advice

• the letter mentions an investigation, fraud or a deliberate error;
• you can't find records for the period being checked;
• you've found a mistake and aren't sure how to correct it;
• the findings say you owe more and you disagree with them;
• you've had an information notice, a notice of deficiency or a reassessment;
• the check covers VAT, GST/HST, payroll or a company as well as your own return.

Talk to an accountant or a tax adviser where you file; in all three countries, someone can deal with the tax agency on your behalf once you've authorised them. This page is general information only.

Related

• How to track freelance expenses
• Can't pay your tax bill? Payment plans for freelancers
• Payment scams that target freelancers
• Schedule C for US freelancers
• UK Self Assessment for freelancers
• Form T2125 for Canadian freelancers

Sources

• United States: IRS: IRS audits (page date 17-Feb-2026) · IRS: Audits records request (page date 17-Jan-2026)
• United Kingdom: GOV.UK: HMRC compliance checks: help and support (page date 2025-12-12) · HMRC: About compliance checks, CC/FS1a (page date 2025-04-30) · HMRC: Penalties for inaccuracies in returns and documents, CC/FS7A (page date 2026-07-21) · GOV.UK: Disagree with a tax decision or penalty (page date 2014-11-24)
• Canada: CRA: Business audits (page date 2025-04-17) · CRA: RC4188, What you should know about audits (page date 2023-10-16) · CRA: What to do if the CRA is asking you for information (page date 2019-08-16)

Checked 2026-10-17. Found a mistake? Tell us via Support.