Ever since the Chancellor confirmed a crack-down on compliance in the Spring Statement, we have seen a ramp-up in investigative activity by HMRC – with the latest announcements citing a wave of new tax investigations targeting high-income earners.
With new funding, expanded compliance teams and growing reliance on digital data, HMRC is conducting more frequent investigations targeted at businesses and individuals alike.
This ramp-up in enforcement means an increase in the likelihood of scrutiny and the potential for costly, time-consuming investigations.
What increases the likelihood of an investigation?
While selection can be random, certain factors may increase the chances of HMRC knocking on your door e.g.
- Minor accounting irregularities, mismatches or inconsistent claims.
- Operating in sectors deemed to be ‘high-risk’ such as construction, hospitality, retail or professional services.
- Using complex financial structures, such as subcontracting or mixed employment arrangements.
- Large or unusual transactions compared to prior years.
- Delays or errors in VAT, PAYE, or corporation tax submissions.
Even smaller discrepancies, like the incorrect classification of business expenses, can prompt HMRC to dig deeper.
What happens if you are selected?
You will first become aware that you are being investigated when you receive a formal letter from HMRC outlining what type of enquiry it is (e.g. full return vs. aspect enquiry).
Next, you will be asked to provide records, evidence and explanations. The timeframe of this varies, but can often go back several years.
You will need to respond accurately and promptly and, ideally, with the support of a tax professional.
Even if no tax adjustment is made, the investigation can take months and rack up considerable professional fees.
What can business owners do to prepare?
With consistent messaging in the press around HMRC’s increasing investment in investigations, now is a good time for business owners to take stock and ensure they’re protected.
- Strengthen Internal Controls: Regular internal audits and up-to-date financial processes will help you spot and address issues early. This practice also demonstrates good governance.
- Maintain regular contact with your tax adviser: An experienced adviser can flag risk areas, advise on grey zones in tax law, and help you respond appropriately if an investigation arises.
- Purchase tax investigation protection: Tax investigation fee protection services provide cover for the professional costs of managing an HMRC enquiry, including accounting and legal fees. Most accountants offer this protection at competitive prices.
- Embrace digital record-keeping: Accurate, accessible and audit-ready digital systems not only reduce manual errors, but also align with HMRC’s Making Tax Digital.
How can we help?
Being investigated by HMRC does not mean that you’ve done anything wrong, but the process can still be disruptive and costly. With the odds of selection increasing and compliance expectations tightening, now is the time for business owners to take proactive steps.
If you have concerns about the risk of an HMRC investigation, contact us or email tax@haroldsharp.co.uk to discuss your options.