Understanding HMRC Enquiries: Identifying Risk Areas and Strengthening Compliance

A letter from HM Revenue & Customs notifying you of a tax enquiry is enough to unsettle any business owner. Such enquiries can be time-consuming, stressful, and, if poorly managed, very costly.

We regularly support businesses facing these challenges, and in many cases, the root cause is avoidable. With the right knowledge and approach, you can recognise the red flags that trigger HM Revenue & Customs scrutiny, and protect your business from unnecessary exposure

🚩 What Triggers an HM Revenue & Customs Investigation?

HM Revenue & Customs uses advanced technology to cross-check data and detect anomalies. These are some common red flags:

i. Inconsistent or incomplete tax returns: Year-on-year discrepancies or figures that don’t align with industry norms can prompt further investigation.
ii. Unusual or unsubstantiated expenses: High-value deductions without adequate records are a red flag.
iii. Lifestyle not matching declared income: A lavish lifestyle on modest declared earnings may invite questions.
iv. Frequent or late amendments to submitted returns: Repeated corrections suggest poor internal controls or, worse, deliberate misreporting.
v. Anonymous tips or third-party disclosures: HM Revenue & Customs often acts swiftly on credible information from whistleblowers or automated data-matching.

🛡️ How to Safeguard Your Business

Taking preventative steps is key to staying enquiry-ready:
✅ Maintain clear and accurate records
Good bookkeeping isn’t optional; it’s your first line of defence.
✅ Engage qualified professionals
Working with a trusted Tax Adviser, ensures accuracy and compliance.
✅ Review your tax affairs regularly
Waiting until year-end to uncover errors can prove costly.
✅ Fully disclose all sources of income
Omissions, even if unintentional, can lead to penalties or deeper investigations.
✅ Respond to HM Revenue & Customs promptly and professionally
Clear and timely communication can help resolve matters quickly and favourably.

Being proactive about compliance not only avoids penalties but also gives peace of mind. HM Revenue & Customs uses increasingly sophisticated tools to detect discrepancies, so it’s more important than ever to be accurate, transparent, and prepared.