HMRC Compliance Checks: What Every Business Should Know

Receiving a letter from HMRC advising that your tax affairs are being reviewed can be an unsettling experience. However, a compliance check does not necessarily mean that HMRC believes you have done something wrong. Many checks are routine, while others are prompted by information that HMRC has received or identified through its data analysis.

As HMRC continues to invest in technology and data sharing, compliance activity remains an important part of its strategy to ensure that the correct amount of tax is paid. Understanding why compliance checks take place and how to prepare for them can help businesses and individuals respond with confidence.

Why is HMRC carrying out compliance checks?

HMRC’s role is to ensure that taxpayers pay the correct amount of tax under UK legislation. To do this, it carries out compliance checks across a wide range of taxes, including Income Tax, Corporation Tax, VAT and PAYE.

In recent years, HMRC has significantly expanded its use of digital information. Data received from employers, banks, Companies House, online marketplaces and other third parties allows HMRC to compare information from multiple sources and identify discrepancies that may require further investigation. While some enquiries are targeted using this data, others are selected at random, meaning any taxpayer could be subject to a compliance check.

What can trigger an enquiry?

There is no definitive list of triggers, and being selected for a compliance check does not automatically indicate an error. However, common reasons for HMRC opening an enquiry include:

• Significant fluctuations in income or profits
• Inconsistencies between tax returns and information held by HMRC
• Unusually high expense claims
• Repeated late submissions
• Errors in VAT returns, payroll reporting or claims for tax reliefs may also attract attention.

In some cases, HMRC carries out sector-specific campaigns where it focuses on industries that it believes present a higher compliance risk.

What happens during a compliance check?

HMRC will normally contact you in writing, explaining which tax return or aspect of your affairs it would like to review. It may ask for accounting records, invoices, bank statements or other supporting documentation. Depending on the nature of the enquiry, HMRC may also ask additional questions or request clarification of particular transactions.

Responding promptly and providing clear, organised records can help the process progress more smoothly. Many enquiries are resolved without significant adjustments where sufficient evidence is available to support the figures submitted.

How can you prepare?

The best way to prepare for a HMRC enquiry is maintaining accurate and up-to-date records throughout the year.

Businesses should ensure that invoices, receipts and bank statements are retained and that bookkeeping records are kept current. Regular reconciliations and reviewing tax returns before submission can help identify errors before they become an issue.

Seeking professional advice before making unusual claims or undertaking complex transactions can also reduce the likelihood of mistakes that may later require explanation.

How we can help

If HMRC opens a compliance check, having professional support can make the process easier. At Parsons, we can help you understand HMRC’s requests, prepare appropriate responses and ensure the necessary information is presented clearly and accurately.

While it’s impossible to eliminate the possibility of an HMRC compliance check, good record-keeping, timely tax reporting and professional advice remain the best ways to minimise risk.

If you have concerns about your tax affairs or would like a review of your records before your next tax return is submitted, get in touch with our tax team on 01924 669 500.

This article was written by Craig Lawler, Business Services Senior Tax Manager at Parsons Accountants