Nobody wants to receive that dreaded brown envelope from HMRC…the one that you open and see the word “investigation.” It’s up there with bills, MOT renewals, speeding tickets, and anything else on the list of things we’d rather not think about. But here’s the thing: HMRC tax investigations are on the rise, whether we like it or not, and knowing what to expect can make all the difference.
Since being investigated by the taxman is a big part of HMRC’s armoury of getting more money out of businesses and individuals, here is what you need to know.
The numbers don’t lie
In 2024/25, HMRC carried out 316,000 compliance checks. That’s not a typo. And the results? VAT investigations alone raised an extra £1.11 billion; income tax brought in another £211 million, and other investigations added £512 million more.
In addition to that, there’s been a reported 28% rise in tax investigations recently, and HMRC has been actively recruiting new compliance officers to maintain the momentum. They’ve also started returning to in-person visits after years of remote checks. In other words, the taxman wants to visit you and see your (digital) paperwork for themselves.
| JVCA tip: Incidentally, HMRC’s known key targets are VAT, wealthy individuals, and SME businesses. |
What triggers an HMRC tax investigation?
Over 90% of cases are flagged by HMRC’s risk-assessment software. Random checks do happen, but they’re the exception rather than the rule. Common red flags that trigger an investigation include:
- Frequent late returns
- Unusual VAT repayment claims
- Big fluctuations in profits or expenses
- Working in a high-risk industry (hospitality, construction, etc.)
- Mismatches between your returns and third-party data from suppliers, customers, or banks
Put simply, if something in your returns looks odd to the computer, you’re more likely to get a knock on the door.
How to protect yourself from a tax investigation
As we said, getting randomly picked does happen, but most of the time, investigations are triggered by inconsistencies. For you, this means there are things you can do to protect yourself from getting flagged in the first place.
For example:
1. Get tax investigation insurance. Like all insurance, you hope you’ll never need it, but if you do, you really need it. At JVCA, we make sure our clients have this cover because investigations can be time-consuming and expensive to deal with.
2. Keep clean books. Messy records are a red flag in themselves. The more organised your paperwork, the less likely you are to trigger suspicion, and the easier any investigation will be if it does happen.
3. Consider a tax health check. We offer reviews for VAT compliance, SME business compliance, and wealthy individual compliance. Think of it as a MOT for your tax affairs; it’s better to find problems yourself than have HMRC find them for you.
Want peace of mind that you’re as protected as can be?Get in touch with us today. We can review your finances and help you put in place what you need to stay off HMRC’s radar. |
What if you’re being investigated?
First: don’t panic. An HMRC tax investigation doesn’t automatically mean you’ve done anything wrong. You may have triggered a risk warning in the computer, or you may simply have been selected at random.
That said, take it seriously. If you receive a letter (or worse, an unannounced visit), get in touch with us before you respond to HMRC. We don’t advise speaking to them until you’ve spoken to us first.
VAT is a particularly common area for investigations, partly because it’s so complicated. Multiple rules, different treatments depending on what you sell and who you sell to… it’s the tax where innocent mistakes happen most often.
Need help with a tax investigation? Get in touch. Our tax investigation support service provides everything you need during this time. From going back over the years and obtaining all of the information HMRC needs to liaising with fraud or criminal investigators, we will support you through every step. |
What HMRC are looking for
HMRC are the police of the tax world. Their job is to make sure all relevant taxes have been paid and that any claims are backed up with evidence.
Right now, they’re drilling deeper into VAT reclaims and the documentation behind them. Specifically, they want to see that you actually incurred VAT on the things you’re claiming for, and that those were genuine business expenses.
| JVCA tip: Keeping your VAT receipts is non-negotiable. Payment confirmations, booking emails, and screenshots won’t cut it. You need the actual VAT invoice or till receipt; otherwise, no receipt, no reclaim. HMRC’s guidance on VAT records is clear on this. If you use Xero software, we recommend you can keep them digitally. |
As well as VAT, HMRC has always been strict about personal use. If you get investigated, they will look at this area of your business.
Will they want to meet you?
Sometimes. HMRC investigators may want to visit your premises, meet you in person, and go through everything face-to-face. If that happens, we’ll be there with you. We can even host the meeting at our offices if you’d prefer.
Since the pandemic, in-person visits have been less common, but they are coming back. It’s still a key part of HMRC’s toolkit for handling tax investigations.
Need help?
At JVCA, we don’t leave you to deal with an HMRC tax investigation alone. We’ll help you understand what’s being asked, gather the right information, and write back to HMRC on your behalf. From start to finish, we’ve got your back.
Worried about a tax investigation? Or just want peace of mind? Get in touch and let’s talk. |
