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What Can Trigger a Tax Inspection from HMRC?

Does the thought of the taxman make you SHUDDER? Ever wondered exactly what triggers a tax inspection from HMRC to knock on your door? And, what if HMRC wants to investigate me?

In some cases, an HMRC is completely random and becoming self-employed means you should remain mentally prepared for the fact that the taxman MAY approach you one day with questions on your tax returns.

That being said, there are some red flags that HMRC look out for which may increase your chances of a tax investigation.

1. What Triggers a Tax Inspection by HMRC?

  • Late tax returns;
  • Mistakes on tax returns;
  • Material differences between the numbers declared across different tax returns;
  • A dip in income declared or sudden increase in expenses claimed;
  • Inconsistency between your tax return and others in your industry;
  • HMRC carrying out increased investigations in particular industries because they’ve identified them as high-risk for tax fraud;
  • A customer/supplier of yours is being investigated which leads to HMRC looking into your details.

The most important thing to remember is not to worry about potential inspections. Just make sure:

  • You fill in all your tax returns honestly;
  • You keep all your paperwork safely to support the numbers on each tax return you submit;
  • If asked, you present information requested to HMRC and do not ignore any requests.

2. How Do I Know if HMRC is Investigating Me?

In most cases, you’ll be notified by HMRC that they are starting an investigation. You will almost certainly receive a brown envelope through your door with a letter explaining why they are investigating you and the information they require. In addition, they may contact you by email and phone if you added these to your tax return in the ‘tell us about you’ section.

3. Can HMRC See My Bank Account?

The taxman doesn’t actually look at your bank accounts on a regular basis. However, if they have suspicions about anyone not declaring income they do have the right to request information from the bank without seeking permission from the account holder. Meaning they can take a sneaky peak without you knowing!

But on a day-to-day basis, HMRC does not look at what goes on in your account and, chances are, they would contact you first if they have a question about your income to request information, including your bank statements. Only in exceptional circumstances would they approach your bank without your prior permission.