Why Might Your Self-Assessment Tax Return Be Investigated?
Even if you have not made any mistakes in your tax return and have nothing to hide, the prospect of an HMRC investigation can be worrying. So, what triggers an HMRC investigation, and what does HMRC do?
What is an HMRC Tax Investigation?
To ensure that you are paying the correct amount of tax, HMRC can investigate your financial records and tax affairs at any time. HMRC will contact you by letter or phone to explain what they intend to investigate. If your tax returns are prepared by an accountant, HMRC will contact them first (they must inform you immediately).
Besides Self-Assessment tax returns, HMRC also investigates corporation tax returns, employer PAYE records, VAT returns, and other tax matters. HMRC may conduct a full investigation (examining all financial and tax records) or focus on a specific aspect (such as a recent Self-Assessment return). While less common, HMRC also conducts random investigations, meaning any taxpayer or business could be subject to an audit, regardless of their records’ quality.
What Triggers an HMRC Investigation?
Your filed tax return is cross-checked with HMRC’s existing data on you or your business. Any significant discrepancies can raise concerns and trigger an investigation. HMRC’s advanced data analysis tools automatically detect unusual patterns.
For example, if your reported business expenses suddenly increase or your turnover drops significantly, reducing your tax liabilities, HMRC may want to investigate the reason. It is important to be careful when filling out your Self-Assessment tax return, as even innocent mistakes can lead to an investigation. Claiming ignorance is unlikely to prevent a penalty.
HMRC investigations are more common in industries where cash-in-hand transactions are frequent. If the income and expenses reported in your tax return do not match industry standards, HMRC may become suspicious. Repeated late filings of Self-Assessment returns can also trigger an investigation, as well as tips from third parties.
What Happens If HMRC Starts an Investigation?
HMRC may request a home visit, a meeting at your business premises (if applicable), or at your accountant’s office. Alternatively, you might be asked to visit your nearest tax office (you can bring an accountant or legal advisor).
HMRC can also request third-party information and search premises if necessary. The more serious the issue, the more thorough the investigation. Errors in tax returns may cause HMRC to review previous years’ data, which could lead to additional fines if other issues are found.
You should fully cooperate with HMRC’s investigation. Ignoring notices or refusing a visit will worsen the situation. Once the investigation is complete, HMRC will send you a summary of their findings, and you have the right to appeal if you disagree with the decision.
Consequences of an HMRC Investigation
When deciding on a penalty, HMRC considers:
- The nature of the error,
- Its impact on your tax obligations,
- Whether your actions were intentional or unintentional,
- Your level of cooperation.
The harshest penalties apply to deliberate concealment of income or fraudulent overstatement of expenses to reduce tax liability. Fines can be up to 100% of the unpaid tax, and you will still need to pay the correct tax amount.
If the mistake was honest and minor, the outcome may be more lenient, especially if you voluntarily report it to HMRC. Some investigations result in no additional tax owed, though business owners may still lose time and resources.
How to Reduce the Risk of an HMRC Investigation
Use reliable accounting and filing software to prevent errors.
Take your time when filling out your Self-Assessment tax return—rushing increases the risk of mistakes.
Ensure all data is accurate and provide all required information.
Do not claim ineligible expenses—check tax-deductible expenses if you are self-employed.
Never conceal taxable income or lie about your expenses.
If your income or expenses significantly change, explain why in your tax return.
Seek help from a professional accountant to review or prepare your Self-Assessment return to prevent errors.
Keep receipts and invoices for all business purchases.
File your Self-Assessment tax return on time—late filings increase the chance of an investigation.