One of HMRC’s core responsibilities is managing income tax—this includes processing self-assessment returns and issuing any tax relief owed. While much of this process is now automated thanks to advances in technology, that doesn’t mean HMRC isn’t watching. In fact, they regularly carry out compliance checks on self-assessment tax returns, especially when something doesn’t quite add up.

If you’ve ever wondered whether HMRC really checks tax returns, the answer is yes—they do. And sometimes, it’s random. Other times, it’s because something in your return raised a red flag.

Why Would HMRC Investigate My Tax Return?

HMRC may launch a compliance check or tax investigation if it suspects something is amiss with your self-assessment or other tax filings. This applies to both individuals and companies. Common triggers include:

• Figures that don’t seem right (e.g., high expense claims or low reported income)
  
• Large VAT refund claims when turnover is unusually low.
  
• Unusually low declared tax compared to turnover
  
• Late submission of returns
  
• Late payment of taxes
  
• Cash-in-hand industries with a higher risk of under-reporting
  
• Unexplained high levels of personal or business spending
  
• Reports from third parties related to financial misconduct
  
• Income that differs significantly from previous years
  
• Accounting practices that differ from industry norms

The aim of these investigations is simple: to reduce tax fraud and ensure accurate reporting. And make sure everyone pays what they owe.

Types of Tax Investigations by HMRC

If HMRC decides to investigate your self-assessment return, it will usually fall under one of the following three categories:

1. Random Investigation

These checks happen without warning and aren’t based on any specific suspicion. HMRC selects tax returns at random to ensure general compliance and accuracy across the board.

2. Aspect Inquiry

In an aspect inquiry, HMRC focuses on a specific part of your tax return that doesn’t look quite right—this could be an unusually high expense claim, missing income details, or inconsistencies in reported figures.

3. Full Inquiry

A full inquiry is the most comprehensive type. HMRC will examine every part of your financial records—business and personal. For companies, this could also involve a deep dive into the finances of directors and shareholders.

Dealing with a Tax Investigation

Tax investigations can be time-consuming and stressful, no matter how organized you are. That’s why it’s often best to get help from a licensed tax advisor or accountant. These professionals can:

• Liaise with HMRC on your behalf
• Help you understand what’s being asked
• Ensure your records are accurate and complete.
  

Keep in mind that while an expert can handle most of the communication, the responsibility for accurate reporting ultimately rests with you.

How Does HMRC Get Information About You?

You might be surprised by just how much HMRC knows about your income and financial activity—even side gigs or freelancing work don’t go unnoticed.

That’s because HMRC uses a powerful data analytics system called Connect. True to its name, Connect pulls together information from a various sources to paint a full picture of your financial life. These sources include:

• Government databases like the Land Registry, DVLA, and the electoral roll
  
• Banks and financial institutions that report savings, investments, and income
  
• Online platforms, including e-commerce sites & social media
  
• Cryptocurrency exchanges and digital wallets
  
• Employer and pension scheme data, and more
  

Once Connect gathers the data, it compares it against the details you’ve submitted in your tax return. If there are any gaps or inconsistencies—say, your lifestyle doesn’t match your reported income, or you fail to declare freelance earnings—HMRC may flag your return for further review.

Will I Know If My Self-Assessment Tax Return Is Being Investigated by HMRC?

Yes — if HMRC decides to investigate your self-assessment tax return, you will be informed.

HMRC will either send you a letter or contact you by phone to let you know that your return is under review. The communication will include details about the part of your return they are checking and what information or documents they might need from you.

What Should You Do If You’re Contacted?

1. Never ignore HMRC correspondence. Always read any letter or notice carefully and follow the instructions provided.
   
2. Verify the authenticity. If you’re unsure whether a phone call or letter is genuinely from HMRC, it’s smart to contact them directly using the official contact number listed on their website.
   
3. Be aware of scams. HMRC is a common target for fraudsters. They will never ask for personal or financial details via email or text. Always double-check before sharing any sensitive information.

If you’re feeling unsure or overwhelmed, consider seeking help from a qualified tax adviser or accountant. They can speak to HMRC on your behalf and help ensure everything is handled correctly.

How Long Can HMRC Investigate My Tax Return?

The timeframe in which HMRC can investigate your self-assessment tax return depends on the nature of the issue they uncover. Here’s a breakdown:

• Standard Checks – If your tax return is selected for review without any major concerns, HMRC usually has up to 1 year from the date you file your return to open an investigation.
  
• Simple Mistakes or Random Checks – For genuine errors or routine checks, HMRC can investigate up to 4 years after the end of the tax year in question.
  
• Careless Mistakes – If HMRC believes you’ve been careless with your records or reporting, they have up to 6 years to look into your return.
  
• Deliberate Fraud or Evasion – In serious cases involving deliberate misreporting or tax evasion, HMRC can investigate your affairs for up to 20 years.
  

It’s important to keep accurate records and submit your return on time to reduce the risk of extended investigations. If you’re ever unsure about how to handle your self-assessment or an HMRC inquiry, seeking professional advice is a wise move.

Can I Avoid a Self-Assessment Tax Return Compliance Check?

In short, “No”, you can’t completely avoid a compliance check, especially when it comes to random investigations by HMRC. These checks are part of HMRC’s strategy to ensure tax compliance and can happen to anyone, regardless of how accurate or honest your return is.

However, what you can do is reduce the likelihood of raising any red flags. Here’s how:

• Submit your tax return on time – Always file before the deadline to avoid suspicion and penalties.
  
• Double-check all figures – Accuracy matters. One small error can lead to an unnecessary compliance check.
  
• Keep detailed and organized records – This includes income, expenses, invoices, and receipts.
  
• Consider hiring a professional – If you’re not sure or short on time, work with a trusted accountant like Cangaf Ltd. We help ensure your return is spot-on and fully compliant.
  

Even if you do get selected for a check, don’t panic. Most checks are routine and straightforward. Often, HMRC just needs clarification on a number that might have been entered incorrectly or seems inconsistent with previous years. The key is to respond honestly and promptly.

Need Help With Your Self-Assessment Tax Return?

At Cangaf Ltd., our experienced accountants take the stress out of tax season. Whether you’re filing for the first time or dealing with a compliance check, we’re here to guide you every step of the way. Get in touch today and let’s make tax season worry-free.