With the self assessment tax deadline fast approaching, heightened attention is being paid to the factors that may trigger investigations by HM Revenue and Customs (HMRC). Accountancy professionals are urging directors and business owners to be vigilant, as HMRC continues its focus on compliance across UK companies.
Understanding the key triggers identified by tax experts can help firms minimise the risk of enquiries while managing forthcoming changes to digital tax requirements.
Recent research also reveals significant investment by small businesses in tax software, highlighting broader industry preparations for HMRC’s Making Tax Digital reforms, which come into effect in April 2026.
Growing scrutiny as HMRC deadline nears
As the 31 January HMRC self assessment filing deadline approaches, experts are reminding companies of the increased scrutiny on tax compliance. Accountants are warning that specific patterns of behaviour can raise the likelihood of an HMRC enquiry,
With the impact potentially ranging from requests for clarification to full-scale investigations. Tax authorities regularly employ both data analysis and risk assessment to select cases for review, making it vital for companies to understand the warning signs.
Common factors prompting HMRC investigations
Accountants highlight several common risk factors for UK limited companies that may prompt further investigation by HMRC. These include late submissions of corporation tax, VAT, or PAYE filings; repeated amendments to tax returns after they have been submitted; and the existence of large or longstanding directors’ loan accounts on company balance sheets.
Furthermore, inconsistencies between reported business figures and bank activity or online sales records can attract attention. A particular warning sign arises when company directors report a declared income that is inconsistent with their visible lifestyle or expenditure levels.
Random and risk-based selection by HMRC
While certain risk factors are well known, accountants caution that not all investigations arise from specific warnings. HMRC retains the authority to conduct random enquiries as part of its routine compliance operations.
A senior accountant recently noted that, 'Although companies can reduce their risk of being targeted by addressing key compliance gaps, it is important to note that HMRC also selects cases at random. Businesses should treat all guidance as educational and always seek professional advice regarding their unique circumstances.'
Increased reliance on tax software by small business
Recent industry research indicates that UK small businesses are currently spending nearly £5 billion per year on tax and accounting software, reflecting a broader shift towards digital record-keeping and compliance.
According to a recent survey, over one quarter of sole traders in the UK do not feel confident that they will be ready in time for upcoming tax changes in 2026.
Digital solutions are becoming more widely adopted as businesses seek to streamline their operations and ensure they meet HMRC standards, ahead of the increasing use of technology in tax administration.
Making Tax Digital: changes ahead
From April 2026, HMRC’s Making Tax Digital for Income Tax initiative will require all sole traders and landlords to maintain digital records and submit quarterly returns using approved software. This reform aims to make tax compliance more straightforward by reducing errors and helping taxpayers keep clearer records.
HMRC Deputy Director for Making Tax Digital, Jennifer Staves, commented, 'Making Tax Digital for Income Tax will help people keep clearer records and get their tax right.' She encouraged businesses to adopt HMRC-recognised software to ease the transition and ensure compliance.
Final Summary
As the tax filing deadline approaches and the transition to Making Tax Digital gains momentum, UK businesses are reminded to scrutinise their compliance practices. Key triggers for HMRC investigation include late filings, frequent return amendments, and inconsistencies between declared figures and actual business or lifestyle activity.
However, HMRC’s use of both targeted and random selection means that no company is completely exempt from enquiry. The rapid uptake of tax software among small firms reflects the sector’s efforts to modernise and prepare for April 2026’s new digital requirements. Businesses are advised to act now to ensure compliance, drawing on available technology and professional expertise.
For those seeking day-to-day financial tracking or more insights into tax compliance, solutions such as the Pie app may assist in maintaining best practices.
