Let’s Be Honest…
Most people only think about HMRC when they get a letter from them.
And nothing tightens the stomach faster than seeing “We are checking your tax return.”
But here’s the thing:
HMRC doesn’t randomly investigate people.
There are common patterns, mistakes, and “red flags” that make their system take a closer look at your accounts.
So if you’ve ever wondered, “Is HMRC watching me?” — this guide will give you the honest answer.
First: No, HMRC Isn’t Refreshing Your Instagram All Day
But they do have one of the most advanced data‑tracking systems in the world — it’s called Connect.
It looks at:
- Bank activity
- VAT returns
- Tax returns
- DVLA data
- Land Registry
- UK border entry/exit data
- Companies House
- Online marketplace sales
- And, yes… public social media posts
So if someone claims they made £12k last year but posts a new Rolex and a Dubai trip?
Connect picks it up instantly.
Welcome to modern tax.
Top HMRC Red Flags That Trigger an Investigation
1️⃣Your Numbers Don’t Add Up
If your sales, expenses, profits, or VAT numbers look odd compared to:
- Last year
- Your industry average
- Similar businesses in your area
HMRC notices.
Think:
- Revenue suddenly drops 40%
- Profit jumps massively without explanation
- Expenses look unusually high for your business type
It doesn’t mean you did something wrong — it just means they might check.
2️⃣ Round Number Invoices (or Everything Ends in .00)
If all your invoices, expenses, or declared figures look too “clean,” HMRC gets suspicious.
Real business numbers look messy.
Fake ones often look… a bit too perfect.
3️⃣ Cash-Heavy Businesses Without Matching Records
If you’re in a business that often handles cash (builders, beauty, hospitality, etc.), HMRC expects solid record‑keeping.
Things that trigger a look:
- Low declared income but high living costs
- No till records
- No receipts
- “Forgot to record it” too many times
4️⃣ VAT Issues or Inconsistent VAT Returns
These are huge red flags:
- Repeated late VAT returns
- Big jumps in VAT reclaims
- Large “input VAT” claims with no clear explanation
- Sales and VAT numbers that don’t match HMRC’s own data
Remember: HMRC gets your info before you file.
The system flags differences automatically.
5️⃣ Lifestyle ≠ Income
This is a big one — and becoming more common each year.
If you publicly show a lifestyle that doesn’t match your declared income, you may trigger a review.
Examples:
- Low income + luxury holidays
- Low profit + high-end car
- “Small business” + designer everything
- Posting multiple trips, expensive gifts, or lavish meals
HMRC doesn’t stalk you — but their Connect system does pick up public data and cross-check it automatically.
6️⃣ Claiming 100% Business Use on Things You Also Use Personally
Red flags:
- 100% of your phone bill
- 100% of your home use
- 100% of a car that is clearly used personally
- Big cost claims without receipts
HMRC isn’t unreasonable — they just want realistic numbers.
7️⃣ Missing, Messy or “Backdated” Bookkeeping
Common triggers:
- No receipts
- No mileage logs
- No bookkeeping until the end of the year
- Big expenses all added on the same date
- Inconsistent bookkeeping entries
Good bookkeeping = low risk.
Bad bookkeeping = HMRC’s favourite playground.
8️⃣ Directors’ Loan Issues (LTD Companies)
If you’re a company director and:
- You’ve taken money out of the business
- But haven’t repaid it
- And your DLA is overdrawn
HMRC gets interested — quickly.
Overdrawn directors’ loans are one of their top triggers for company investigations.
9️⃣ Someone Reported You
Yes, this happens more than people realise.
HMRC gets thousands of anonymous reports every year from:
- Ex-employees
- Ex-partners
- Neighbours
- Competitors
- Angry customers
If someone reports you, HMRC may run checks — even if the report is wrong.
Important Note:
An HMRC investigation doesn’t always mean you did something wrong.
Sometimes the system simply wants clarification.
But avoiding these triggers makes your life much easier.
How to Stay Off HMRC’s Radar
Here’s the simple checklist:
- Keep clean bookkeeping (don’t guess numbers)
- Avoid round number estimates
- Keep receipts, logs, and explanations
- Don’t claim unrealistic expenses
- File on time
- Make sure your lifestyle matches your income
- Don’t ignore HMRC letters
Or the easiest option…
Want to Stress Less? We Can Help.
If you’re worried about red flags — or unsure whether your accounts look “safe” — we’ve built a tool just for you.
Try Our Free Red Flag Checker
It will help you spot:
- Risky patterns
- Missing records
- Expense issues
- Potential HMRC triggers
- Signs of overclaiming or underpaying
Prefer to talk to someone?
Contact Us — We’ll Match You With a UK-Registered Accountant
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