HMRC’s Risk-Based Approach
HMRC does not manually check every tax return line by line. Instead, it uses a risk-based system to identify returns that appear unusual or inconsistent. HMRC will also cross check returns with data from employers, so if anything is misaligned, it will be questioned.
This system combines automated checks with targeted human review. The goal is to focus resources where there is the greatest risk of error, underpayment, or non-compliance, rather than scrutinising every taxpayer equally.
Most compliant taxpayers never hear from HMRC after submitting their return.
Accuracy and Consistency
One of the first things HMRC looks for is accuracy and consistency.
HMRC compares the figures in your tax return with information it already holds. This includes data from employers, banks, pension providers, property transactions, and previous tax returns.
Large or unexplained changes from one year to the next can attract attention. For example, a sudden drop in income or a sharp increase in expenses without a clear reason may be flagged for review.
Consistency does not mean figures must stay the same, but changes should make sense and be supportable.
Income Reporting
Income is a major focus area for HMRC.
HMRC checks that all relevant income sources are included, such as employment income, self-employment profits, dividends, rental income, and interest. Missing income is one of the most common causes of enquiries.
For self-employed individuals and company directors, HMRC may compare declared income against industry benchmarks. If income appears unusually low for the type of work being carried out, this may raise questions.
The key is full disclosure. It is always better to include income and claim legitimate reliefs than to omit income entirely.
Expenses and Deductions
Expenses are another area HMRC pays close attention to.
HMRC looks for expenses that are:
- Wholly and exclusively for business purposes
- Reasonable in relation to the business activity
- Consistent with the type and size of the business
Claims that appear excessive or unrelated to business activity may be challenged. For example, high motor expenses, home office claims, or travel costs can be reviewed if they seem disproportionate.
HMRC is not against expense claims, but it expects them to be justified and correctly calculated.
Use of Allowances and Reliefs
HMRC also reviews how allowances and reliefs are used.
This includes personal allowances, capital allowances, pension contributions, and reliefs such as business asset disposal relief. HMRC checks that eligibility conditions are met and that claims are supported by evidence.
Incorrect use of reliefs, even unintentionally, can result in additional tax, interest, or penalties.
Understanding the rules around reliefs is essential, particularly for more complex situations.
Self-Employment and Cash-Based Businesses
Self-employed individuals and cash-based businesses often face greater scrutiny.
This is because income can be harder to verify where there is no third-party reporting. HMRC may look closely at turnover, margins, and expense ratios compared to similar businesses.
Poor record-keeping is a common trigger for enquiries. If figures appear estimated or inconsistent, HMRC may request further information.
Keeping clear, up-to-date records is one of the best ways to reduce risk.
Rental and Property Income
Property income is another common focus area.
HMRC checks that rental income is correctly reported and that allowable expenses are claimed appropriately. It may cross-check returns against Land Registry data, letting agent information, or mortgage interest claims.
Errors often arise where individuals misunderstand what costs are allowable or fail to declare income from second properties or short-term lets.
Clear records and correct categorisation of expenses are key.
Timing and Deadlines
HMRC also looks at whether tax returns are submitted on time.
Late submissions can increase the likelihood of further scrutiny, particularly if delays are repeated. Penalties may apply even if no additional tax is due.
Submitting on time and paying tax when due demonstrates good compliance behaviour and reduces overall risk.
Behaviour and Compliance History
Your compliance history matters.
HMRC takes into account past behaviour, including previous errors, late filings, or unpaid tax. A good compliance record can reduce the likelihood of enquiries, while repeated issues may increase attention.
This does not mean one mistake leads to long-term problems, but patterns do matter.
Being open and cooperative if HMRC does ask questions can also influence outcomes.
What Triggers an HMRC Enquiry
Common triggers for HMRC enquiries include:
- Missing or incomplete information
- Large year-on-year changes without explanation
- High expense claims relative to income
- Inconsistencies with data HMRC already holds
- Late or amended returns
An enquiry does not automatically mean wrongdoing. Often, HMRC simply wants clarification or supporting evidence.
What HMRC Does Not Focus On
It is worth noting what HMRC generally does not focus on.
HMRC is not looking to penalise honest mistakes where reasonable care has been taken. It understands that tax can be complex and that errors happen.
HMRC is more concerned with careless, deliberate, or concealed errors than minor miscalculations made in good faith.
Taking reasonable steps to get things right goes a long way.
How to Reduce the Risk of HMRC Queries
There are several practical steps you can take to reduce the risk of HMRC enquiries.
Keep clear and accurate records throughout the year. Avoid estimating figures where possible. Ensure all income is declared, and only claim expenses you understand and can justify.
One of the biggest risk-reducers is accurate record-keeping. It’s also one of the most common areas HMRC questions when they review accounts.
If something has changed significantly from the previous year, keep notes explaining why. These explanations can be invaluable if HMRC asks questions later.
Working with an accountant can also help ensure your return is accurate and compliant.
Upcoming Changes to Self-Assessment Submissions
From April 2026, Making Tax Digital will require landlords and sole traders earning over £50,000 to keep digital records and submit quarterly updates, rather than a single annual Self-Assessment return.
Even if you do not yet meet the MTD threshold, now is a good time to move to cloud accounting software. Keeping your records accurate and up to date will make future compliance far simpler, particularly as MTD is expected to expand to those earning over £30,000 from April 2027, with further groups likely to follow.
If you are unsure how Making Tax Digital affects you, would like to learn more, or need support with onboarding to cloud accounting software, visit our MTD page.
What to Do If HMRC Gets in Touch
If HMRC contacts you about your self-assessment tax return, do not panic.
Most enquiries are routine and can be resolved by providing information or clarification. Respond promptly, provide accurate details, and seek professional advice if needed.
Ignoring HMRC or providing incomplete information can escalate matters unnecessarily.
Final Thoughts
HMRC is not actively looking to catch compliant taxpayers out. Its focus is on accuracy, consistency, and risk.
By understanding what HMRC actually looks for in a tax return, you can submit with confidence, reduce stress, and avoid unnecessary issues. Clear records, honest reporting, and timely submissions are the foundations of smooth tax compliance.
If you are unsure about any aspect of your tax return, seeking advice early is far easier than dealing with problems later.
