HMRC spotlight: The top tax investigations you need to know about (and how to be prepared)

This analysis looks at the main areas HMRC is investigating now and gives practical advice on how to prepare if your situation relates to these targeted areas.

The gig economy and hidden trades

HMRC has launched a sustained campaign targeting participants in the rapidly expanding gig economy.

From ride-share drivers to freelance designers and delivery couriers to online tutors, HMRC is using sophisticated data gathering to identify those operating in the digital marketplace without proper tax registration.

Their specialised task force obtains data directly from platform operators like Uber, Deliveroo, Fiverr, and Airbnb, matching earning information against tax records to identify discrepancies.

Aatif Malik, the founder of Tax Accountant, says: “We’re witnessing an extraordinary surge in activity from HMRC within the platform economy sector.

“Many individuals engaging in this space remain unaware of their legal obligation to register as self-employed once their earnings exceed the trading allowance threshold of £1,000.

“This threshold, which applies to income from activities such as freelancing or selling goods online, serves as a critical marker for tax obligations.

“As a result, HMRC is now systematically identifying and pursuing cases of non-compliance, often delving back over several years to uncover any discrepancies.

“This increased scrutiny means that individuals who may have previously overlooked their tax responsibilities now face potential investigations and penalties.”

Preparation strategy: What to do if you’re in the gig economy

If you participate in the gig economy, ensure you've registered appropriately with HMRC, maintain complete records of all income and expenses, and consider whether previous years’ activities might require disclosure through HMRC’s Let Property Campaign or other disclosure facilities.

Crypto asset compliance

Cryptocurrency transactions represent another major focus area for HMRC. Its Crypto Asset Manual, published in 2021, clarified its position on taxing various crypto activities, from trading and mining to staking and NFTs.

HMRC now receives data directly from major UK exchanges and has issued “nudge letters” to thousands of suspected crypto investors, encouraging them to review their tax positions.

Investigation triggers in this space include:

- Large crypto-to-fiat currency conversions appearing in bank accounts

- Significant crypto trading activity not reflected in tax returns

- Mining operations with substantial energy consumption

- Participation in initial coin offerings (ICOs) or token sales

Preparation strategy: What to do if you make cryptocurrency transactions

Maintain detailed records of all crypto transactions, including acquisition dates, costs, and disposal proceeds.

Consider specialised software that tracks your crypto tax position, and ensure your tax advisor has expertise in this rapidly evolving area.

Offshore assets and international structures

Following the implementation of the Common Reporting Standard (CRS), HMRC now automatically receives detailed information about UK taxpayers' offshore financial accounts, structures, and assets from over 100 jurisdictions worldwide.

HMRC’s Offshore, Corporate and Wealthy unit specifically targets complex international arrangements, trusts, and offshore corporate structures.

High-net-worth individuals with international connections face particularly intense scrutiny.

Preparation strategy: What to do if you have offshore income

Ensure all offshore income sources are properly declared, review any trust or company structures with qualified international tax advisors, and consider whether the Worldwide Disclosure Facility might be appropriate if historic issues exist.

IR35 and employment status

HMRC continues aggressively enforcing IR35 legislation, which addresses “disguised employment” through personal service companies.

Following reforms that shifted responsibility to medium and large businesses in 2021, HMRC is scrutinising both end-clients and contractors for compliance.

Major investigation triggers include:

- Contractors working predominantly for one client

- Roles identical to permanent employees

- Limited substitution rights

- High levels of control by the end client

Preparation strategy: Use tools and get specialist advice

Review all contractor arrangements using HMRC’s CEST tool or specialist advice, ensure contracts accurately reflect working practices and maintain evidence of factors indicating genuine self-employment, such as substitution, multiple clients, and autonomy over work methods.

Property income and transactions

Property-related tax compliance remains a perennial focus area for HMRC.

Its Let Property Campaign targets undeclared rental income, while the Property Sales Taskforce examines property disposals for potential capital gains tax issues.

Data-matching allows HMRC to identify landlords through Land Registry records, letting agent returns, and even property listing websites. They're particularly focused on:

- Undisclosed rental income

- Holiday lets are incorrectly treated as main residences

- Property flipping without appropriate tax declarations

- Incorrect claims for private residence relief

- Undisclosed overseas property income

Preparation strategy if you have income from property

Ensure all property income is fully declared, maintain comprehensive records of property-related expenses, and review your capital gains tax position before any property disposals.

For overseas properties, understand the specific reporting requirements in both jurisdictions.

High-income professionals and business owners

HMRC’s High Net Worth Unit and Affluent Unit specifically target individuals with substantial income or assets.

These specialised teams employ experienced investigators who thoroughly examine complex financial affairs.

Business owners face scrutiny around:

- Directors’ loan accounts and withdrawals

- Benefits in kind and expenses

- Dividend timing and documentation

- Asset transfers between personal and business ownership

- Family member employment arrangements

Preparation strategy if you have a high income

Implement rigorous documentation practices for all transactions between you and your business, maintain a clear separation between personal and business expenses, and consider regular tax governance reviews to identify potential issues proactively.

VAT schemes and arrangements

HMRC’s VAT Compliance Strategy increasingly targets specific high-risk areas, including:

- Flat Rate Scheme applications and usage

- Split purchasing arrangements

- Option to Tax decisions on commercial property

- International supply chains and EU triangulation

- Digital services and remote selling arrangements

Their sophisticated risk assessment tools flag unusual VAT patterns for investigation, such as consistently claiming VAT refunds or reporting figures significantly different from industry norms.

Preparation Strategy if you are VAT-registered

Review your VAT accounting systems, ensure all VAT decisions are properly documented with supporting evidence, and consider a voluntary VAT compliance review if your arrangements are complex.

Preparation principles for all taxpayers

Regardless of your specific risk areas, certain universal principles help reduce investigation risk and improve outcomes if HMRC does come calling.

Documentation is your shield. Maintain comprehensive, contemporaneous records for all tax positions, particularly for unusual transactions or complex arrangements.

Consistency matters. Ensure that the information provided in different tax returns and submissions (income tax, VAT, corporation tax) tells a consistent story.

Disclosure beats discovery. When uncertain about tax treatment, disclosing your position in tax returns provides significant protection against penalties.

Professional advice creates a defence.

Documented advice from qualified professionals offers protection against penalties, even if HMRC ultimately disagrees with the position taken.

Regular review prevents surprises. Schedule periodic tax risk reviews with advisors to identify and address potential issues before they attract HMRC’s attention.

As HMRC continues to refine its targeting approach and expand its data-gathering capabilities, proactive management of tax compliance has never been more important.

Understanding these spotlight areas allows taxpayers to identify their risk exposure and implement appropriate protective measures before finding themselves subject to the stress and scrutiny of an HMRC investigation.

By staying informed about HMRC’s priority areas and implementing robust compliance measures, taxpayers can significantly reduce their COP9 investigation risk while positioning themselves for the best possible outcome should an inquiry occur.

Mr Aatif Malik, is the Managing Director of Tax Accountant – A Specialist Tax Consultancy