What triggers an HMRC tax investigation?

Most HMRC investigations are risk-based rather than random. HMRC's Connect system cross-references your returns against data from banks, land registries, online platforms and other government departments.

Common triggers include figures that don't match third-party reports, repeated losses, sudden income drops, high expense claims relative to turnover, or an industry known for higher error rates.

A small number of cases are still selected at random, partly to test the overall system, but this accounts for a minority of enquiries.

HMRC's power to open an enquiry into a Self Assessment return comes from section 9A of the [Taxes Management Act 1970](https://www.legislation.gov.uk/ukpga/1970/9). For company tax returns, the equivalent power sits in the Finance Act 1998.

The legislation doesn't require HMRC to state a reason for opening most enquiries, which is why the notice itself often gives limited detail about what prompted it.

There is generally a 12-month window from when a return was filed for HMRC to open an enquiry, though this can extend where a return was amended or filed late.

As a director, your company's corporation tax return, VAT returns and your own Self Assessment are all separate risk profiles HMRC can examine, sometimes together.

Director's loan accounts, dividend levels relative to declared profit, and inconsistent expense claims are frequent triggers specific to limited companies.

Because HMRC rarely explains exactly why it opened a check, don't waste time guessing the cause. Focus instead on making sure your records support the figures filed.

Being selected doesn't mean you owe more tax; many enquiries close with no changes. The real cost is often time spent gathering records and responding to questions.

If an enquiry does uncover an error, penalties and interest can apply on top of any extra tax due, depending on how the error arose.

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Don't assume an enquiry proves wrongdoing. Many are opened purely to verify figures that look unusual but are entirely correct.

Don't ignore small inconsistencies year to year, such as expense claims that jump sharply, since these are exactly what automated risk tools flag.

Don't try to guess HMRC's reasoning from the wording of the letter. Focus your energy on preparing accurate, well-evidenced answers instead.