HMRC automated checks: what small businesses need to know

HMRC is continuing to enhance its use of digital technology, and one of the key developments small businesses should be aware of is the growing use of automated checks. These automated systems are designed to improve tax compliance, but they also mean businesses must be extra vigilant when managing their financial records. Here’s what you need to know.

How do HMRC’s automated checks work?

HMRC has significantly expanded its digital capabilities in recent years, using sophisticated algorithms to cross-reference tax returns with other financial data. Automated systems can now flag inconsistencies, detect missing information, and identify potential errors or fraudulent activity in real time. This allows HMRC to conduct compliance checks more efficiently and at a larger scale.

Data sources used in these checks include:

• Tax returns and VAT filings
• PAYE records
• Bank transactions (where shared under data-sharing agreements)
• Companies House filings
• Third-party sources, such as property transactions and online sales platforms

What could trigger an HMRC check?

Small businesses should be aware of potential red flags that may prompt an automated check. These include:

• Discrepancies in reported income – Differences between declared earnings and bank deposits.
• Inconsistencies between VAT and Corporation Tax returns – Figures that don’t align across different tax filings.
• Unusual expense claims – Large or irregular expense claims that don’t match industry norms.
• Late filings or frequent amendments – Repeated delays or corrections to tax returns.
• Significant changes in revenue – A sudden spike or drop in income without clear justification.

If any of these triggers are detected, HMRC may initiate a compliance check, which could involve requesting further information or even launching a full investigation.

What should small businesses do to prepare?

Given HMRC’s increasing reliance on automated checks, small businesses must take proactive steps to ensure their tax records are accurate and up to date. Here are some best practices:

• Keep meticulous financial records – Ensure all transactions are correctly recorded and reconciled.
• Use accounting software – Digital tools can help you maintain accurate records and reduce errors.
• Cross-check all tax filings – Double-check returns for consistency before submitting them.
• Meet all deadlines – Late filings can increase scrutiny and lead to penalties.
• Seek professional advice – An accountant can help identify and correct potential red flags before they become an issue.

How JW Hinks can help

At JW Hinks, we understand that tax compliance can be complex, especially with the growing use of automated checks by HMRC. Our expert team can assist in ensuring your financial records are in order, minimising the risk of compliance issues and helping you stay ahead of regulatory changes.

If you have concerns about HMRC checks or need guidance on tax compliance, get in touch with us today.