What HMRC looks for in compliance checks and how small businesses can prepare confidently

Hello — I’m writing from Muressaccounts Co (https://www.muressaccounts.co.uk), where I help UK micro‑businesses and SMEs get their bookkeeping and tax sorted without the panic. Over the years I’ve supported clients through HMRC compliance checks, so I want to share what HMRC typically looks for and practical steps you can take to prepare confidently. This is written for busy business owners who want straightforward actions, not accounting jargon.

Why HMRC compliance checks happen

From experience, the vast majority of checks are routine rather than punitive. HMRC runs compliance checks to ensure tax returns, VAT returns, PAYE, and other filings match the records a business keeps. Triggers can include:

• Unusual changes in turnover or profit margins compared with industry norms.
• Missing or late VAT/PAYE returns.
• Discrepancies between third‑party data (like MTD submissions, banks, or suppliers) and your filings.
• Random selection — HMRC does random checks too to maintain overall compliance.

Knowing this helps: the check itself is typically just HMRC asking to verify data. It’s your response that determines whether it becomes stressful.

What HMRC will usually ask to see

In a standard compliance check you'll be asked to provide supporting documents that back up figures on returns. Common items include:

• Sales invoices and credit notes
• Purchase invoices and receipts
• Bank statements
• Payroll records, payslips, PAYE submissions
• VAT invoices and VAT account
• Expenses records and mileage logs
• Contracts, lease agreements and other legal documents related to transactions

HMRC wants a clear audit trail from the tax return figure back to a primary document. If you use accounting software like Xero, QuickBooks or FreeAgent, make sure records are reconciled and attachments are linked to transactions — that speeds up the process dramatically.

How they check — what processes HMRC follows

There are different types of checks:

• Information requests: HMRC asks for documents by post or online; these are usually time‑limited.
• Pay as you earn (PAYE) / VAT checks: Focused on payroll and VAT compliance respectively.
• Checks of tax returns: They compare submitted tax returns to records.
• Spot checks and visits: Less common, often reserved for complex situations or where evidence is insufficient.

When I accompanied clients, I found that responding quickly and with a well‑organised pack of documents usually means HMRC closes the check without further issue.

Practical prep: what I ask my clients to do

Preparation reduces stress and time lost. Here’s the routine I run through with clients at Muressaccounts Co:

• Keep source documents attached to transactions — scans of invoices, receipts and contracts uploaded into your accounting system.
• Reconcile bank accounts monthly — unreconciled items are the number one red flag.
• Maintain a VAT control account — show VAT charged, VAT reclaimed and the amount paid to HMRC.
• Keep payroll records tidy — RTI submissions, payslips, and employee expenses must be easy to extract.
• Document unusual transactions — if you receive or make a one‑off large payment, keep a short note explaining what it is and who approved it.
• Use consistent expense categorisation — inconsistent coding confuses both you and HMRC.

Document checklist (quick download‑ready)

How to respond to an HMRC information request

If HMRC contacts you, breathe — and then act. My recommended sequence:

• Read the letter carefully — note the exact information and the deadline.
• Contact your accountant — tell them immediately and share the letter. If you don’t have one, consider engaging one even just for the response.
• Assemble documents in the order requested — label them, and if possible create a short one‑page index explaining where each figure on the return is supported.
• Use secure digital transfer — for speed and audit trail, upload documents via HMRC’s online tools or a secure cloud folder rather than postal mail where possible.
• Keep copies — retain the exact set you sent for your records.

Common mistakes I see (and how to avoid them)

Working with dozens of small businesses, I see recurring errors that make checks harder:

• Poor record keeping — missing receipts mean HMRC can disallow claims. I encourage clients to keep digital copies of everything.
• Late reconciliations — unreconciled bank accounts create discrepancies in returns.
• Mixing personal and business expenses — this complicates the narrative you need to present during a check.
• Unusually vague explanations — if a transaction looks odd, add a short note in your records to explain its business purpose.

Software and tools that make checks easier

I recommend systems that keep audit trails and make document retrieval simple. Useful options include:

• Xero — excellentBank reconciliation tools and invoice attachments.
• QuickBooks — good for smaller teams, easy to attach receipts via mobile app.
• FreeAgent — popular with UK freelancers and small businesses, straightforward VAT and self‑assessment features.
• Receipt scanning apps — Dext, Receipt Bank (now part of Dext) or even the built‑in mobile capture in Xero/QuickBooks.

Whatever you choose, consistency matters more than perfect software — make sure everyone knows how to name files and where to attach them.

What to expect after you’ve submitted documents

HMRC will either accept the information, ask follow‑ups, or open a deeper enquiry. If they accept it, great — the file closes. If they want more, respond promptly. If a deeper enquiry opens, get professional help: the stakes and complexity rise, especially for VAT and corporation tax enquiries.

If you want a practical checklist or a template index to send with HMRC responses, I’ve created one for Muressaccounts Co readers — drop me a message via the website and I’ll share it. Preparing well usually turns a potentially stressful check into a tidy, solvable task.