Running a small business comes with plenty of challenges, and dealing with HMRC is usually high on the list. Most business owners aren’t doing anything wrong; they’re simply busy, stretched, or working with outdated systems that make mistakes more likely. Add in tighter government budgets and increased HMRC scrutiny, and the margin for error is shrinking.
The good news? With a bit of organisation and some smart habits, you can stay off HMRC’s radar and avoid unnecessary stress, enquiries, or penalties. Here’s what they’re looking for right now — and how to protect your business going into 2026.
1. Inconsistent or Late VAT Returns
Late filings, sudden fluctuations, or big changes in reclaimed VAT tend to get attention fast. Even innocent mistakes can look suspicious if they repeat.
Keep HMRC happy by:
- Filing VAT returns on time (or early if possible)
- Keeping clean records so your numbers flow smoothly from month to month
- Double-checking large claims or unusual transactions
- Making sure your bookkeeping software is up to date and properly connected
If VAT leaves you feeling overwhelmed, it’s usually because the system isn’t set up right — not because your business is complicated.
2. Payroll Errors and Missing RTI Submissions
HMRC cross-checks payroll in real time, so anything that doesn’t line up can raise a flag. The most common issues include:
- RTI submissions missed or filed late
- Directors’ pay not matching year-end accounts
- Incorrect tax codes
- Benefits in kind not being reported correctly
What to do: Create a clear payroll timetable and keep a close eye on any tax code changes throughout the year.
3. Mixing Business and Personal Spending
This catches out more people than you’d think. When personal spending enters the business account, it becomes harder to justify expenses (and HMRC becomes curious).
Stay safe by:
- Keeping receipts organised
- Using separate business and personal accounts
- Recording adjustments regularly
- Avoiding anything that looks like personal benefit disguised as business
4. Claiming Expenses That Don’t Quite Fit
Sometimes an expense feels business-related, but HMRC sees it differently. Common problem areas include:
- Home office claims that are too high
- Travel costs with no supporting detail
- Non-branded clothing
- Entertaining that isn’t clearly business-related
Rule of thumb: Would you be comfortable justifying the claim if HMRC asked for proof tomorrow?
5. Letting Bookkeeping Slide Until Year-End
Most errors come from last-minute bookkeeping. When things are rushed, reconciliation gets messy, receipts go missing, and numbers get guessed. HMRC quickly spots figures that look rounded or inconsistent year-to-year.
Best approach: Monthly bookkeeping. Even quarterly is far better than “January panic mode.”
6. Ignoring Letters From HMRC
Brown envelopes might not be fun, but ignoring them is the worst option. Some letters aren’t full enquiries — but if you don’t respond, they can become one.
Tip: Open letters promptly, scan them, and ask your accountant if you’re unsure.
7. Relying on Outdated Accounting Systems
Manual spreadsheets or outdated software cause errors, and HMRC’s systems now expect cleaner, more accurate digital data.
Consider upgrading if you’re seeing:
- Lost receipts
- Duplicate data entry
- VAT confusion
- Regular corrections
- No real-time financial overview
8. Not Planning for Tax Bills
Businesses that repeatedly miss deadlines or struggle to pay on time often get extra attention. This is usually a planning issue, not a cashflow one.
Avoid trouble by:
- Setting aside tax throughout the year
- Reviewing profit and forecasted tax quarterly
- Using forecasting tools
- Getting advice before taking drawings
The Bottom Line
HMRC isn’t out to catch you, they’re simply looking for patterns that suggest something might not be right. Most issues are completely avoidable with a bit of consistency and proactive support.
If you’ve had a letter from HMRC, or you’re worried about your bookkeeping, VAT, payroll, or tax position, we’re here to help. A quick chat could save you hours of worry and stop problems before they start.
Just get in touch, we’re always happy to take the stress away.
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