HMRC's Invisible Crackdown: What Business Owners Need to Know

:: 00:00

Welcome to this week's episode of I Hate Numbers, the podcast that helps you make sense of the financial and business world, even if numbers aren't your favourite thing. Today I'm going to be diving into a topic that's becoming increasingly crucial for anybody who owns money in the digital age. This is HMRC’s intensified Crackdown on income that's been undeclared.

:: 00:25

Now, if you run a business, you've got a side hustle or even if you sell goods online, occasionally you're going to have to pay close attention. HMRC, that sleeping giant, isn't playing around anymore. Now gone are the days where HMRC would rely solely on paper trails, manual checks. They, like all of us, have entered into a new era armed with sophisticated technology and the hunger for transparency.

:: 00:52

There's an incredible tax gap going on in the United Kingdom, and they aim to plug that. Now they can investigate any tax return any time without actually giving a reason to do so. If you think you filed honestly via your accountant or yourself, fantastic, that's great. But that doesn't mean you won't be selected for a check.

:: 01:12

And if you've inadvertently or intentionally unreported income, you are walking on thin ice. HMRC has the tools to find out more. Now, at the heart of this digital revolution for HMRC lies a very powerful system known as connect. Now imagine you've got a digital detective on your side, tirelessly sifting through billions of pieces of data.

:: 01:35

Think Chat, GPT, or Gemini on speed. Now connected links information from a variety of sources. They identify patterns and inconsistencies that will take humanise weeks, even months to uncover. In fact, approximately 90% of tax investigations now begin because connect has flagged something unusual. So you might me asking yourself, where does this digital detective, this digital sleuth get its information from?

:: 02:03

It's no longer just about your tax returns and bank statements. HMRC is casting a far wider net, collecting your digital footprints from a surprising number of places. Now think about your social media activity, your posts, your interaction, even who you are connected with. Then you add to that your travel habits, your flight bookings, passenger lists, even something as innocuous, like a Google Street view and location data can contribute to the picture.

:: 02:31

If you happen to be involved in the world of crypto currency or use online payment platforms like PayPal, that information is already being monitored. It sounds very much like Big Brother, but it's out there. You've got a digital footprint. You will be in the net. Now of course, traditional sources like your tax returns, banks statements, the DVLA, Land registry and Company's House, still remain crucial, but the scope is extended even further encompassing data from the DWP, that's Department Working Pensions, UK Border Agency records.

:: 03:03

Connecting these pieces is an intricate puzzle but it helps build a detailed profile of your lifestyle, your travels, and your financial transactions. If your spending habits don't match up to your reported income, it's going to be a major red flag that could trigger an investigation. In tax investigation work that I've done over the last three decades,

:: 03:24

that's a traditional approach, and a question to ask your clients is to say, this is the income you've declared. This is your lifestyle. Is there a correlation between the two? If there's a mismatch and your income that's declared doesn't match up to that, then something is potentially afoot. Now the digital landscape is shifting even further. Now, as of January, 2024, digital platforms are obligated, so it's not a voluntary code, is an obligation to report seller's income directly to HMRC.

:: 03:55

So platforms like Airbnb for short term property rentals, Uber for private hire, Delivaroo for food delivery, and eBay for online private sales must now collect and submit your sales data automatically each year. Now the first report covers sales from January to December, 2024, and is due and it's already in there by the end of January, 2025.

:: 04:17

Now, while occasional sellers with fewer than 30 sales are currently excluded, it's certainly a sign of things to come. If your sales income, by the way, folks, is below a thousand pounds, then you don't have anything to worry about. But bear in mind, this is what's happening at the moment. Now, the technological advancements don't just stop there.

:: 04:37

HMRC is now leveraging the power of AI. Many of us use AI like Gemini, Chat GPT, for example, in our businesses, in our daily lives. Well, HMRC is no exception. While connect gathers the data, AI analyses it, identifying trends, detecting unusual patterns, and even assessing behaviour. Now combine this with geo mapping technology linking sales income and demographic data to specific locations, then you know you've got a big beast

:: 05:08

you are competing against now. This allows HMRC to pinpoint high risk individuals and areas with greater speed and accuracy, saving them time and resources, and ultimately leading some more businesses being scrutinised and ka-ching on the old bank balance for HMRC. Now it has to be said if income is being not declared,

:: 05:28

accidentally or otherwise, that from HMRC's perspective, it's tax that's not being collected. While technology plays a central role, HMRC is not ignoring human intelligence. Informants who are often disgruntled ex-partners, employees, or business associates can still report undeclared income and there is a hotline there that already exists.

:: 05:51

Now there's an additional incentive. In March 2025, HMRC announced a reward scheme where informants who report serious non-compliance by companies or high earning individuals can receive up to 25% of the recovered tax. Now, while they're initially focusing on larger cases and offshore schemes, the potential expansion means we all need to be aware.

:: 06:14

Another area of focus for HMRC is tackling phoenixism. Now, this is where directors close a company that's got debt and quickly reopen a new one, typically with the same directors. From HMRC'S perspective, this is often done to avoid taxes. They're not looking at that from other supplier's perspective, but from their own.

:: 06:33

Now, HMRC works closely with the insolvency service to try and combat his practice. Now demanding upfront tax payments for new companies - not all of them - but there are some that are high risk and even holding road directors personally liable for company tax debts. So the question's going to be, why can't you afford to ignore all of this?

:: 06:53

Now the message is clear. HMRC is watching. They have the tools, the data, and now the incentives to uncover what they call invisible income. Ignoring the rules which are there for a purpose or hoping you won't get caught can lead to severe consequences, including penalties, interest charges on top of the tax that you might owe, full investigations and backdated tax bills, and in the worst case scenarios, criminal charges, even if your mistakes were honest.

:: 07:21

I've seen that quite often, even if your income sources aren't well documented, you can still be in a lot of trouble. So what should you do right now to stay compliant and protect yourself from HMRC’s increasingly watchful eyes? Now firstly, keep records. Make sure you track your income no matter how small.

:: 07:40

Track the money that you make from freelance work and include the online sales rental income to side gigs. Secondly, absolutely declare all your income. It doesn't necessarily mean that you'll pay tax or not as much as you do, but hiding income A, is a criminal offense, and B, it's a false economy. Don't make the mistake of thinking

:: 08:00

HMRC won't find out. If you touch, have a digital footprint anywhere, if your activity impacts on the internet or a bank account, the chances are they will eventually find out. Ensure your income sources are accurately reported in your self-assessment or company accounts. And if you don't know what taxable means, if you're unclear about what you should be doing, then you need to seek professional advice. And I don’t mean from a doctor, I mean from an accountant.

:: 08:27

Now, that leads me to the third crucial step. Make sure you utilise professional support. Now, working with a competent, qualified accountant can significantly reduce your risk and alleviate your stress. Now here at I Hate Numbers, we do support businesses across the United Kingdom as well as overseas, helping you understand your financial obligations and making sure you stay compliant.

:: 08:50

Now, don't wait until HMRC comes knocking on your door. They have upped the game significantly, and if your lifestyle doesn't quite match your declared income, those red flags will be raised. Transparency isn't an option anymore. It's essential. Now, if you've got any doubts, you're not quite sure where you stand

:: 09:08

when your finances are watertight, now is the time to address them. Drop us a line, book a call with I Hate Numbers, and get that peace of mind. Access that expert support, and stay one step ahead of HMRC. Remember, it's about doing it right, planning it well, and ultimately profiting securely.