HMRC Investigations: A Guide for Worried UK Directors

HMRC Investigations: A Guide for Worried UK Directors
Written by Jeremy Boyle Last Updated: 8 October, 2025
All Director Disqualification Insolvency

If HMRC has contacted you, or you’re worried that an investigation into your company’s financial affairs may be on the horizon, the steps you take now will shape the outcome. Acting quickly and with the right advice can protect both your business and your reputation.

For directors, the stakes are high. Your conduct may be scrutinised, your eligibility to remain a director challenged, and your future career put at risk.

In this guide, we break down how HMRC investigations work, the different forms they take, what they could mean for you as a company director, and what you can do to protect yourself.

Jump to:

Why HMRC investigates companies and directors

HMRC’s primary duty is to safeguard public money and ensure businesses and individuals contribute their fair share. When something appears irregular, HMRC may launch an investigation to determine whether an error, carelessness, or deliberate misconduct has occurred.

HMRC investigations aim to:

  • Recover money owed: HMRC is the UK’s largest creditor in many insolvencies, so its focus is on ensuring that lost tax revenue, unpaid VAT, or wrongly claimed reliefs are recovered. 
  • Deter abuse: By pursuing cases of tax evasion, fraud, or loan misuse, HMRC sends a message to the wider business community that abuse will not be tolerated. 
  • Protect creditors: HMRC frequently works alongside insolvency practitioners when a company fails. Investigations help ensure that creditors – including suppliers, employees, and the public purse – are treated fairly.
  • Support public confidence: Tax compliance underpins trust in the system. By acting decisively, HMRC demonstrates that the system is fair, that abuses will be pursued, and that honest businesses are not disadvantaged by those who cut corners.

Evidence from HMRC investigations may be shared with the Insolvency Service. In some cases, leading to director disqualification proceedings. 

Common reasons for an HMRC investigation

HMRC does not launch investigations at random. Enquiries are usually triggered by warning signs in a company’s financial activity or external intelligence that suggests something may be wrong.

Directors may come under scrutiny for reasons such as:

  • Inconsistencies in reporting: If your company’s tax returns do not match information from banks, suppliers, or other filings, HMRC may suspect inaccurate reporting.
  • Sudden or unusual changes in figures: Sharp swings in turnover, profit margins, or VAT claims can raise red flags, particularly if they are out of line with your industry’s norms.
  • Whistleblowers or complaints: HMRC regularly receives tips from employees, competitors, or members of the public. Even an unproven allegation can trigger an enquiry.
  • Links with insolvency: Director conduct is scrutinised by the liquidator/administrator during company insolvency. Where there are significant tax arrears, VAT/PAYE issues or suspected fraud, HMRC may get involved.
  • High-risk areas: Claims for reliefs, overseas transactions, or COVID-19 support schemes are considered sensitive and may attract closer scrutiny.

While many issues stem from genuine error, HMRC takes the same investigative approach whether the problem is accidental or deliberate.

Types of HMRC investigations

The way HMRC approaches a case depends on how serious it considers the issue to be. Understanding the different types of investigation helps directors gauge the potential risks and know when to seek urgent legal advice. The main categories are:
  • HMRC tax investigations: These are checks into corporation tax, PAYE, or self-assessment returns. They may start as routine enquiries but can expand if errors or inconsistencies suggest wider problems.
  • HMRC VAT investigations: VAT is a common trigger for disputes, with HMRC focusing on whether businesses have overclaimed input tax, under-declared output tax, or submitted suspicious repayment claims.
  • HMRC fraud investigations: These are far more serious, and suggest that HMRC suspects deliberate dishonesty. Fraud enquiries can involve dawn raids, interviews under caution, and the risk of criminal prosecution as well as financial penalties.
  • HMRC BBL investigation: Since the pandemic, HMRC has devoted substantial resources to uncovering misuse of government-backed loans. 
Some investigations begin as minor checks but escalate once HMRC uncovers patterns suggesting more serious issues. This is why directors cannot afford to treat HMRC correspondence as merely a “routine tax issue”.

HMRC Bounce Back Loan investigations

The Bounce Back Loan Scheme was designed to provide emergency funding during the pandemic, but was widely misused. HMRC now works closely with the Insolvency Service and other enforcement bodies to recover misapplied funds.

Examples of misuse include:

  • Inflating turnover to secure a larger loan
  • Applying for loans when the company was ineligible
  • Using funds for personal spending rather than business purposes
  • Taking out multiple loans through different companies.

If a company collapses with an unpaid Bounce Back Loan, HMRC will often feed evidence into the director’s conduct review. This is one of the fastest-growing reasons for director disqualification in recent years. Indeed, in 2024-2025, the Insolvency Service disqualified 736 directors for abusing Covid loans. 

If you are facing a HMRC Bounce Back Loan investigation, you should seek immediate legal advice to protect yourself from potential disqualification and personal liability. 

For your free consultation, call our director disqualification solicitors today on 020 7467 3980. Alternatively, complete the enquiry form on this page and we’ll call you back.

HMRC’s investigative powers

HMRC has extensive powers to obtain information and pursue suspected non-compliance. Directors should be aware that:
  • Wide-ranging records can be demanded: Including accounts, contracts, invoices, payroll records, and bank statements.
  • Officers can visit business premises: In some cases, unannounced, to inspect records and question staff.
  • Interviews may take place under caution: Particularly in HMRC fraud investigations, where criminal charges are a possibility.
  • Information is shared between agencies: HMRC works closely with other agencies, including liquidators and the Insolvency Service. This means evidence gathered during a tax enquiry may later be used in director disqualification proceedings.
These powers underline why directors cannot afford to treat HMRC correspondence as routine. The sooner you understand the scope of the enquiry, the better your chance of managing the outcome.

Receiving an HMRC investigation letter

Most investigations begin with a formal letter from HMRC. This sets the tone for the enquiry and explains why your company has been selected. The letter will typically identify the tax years and issues under review, list the records HMRC requires, and establish strict deadlines for responding. It may also warn of penalties if irregularities are confirmed.

For directors, this letter should never be dismissed as routine. It can be the first sign that HMRC is looking more closely not just at your company’s tax position, but at your conduct in running the business.

How the HMRC investigation procedure works

Once the letter is issued, the process follows a fairly structured path, though the intensity will depend on the seriousness of HMRC’s concerns. Typical stages include:
  • Notification: HMRC confirms in writing that an investigation has been opened.
  • Information requests: HMRC requests accounts, tax returns, contracts, and sometimes bank statements.
  • Interviews: In more serious cases, directors and staff may be interviewed.
  • Review and findings: HMRC issues its conclusions, which may include tax adjustments, penalties, or allegations of fraud.
  • Escalation: If misconduct is suspected, the case may be passed to the Insolvency Service or even the Crown Prosecution Service.
For company directors, the critical point is recognising when an enquiry is shifting from a technical tax review into something that threatens your position. Early legal advice can make all the difference.

An HMRC enquiry may begin as a technical tax matter, but the implications can go much further and you may find your ability to act as a director being challenged. 

If HMRC’s concerns escalate, and the Secretary of State (via the Insolvency Service) intends to issue director disqualification proceedings, you may receive a Section 16 letter. This means:  

  • Your conduct as a director has been investigated by the Insolvency Service
  • They think there is a case to answer and intend to commence proceedings

The Section 16 letter will set out the allegations against you and provide you with the opportunity to respond before formal director disqualification proceedings commence.

Director disqualification is not automatic. The Secretary of State must prove that your conduct makes you unfit, and a strong defence can often shift the outcome. Weaknesses in the evidence, mitigating circumstances, and proof of responsible behaviour can all reduce the risk of a lengthy ban.

The personal consequences for directors

For many directors, the most immediate concern in an HMRC enquiry is the financial exposure. But the personal consequences can be just as damaging.
  • Reputational harm: If HMRC uncovers wrongdoing, your name may be linked with misconduct in public records. This can affect your standing with banks, suppliers, and potential business partners. 
  • Career disruption: Directors under investigation often find it harder to access finance, attract investment, or take on new board roles. If disqualification follows, you could be excluded from directorships altogether.
  • Loss of trust: Allegations of Bounce Back Loan misuse or tax fraud can undermine relationships with stakeholders, from employees to creditors.
  • Stress and uncertainty: Investigations are often lengthy, involving repeated requests for documents, interviews, and the risk of escalating penalties.
An HMRC investigation can have long-lasting effects on your professional future, so understanding these wider consequences and knowing how to protect yourself is vital.

What to do if you find yourself facing an HMRC investigation

If HMRC opens an enquiry into your company, it should be treated as a serious warning sign. Even if your accountant is handling the technical aspects, how you act during this period can have a major impact on both the investigation and your personal position.

To protect yourself, you should:

  • Read the notification letter carefully: Note the issues being examined and the timescales for reply. 
  • Respond promptly: Never ignore HMRC correspondence or let deadlines slip. Delays are often treated as signs of non-cooperation
  • Speak to your accountant: Ensure they are aware and can begin preparing for the investigation. Ensure they have all the necessary records and information to deal with HMRC accurately and on time.
  • Keep records organised. Preserve accounts, contracts, bank statements, and communications so that you can demonstrate transparency if required
  • Be careful with company funds. Avoid using Bounce Back Loan money or company assets for personal purposes while under scrutiny. Such transactions are likely to attract further criticism
  • Consider the wider risks: HMRC findings can be shared with the Insolvency Service and used in director disqualification proceedings. Think ahead about how the enquiry could lead to allegations of misconduct. 
  • Seek legal advice: Engage director disqualification solicitors early if there is any suggestion that your role as a director may be questioned.

An HMRC investigation does not always lead to penalties or director disqualification. Much depends on the evidence, your conduct as a director, and the way you respond.

The danger of ignoring an HMRC investigation

Some directors hope that by staying quiet, the issue will fade away. In reality, failing to engage with HMRC almost always makes matters worse, as investigators may assume you have something to hide. 

The consequences of non-cooperation can be severe, including:

  • Higher financial penalties
  • A finding of fraud rather than a simple error
  • Insolvency and compulsory liquidation
  • Personal liability for losses
  • Director disqualification

Engaging fully and acting quickly gives you the best chance of limiting damage. Ignoring HMRC, on the other hand, risks turning a manageable problem into a career-threatening one.

HMRC investigation FAQs

Here are answers to some of the most frequently asked questions directors have, when facing an investigation by HMRC.

It depends on the severity of the situation. Typically, HMRC investigations can be pursued for up to four years for innocent mistakes, six years for carelessness, 12 years for certain offshore matters, and 20 years for fraud.

Most businesses are never investigated. However, insolvency, VAT claims, or misuse of the Bounce Back Loan all increase the risk.

You’ll usually receive a formal letter, though HMRC may also make direct contact in severe cases.

They will review records, request explanations, and may impose penalties or refer the matter to other authorities for further action.

It varies. A straightforward enquiry may take months while a complex HMRC fraud investigation can run for years.

Yes. A creditor (including HMRC) can ask the court to restore a dissolved company so it can be pursued.

Yes. When a company goes into liquidation, liquidators and the Insolvency Service automatically review the conduct of directors, with HMRC often supplying evidence.

Contact our director defence lawyers

We don’t replace your accountant when it comes to tax calculations, but we step in when an HMRC enquiry puts your role as a director at risk. Our team focuses on protecting you from the legal and personal consequences that can follow.

At Summit Law, our director defence solicitors can:

  • Defend you against director disqualification: Challenging allegations of unfit conduct and building a robust case on your behalf.
  • Respond to Section 16 letters: Ensuring deadlines are met and your side of the story is clearly presented.
  • Deal with Bounce Back Loan allegations: Advising on claims of misuse and working to limit the risk of personal liability.
  • Guide you through company insolvency risks: Explaining how investigations overlap with insolvency proceedings and protecting your position as a director.
  • Work alongside your accountant: Providing a joined-up defence that combines technical tax advice with specialist legal representation.

If you are under investigation and want to understand the risks you face as a director, call us today on 020 7467 3980 for a free, confidential consultation.

About the Author:

Jeremy Boyle

Head of Insolvency | Summit Law Jeremy qualified as a solicitor in 1993 and is the firm’s founding partner. He specialises in commercial litigation, dispute resolution, fraud and insolvency law for clients in the UK, Gibraltar, Portugal, Spain, and South America. Jeremy is the supervisor of our Insolvency team.