HMRC’s approach to tax compliance is evolving into an increasingly sophisticated, risk-based and data-driven model – and growing numbers of family businesses may find that this draws them into a new type of approach with HMRC and one that is not familiar to them.
Historically, many family businesses have encountered HMRC in a largely reactive way, with engagement triggered by specific events or issues. We’re seeing the direction of travel now shift towards earlier, broader and more joined‑up compliance activity, reflecting a wider government focus on prevention rather than correction.
HMRC’s compliance group is broadly organised by taxpayer type. For businesses, this includes:
Large businesses will already be familiar with a more structured compliance model, often including an allocated Customer Compliance Manager (CCM). The MSB population does not generally have ongoing CCM support, although limited or ‘temporary’ CCM involvement may be available for specific events.
For the Wealthy individuals CCMs are allocated to only some of the wealthiest individuals.
How HMRC’s compliance structure affects family businesses
The National Audit Office has highlighted that HMRC is actively considering whether more mid sized businesses should be brought into the large business compliance model. While this has advantages, including clearer points of contact and more open dialogue, it also comes with increased expectations around governance and controls.
This is not a bad thing in itself:
There are some advantages to having a CCM because they can support corporates in many ways, such as for example, having a single point of contact on an ongoing basis to assist in circumstances such as claiming a refund if tax has been overpaid and having an open dialogue to head issues of in advance. However, this ongoing interaction with HMRC must be balanced with resources and budgets businesses and HMRC have available.
HMRC’s approach to compliance checks has evolved.
What is noticeable in relation to family businesses is that HMRC’s approach to compliance checks has evolved. Alongside this, HMRC has moved away from relying solely on formal enquiries and is increasingly using upstream compliance measures. These can include informal requests, educational letters, and one‑to‑many communications aimed at perceived areas of risk, such as VAT accuracy. These are measures intended to help companies get their tax affairs right from the outset, focusing on early engagement, education and support and sometimes carried on a one-to-many basis across multiple taxpayers based on a particular tax risk HMRC perceives. In the business space this could be where HMRC send educational letters to businesses where there is a high risk of VAT errors offering practical advice to avoid this or requiring taxpayers to make additional checks on what has been returned. None of this is surprising with the wider government strategy being to have resource/ money by promoting prevention.
Greater coordination across different taxes
We are also seeing greater coordination across different taxes and between businesses and their owners. HMRC is increasingly taking a cross‑tax view, sometimes involving visits to understand systems and governance, and drawing together corporate and personal tax positions as part of a single review.
All of the above can be resource intensive without coordination and the support of a tax dispute professional as HMRC take a more forensic approach to evidence to gathering and share wider expectations through information such as guidelines for compliance which they have stated will be used to guide compliance activity and penalty behaviours.
This is not a bad thing in itself:
There are some advantages to having a CCM because they can support corporates in many ways, such as for example, having a single point of contact on an ongoing basis to assist in circumstances such as claiming a refund if tax has been overpaid and having an open dialogue to head issues of in advance. However, this ongoing interaction with HMRC must be balanced with resources and budgets businesses and HMRC have available.
HMRC’s approach to compliance checks has evolved.
What is noticeable in relation to family businesses is that HMRC’s approach to compliance checks has evolved. Alongside this, HMRC has moved away from relying solely on formal enquiries and is increasingly using upstream compliance measures. These can include informal requests, educational letters, and one‑to‑many communications aimed at perceived areas of risk, such as VAT accuracy. These are measures intended to help companies get their tax affairs right from the outset, focusing on early engagement, education and support and sometimes carried on a one-to-many basis across multiple taxpayers based on a particular tax risk HMRC perceives. In the business space this could be where HMRC send educational letters to businesses where there is a high risk of VAT errors offering practical advice to avoid this or requiring taxpayers to make additional checks on what has been returned. None of this is surprising with the wider government strategy being to have resource/ money by promoting prevention.
Greater coordination across different taxes
We are also seeing greater coordination across different taxes and between businesses and their owners. HMRC is increasingly taking a cross‑tax view, sometimes involving visits to understand systems and governance, and drawing together corporate and personal tax positions as part of a single review.
All of the above can be resource intensive without coordination and the support of a tax dispute professional as HMRC take a more forensic approach to evidence to gathering and share wider expectations through information such as guidelines for compliance which they have stated will be used to guide compliance activity and penalty behaviours.
Overall, we are beginning to see an increase in HMRC compliance activity both formal and informal for family businesses. HMRC has been given funding to appoint 5,500 more tax compliance officers by 2029/30 with the aim of realising an additional £7.5bn of tax revenue and the first tranche of new officers are now coming on stream.
What does this mean in practice?
Overall, HMRC compliance activity for family businesses appears to be increasing, both in volume and sophistication. This does not mean family businesses are expected to adopt complex or burdensome frameworks. However, it does underline the importance of:
When contacted by HMRC, it is often sensible to pause, understand the statutory basis and purpose of the request, and respond with a clear and evidenced narrative around how tax compliance is managed in practice.
This evolution of the tax landscape also highlights the importance of having a good tax advisor at your side. At KPMG, we work with family businesses of all sizes and sectors, helping them take a proactive and efficient approach to tax compliance. This may be in the form of advice and guidance to the Head of Tax, CFO, Financial Controller and/or wider tax team, or it may be in the form of taking on your tax reporting and compliance activities as an outsourced function on your behalf.
We are also there to advise on formulating a strategy on HMRC interactions, we understand the need to balance professional costs associated with HMRC requests to what is actually necessary and required by HMRC within the legislation whilst also cooperating to deal with any perceived concerns.
Are you confident that your tax structures and controls are fit for purpose and you have an adequate framework to respond to HMRC requests?
HMRC’s compliance model continues to evolve, and many family businesses are adjusting alongside it. Taking time to prepare and putting proportionate tax governance in place can make a meaningful difference to both the tone and outcome of future interactions.
Let’s build your tax strategy together
Our tax insights
Something went wrong
Oops!! Something went wrong, please try again
Get in touch
Discover why organisations across the UK trust KPMG to make the difference and how we can help you to do the same.