Can HMRC check your bank account?

Filing a tax return can be one of the biggest headaches when working for yourself. Many self-employed individuals and small business owners worry that a mistake could trigger an HMRC investigation. 

But what can HMRC access, and can it check your personal or business bank accounts without your permission? This guide explains more. 

Key takeaways

• HMRC can request information from your business or personal accounts, but only if it has evidence of undeclared or underpaid tax

• HMRC usually checks business bank accounts first, but may check personal accounts if something is wrong or if you’re a sole trader

• HMRC’s Connect system cross-checks your tax return against data from banks, government bodies, online platforms and more

• HMRC may investigate if you have errors or inconsistencies in your tax return, if you file late or if it has received a tip-off

• It’s important to separate personal and business finances and keep accurate records to reduce the chance of an investigation  

Can HMRC access my business or personal bank account?

Yes, it is possible for HMRC to access your business or personal bank account, but it cannot do this freely. To see your bank records, it must have a reasonable belief that you have underpaid tax or failed to declare income, and it must follow a set legal process.

During a tax investigation, HMRC can request account details from your bank through a Financial Institution Notice (FIN). You can’t appeal against a FIN, and HMRC doesn’t need to seek approval before issuing one. 

However, HMRC cannot simply issue a FIN and check your bank account without good reason – it must have evidence that justifies the request. Compliant businesses don’t tend to face random checks, and HMRC usually only investigates when something in a tax return suggests a discrepancy.

In most cases, HMRC examines a business bank account first. It can only look at your personal account if business records raise questions or income appears to be missing. However, if you mix personal and business transactions — which many sole traders do — HMRC is far more likely to review your personal account to help it build an accurate financial picture. 

How HMRC can detect undeclared income

HMRC launched new software in 2018 called Connect. This pulls data from a vast range of sources to detect errors, omissions and inconsistencies. It compares this data to information provided on tax returns and if it spots any discrepancies, it flags them. 

These sources include:

• DVLA

• Department for Work and Pensions (DWP)

• Companies House

• Land Registry

• Electoral roll

• Banks and financial institutions 

• Insurance companies

• Credit reference agencies

• HMRC’s own tax data

• Foreign tax authorities

• Online platforms such as Airbnb, eBay or Vinted (to check whether you’re renting out a property or trading without declaring it) 

• Social media (to gather information about your lifestyle or high expenditure)

What HMRC can see about your business

The level of visibility for HMRC depends on whether you’re a limited company, sole trader or side hustler.

If you’re a limited company, HMRC can view information such as:

• Company accounts and filings

• PAYE and National Insurance Contributions (NICs) for employees

• VAT returns

• Business bank accounts

• Property and assets 

If you’re a sole trader, HMRC can see the following:

• Self-assessment tax returns

• Business and personal bank accounts

• VAT returns if you’re registered and PAYE if you employ staff

• Digital bookkeeping records through Making Tax Digital (MTD)

For side-hustlers, HMRC can see your reported income from your trading, alongside any income from a salaried job.

Why would HMRC want to look at my bank accounts?

There are several reasons why HMRC might choose to investigate your bank accounts. For example:

• Accounting mistakes – Errors in your tax return, whether accidental or not, can prompt HMRC to investigate

• Inconsistencies in your tax return – If the figures you submit to HMRC don’t match your industry, or even previous tax returns, it might choose to investigate

• Unusually high or inconsistent spending – Large purchases, frequent cash withdrawals or a lifestyle that doesn’t match declared earnings may attract HMRC’s attention. For example, if you’re advertising a flashy lifestyle on Instagram but reporting a low income, HMRC may investigate

• Discrepancies between submitted documents – Differences between invoices, receipts, VAT returns or payroll records can trigger account checks

• Tip-offs by third parties – If another organisation or person informs HMRC that it believes you are evading tax, HMRC may investigate

• Continuous late filing – Regularly filing your tax returns late can also raise questions

Consequences of HMRC checking your accounts

If HMRC decides to investigate, it usually writes to you first to explain it is reviewing your accounts. If HMRC has a reasonable suspicion of undeclared income or inconsistencies, it can request details from your bank accounts, and if it suspects fraud or criminal activity, it may not inform you in advance.  

Depending on what HMRC finds, it might accept your tax return with no changes, issue a corrected tax bill if you’re found to have underpaid, or impose penalties if you filed your return late or it contained errors. 

In more serious cases, HMRC could open a formal investigation for potential fraud. As a last resort, if you fail to respond or refuse to pay what you owe, HMRC has the power to recover debts directly from your bank account or earnings, and can seize and sell assets where necessary.

Practical steps to protect your business

There are several steps you can take to protect your business from an HMRC investigation:

1. Keep personal and business accounts separate

It’s important to keep your business finances separate from your own, no matter what type of business you run. It’s mandatory for limited companies to open a business bank account, but not for sole traders. 

However, a dedicated account makes it easier to track income and expenses accurately, and if HMRC does investigate, it’s far more likely to focus only on the business account rather than your personal finances.

2. Track and record all income, including cash and online sales

HMRC now cross-checks data from online marketplaces, payment platforms and bank deposits. So, be sure to record everything, including cash, online sales and side income, and keep receipts or digital evidence. Gaps in documentation are one of the fastest ways to trigger questions.

3. File tax returns accurately and on time

Understand when you need to file your tax returns and make sure you file well before these deadlines. If you leave it late and end up rushing, you’re more likely to make mistakes. Late filing also leads to penalties. 

4. Use bookkeeping or accounting software

With Making Tax Digital expanding, using approved accounting software gives HMRC the structured data it expects and reduces manual errors.

5. Voluntarily disclose mistakes to reduce penalties

If you spot a mistake in a previous tax return, get in touch with HMRC straight away. This usually results in lower penalties, because HMRC views unprompted disclosure as a sign of transparency. 

6. Take professional advice

Speaking to an accountant or tax advisor can prevent costly mistakes, especially if your income sources change. They can help keep your records compliant and identify tax-efficient opportunities.