What should a sole trader do if HMRC requests bank statements?

What HMRC’s request usually means

Receiving a message from HM Revenue & Customs (HMRC) asking for bank statements can feel alarming, especially if you are a sole trader and you handle everything yourself. The request can arrive in several ways: a letter, a message in your online tax account, or a phone call followed by written confirmation. In most cases, it is not a sign that HMRC has already concluded you have done something wrong. It is more often part of HMRC’s routine compliance activity, where they check that a tax return is accurate and that the business records support the figures reported.

For a sole trader, HMRC may ask for bank statements to confirm sales, verify business expenses, understand cash withdrawals, or reconcile the totals you declared. If you use your personal account for business transactions (which is common early on), HMRC may ask for statements from that account too. Bank statements provide a clear timeline of money in and out, so they are a practical starting point for HMRC when reviewing a return.

It helps to understand the context. HMRC requests can arise from a “compliance check” into your Self Assessment return, a review of specific expenses, a check into late filings or payment patterns, or a sector-based campaign. Sometimes HMRC gets third-party data that does not match what you reported; for example, income information from payment processors or interest reports from banks. Even simple inconsistencies can prompt a request for supporting documents.

Stay calm and verify the request is genuine

The first thing to do is confirm that the request is real. Fraudsters sometimes impersonate HMRC, and bank statements are sensitive. Genuine HMRC letters typically include a reference number, the name or team of the officer, and instructions for responding. If you are unsure, do not send anything immediately. Use official channels to verify: contact HMRC using a phone number from the official government website (not from the letter if you suspect it could be fake) and quote the reference. If the message is in your online tax account, that is usually a strong indicator it is genuine, but it is still wise to be cautious about attachments and links.

Once you have confirmed authenticity, read the request carefully. HMRC often asks for a specific date range (for example, the accounting period or tax year) and may specify which accounts they want. They may ask for “all pages” of statements, not just selected pages. They may request statements in PDF format or original bank-generated documents rather than screenshots. Understanding the exact scope will help you respond properly and avoid unnecessary back-and-forth.

Identify what type of check you are dealing with

HMRC requests for bank statements can occur under different types of checks, and the approach can differ depending on the type. You might see references to a “compliance check,” “enquiry,” or “check into your tax return.” Sometimes HMRC uses the phrase “aspect enquiry” when they are looking at a particular item, such as motor expenses or use of home. In other situations, it can be a broader enquiry into the whole return.

Knowing whether HMRC is reviewing a narrow issue or your entire return matters because it affects how much information you may need to provide and how you should organise it. If HMRC is focusing on a single item, you may be able to respond with bank statements plus a short explanation and supporting invoices for that item. If it is a full enquiry, you will likely need to provide statements, invoices, receipts, and a clear reconciliation between bank transactions and your accounting records.

If the letter does not make it clear, you can ask HMRC for clarification. A short, polite request asking what specifically prompted the check and what they are trying to verify can help you prepare a more targeted response. This does not look suspicious; it looks organised and cooperative.

Check the deadline and respond promptly

HMRC will normally set a deadline for providing documents. Missing the deadline can escalate matters, potentially leading to penalties, a more formal information notice, or HMRC making assumptions about your income and expenses. If you need more time, ask as early as possible. HMRC may grant an extension if you have a reasonable explanation, such as waiting for statements from a bank, illness, or needing time to compile records.

Do not ignore the request even if you feel overwhelmed or you think you have made mistakes. Silence often makes HMRC more suspicious, and it can reduce your options for negotiating the scope of the enquiry. A timely response, even if it is to request an extension or confirm you are gathering documents, is better than letting the deadline pass.

Understand your rights and HMRC’s powers

HMRC has broad powers to request information that is reasonably required to check your tax position. However, those powers are not unlimited, and you still have rights. HMRC should request information relevant to the check. For example, if they are checking the turnover of your business for a particular tax year, it is reasonable to request statements that cover that year. If they request statements far outside the period without explanation, you can ask why they are needed and whether the request can be narrowed.

In many cases HMRC begins by making an informal request for documents. If you refuse or do not comply, HMRC may issue a formal “information notice,” which carries different obligations and can be appealable in certain situations. This is one reason it can be helpful to deal with the request cooperatively from the start, but also thoughtfully, so you provide what is needed without oversharing.

You also have the right to professional representation. You can appoint an accountant or tax adviser to correspond with HMRC. If you are nervous about handling the enquiry yourself, or if the figures are complex, it can be a sensible step.

Decide whether to handle it yourself or appoint an accountant

Many sole traders can respond to straightforward requests without professional help, particularly if their bookkeeping is tidy and the enquiry is narrow. However, there are situations where it is worth getting an accountant or tax adviser involved:

First, if you have mixed personal and business transactions in one account, interpreting the statements for HMRC can be tricky. Second, if your records are incomplete, or if you suspect the return contains errors, you will want someone who understands how to correct the position and reduce penalties. Third, if HMRC’s tone suggests a broader enquiry or if they are asking detailed follow-up questions, an adviser can help manage communications and keep the enquiry focused.

Even if you do not appoint a representative, consider at least having a professional review your response before you send it. A short review can catch issues you might miss, such as unexplained cash deposits or inconsistent descriptions.

Gather the correct bank statements and confirm the date range

Once you know what HMRC has asked for, gather the statements exactly as requested. If HMRC asks for statements covering 6 April to 5 April, make sure the documents cover that entire range. If your bank statements are issued monthly and the dates cut across months, you may need additional pages or partial-period statements. Provide complete statements, including all pages, to avoid the appearance that you have withheld information.

If you have more than one account used for the business, include them all if requested. This could include a business current account, a personal current account used for business, a savings account where you set aside tax, or an account linked to a payment processor. If you use online services such as PayPal or a card reader service, HMRC may also want reports from those platforms, though that is separate from bank statements.

If your bank no longer provides old statements through online banking, request them directly from the bank. This can take time, so do it early. Keep evidence that you have requested the statements in case you need to ask HMRC for an extension.

Organise your statements before you send them

Sending bank statements as a messy bundle can prolong the enquiry. Organise them in a way that makes it easy for HMRC to follow your business activity. A practical approach is to create a folder for each account and a subfolder for each month, then name files clearly (for example, “BusinessAccount_2024-05.pdf”). If HMRC accepts digital documents, PDFs are usually best because they preserve formatting.

Alongside the statements, prepare a simple index. This can be a one-page document listing what you are providing: account name, bank, sort code and account number (partially masked if appropriate), and the date range covered. This helps the officer confirm they have everything.

Be careful with editing. Do not alter the content of statements. If you need to redact genuinely sensitive non-tax-related information, consider getting professional advice first. Excessive redaction can frustrate HMRC and lead to further requests or formal notices. Generally, if HMRC has properly requested the statements, providing them unredacted for the relevant period is usually the safest option.

Reconcile the bank statements to your bookkeeping

The most important work you can do before responding is to reconcile the bank statements to your accounting records. HMRC often uses bank statements to identify undeclared income or disallowed expenses. If you can show, clearly, that the bank transactions match your sales and expense records, you reduce the chance of further questions.

Start by checking that all business income shown on the bank statements is included in your turnover figure. For example, if you sell services and receive bank transfers, each customer payment should be reflected in your sales records. If you receive cash and deposit it later, be prepared to explain the source of those cash deposits. Cash deposits are a common area of interest for HMRC because they can be difficult to trace.

Next, review expenses. Make sure each expense you claimed can be supported by a receipt or invoice, and that it appears on the statements (unless paid in cash). Pay attention to items that are partly personal, such as phone bills, broadband, vehicle costs, meals, or subscriptions. If you claimed a business proportion, be prepared to explain how you calculated it.

If you use accounting software, run a bank reconciliation report. If you keep records in spreadsheets, create a reconciliation tab showing the totals: opening balance, total receipts, total payments, and closing balance for the period. The goal is to demonstrate that your records are complete and consistent.

Watch for common triggers in your statements

Before HMRC sees the statements, look for transactions that commonly raise questions and prepare explanations. This does not mean you should invent stories; it means you should be ready to explain legitimate items in plain language.

Regular transfers from family members, refunds, insurance payouts, loan advances, or personal savings moved into the business account can look like income at first glance. Make notes about what these are. If you have supporting documents (loan agreements, refund emails, insurance letters), gather them. Likewise, large cash withdrawals may prompt questions about whether you are paying staff cash-in-hand or whether there are unrecorded expenses. If withdrawals are for personal use, note that, and ensure your drawings are correctly treated in your accounts.

Another common issue is “round sum” deposits, such as multiple deposits of £500 or £1,000. Even if these are legitimate, be prepared for follow-up questions because they can resemble undeclared takings. If you have a cashbook or daily till records, make sure they are up to date.

Prepare supporting documents beyond bank statements

Bank statements alone rarely tell the full story. HMRC may ask for invoices, receipts, mileage logs, or explanations of specific entries. Even if they have not asked yet, it is wise to prepare the key documents so you can respond quickly if follow-up questions arise.

For income, gather sales invoices, contracts, and reports from payment platforms. For expenses, gather receipts and invoices, and keep them grouped by category. If you claim use of home as office, have a simple calculation showing how you arrived at the figure, whether you used a simplified flat rate or actual costs apportioned. If you claim vehicle expenses, have your method documented: mileage basis or actual costs, and any logs or evidence.

The smoother you make the process, the less time HMRC may spend on your case. In many enquiries, the tone and clarity of the taxpayer’s response can influence how quickly HMRC is satisfied.

Respond with a clear explanation letter

When you send bank statements, include a short cover letter or message. This should be factual, organised, and calm. State what you are providing, the period covered, and any key explanations that will help HMRC interpret the statements. For example, if you have mixed personal and business transactions in one account, say so and explain how you separated them in your records.

If you identified any errors in your return or bookkeeping, be cautious about how you address them. In many cases, it is better to acknowledge an issue and propose a correction rather than hope HMRC does not notice. HMRC penalties can be reduced when you make a prompt and voluntary disclosure, whereas penalties can increase if HMRC believes you were careless or deliberately concealed information.

Keep your explanations simple. HMRC officers handle many cases and appreciate clarity. If you are attaching multiple documents, refer to them by filename so the officer can match your narrative to the evidence.

If you discover mistakes, consider making a disclosure

It is common for sole traders to discover small mistakes when preparing for an HMRC request. The key is how you handle them. If you find missing income, overstated expenses, or incorrect claims, you may need to correct the position. Depending on the situation, this might involve amending your tax return (if within the amendment window) or making a voluntary disclosure as part of the compliance check.

Disclosing errors can feel uncomfortable, but it often leads to a better outcome than waiting for HMRC to find them. Penalties are typically influenced by behaviour (careless, deliberate, etc.) and the quality of your cooperation. A well-prepared disclosure that explains what went wrong, how you corrected it, and what you will do to prevent recurrence can help keep the enquiry proportionate.

If the mistake is significant, or if you are unsure how to correct it, professional advice is strongly recommended. The way you frame and quantify a correction matters, and you do not want to accidentally broaden the enquiry by sending confusing information.

Be mindful of personal transactions and privacy

Sole traders often worry that providing personal bank statements means HMRC will scrutinise their private spending. In practice, HMRC’s interest is tax-related, but bank statements can reveal personal transactions. If you used a personal account for business, this is one reason HMRC might ask for it: they need to see the business entries within it.

If your request is specifically for business accounts, you generally should not volunteer personal accounts that are not relevant. However, if you did run business transactions through a personal account, it is usually better to be transparent. Trying to hide the existence of an account that contains business income can lead to serious consequences if HMRC later discovers it through other means.

A good long-term solution is to separate finances going forward. Having a dedicated business account makes record keeping easier, reduces the volume of personal data in a compliance check, and helps you understand profitability.

Choose a secure method of sending documents

HMRC will typically provide instructions for sending documents: upload via a secure portal, email to a designated address, or post copies. Follow their method. Do not send bank statements through insecure channels unless HMRC specifically instructs it and you are confident the contact is genuine. If you post documents, use tracked delivery and keep copies of everything you send.

If you upload files, keep a record: screenshots of submission confirmations, timestamps, and a list of uploaded files. If there is a size limit, compress PDFs without altering content, or split by month. Make sure the statements remain readable.

Keep a record of all communications

Create a folder for the enquiry and keep copies of letters, emails, uploaded documents, and notes of phone calls. If you speak to HMRC by phone, write down the date, time, the name of the person (if provided), and what was agreed. This is valuable if there are later disagreements about deadlines or what was requested.

Keeping a clear record also helps you manage stress. When you can see a tidy timeline of what has happened and what you have done, the process feels more manageable.

What to do if HMRC asks follow-up questions

After reviewing your bank statements, HMRC may ask for clarifications. This is normal. They might point to specific transactions and ask what they relate to. Reply directly, referencing the transaction date and amount, and provide evidence where you can (invoice, receipt, contract, refund confirmation).

If HMRC questions whether an expense is wholly and exclusively for business, explain your business use and, if relevant, the apportionment method. For example, if a phone bill is partly personal, show how you calculated the business proportion. If you have changed your approach since the period under review, you can mention improvements, but keep the focus on the year being checked.

If you do not know what a transaction is, do not guess. Investigate. Check emails, invoices, or supplier accounts. If you genuinely cannot identify it, say so and explain the steps you took to try to trace it. Uncertainty is better than an incorrect explanation.

Possible outcomes and what they mean

There are several common outcomes once HMRC has reviewed your statements and supporting documents. The best outcome is that HMRC is satisfied and closes the check with no changes. Another common outcome is that HMRC proposes adjustments: perhaps disallowing certain expenses, adding unreported income, or correcting a calculation error. This may lead to additional tax, interest, and potentially a penalty.

In some cases, HMRC may broaden the enquiry if they find patterns that suggest the original return is unreliable, such as unexplained deposits, significant omissions, or poor record keeping. This is why it is important to provide a coherent, reconciled response early.

If HMRC proposes changes and you disagree, you can ask for the reasoning and provide further evidence. Keep discussions factual and focused. If the matter cannot be resolved informally, there may be formal review and appeal routes, but those steps are typically easier when you have maintained clear documentation from the beginning.

How to reduce the chances of future requests

You cannot guarantee HMRC will never ask for bank statements again, but you can make compliance checks less likely and easier to handle. The most effective changes are practical:

First, keep business and personal finances separate. Use a dedicated business current account and route all business income and expenses through it. Second, keep digital copies of invoices and receipts in an organised system, ideally with a consistent naming convention. Third, reconcile bank transactions regularly, not just at year-end. Monthly reconciliation helps you catch missing receipts and miscategorised entries while they are still fresh.

Fourth, be careful with cash. If your business takes cash, maintain a cashbook or daily sales record, and bank cash in a consistent way. If you deposit cash, ensure your records show where it came from. Fifth, if you claim expenses that have a personal element, document your business use and your apportionment method.

Finally, file on time and pay on time. Late returns and late payments can attract attention and create stress. Setting aside tax in a separate savings account and using reminders for deadlines can help you stay consistent.

Practical checklist for responding to HMRC

To make this concrete, here is a step-by-step checklist you can follow when HMRC requests bank statements:

1) Verify the request is genuine using official contact details.

2) Read the letter carefully and note the deadline and the exact date range and accounts requested.

3) Gather complete statements for the period, ensuring all pages are included.

4) Organise files clearly and create a simple index of what you are providing.

5) Reconcile the statements to your bookkeeping and identify any gaps or anomalies.

6) Gather key supporting documents (invoices, receipts, mileage logs, platform reports) that relate to the entries.

7) Prepare a short cover letter explaining what you are sending and highlighting any relevant context (such as mixed personal/business use).

8) Send documents securely via HMRC’s specified method and keep confirmation of delivery.

9) Keep a complete record of communications and respond promptly to follow-up questions.

10) If you discover errors, consider correction or disclosure and get professional advice if the amounts are material or the situation is complex.

When to seek urgent professional help

Some situations warrant quick professional input. If HMRC suggests that you have deliberately understated income, if they request information covering multiple years without clear explanation, if you receive a formal information notice, or if the sums involved are large relative to your business, you should strongly consider engaging a tax professional. Likewise, if you feel out of your depth, professional support can reduce stress and help you avoid mistakes in how you communicate.

An adviser can also help you negotiate the scope of requests, prepare reconciliations in a format HMRC prefers, and ensure that any corrections are made properly. Importantly, they can act as a buffer in communications, which can be valuable if you find the process intimidating.

Key mindset: cooperate, but stay organised and precise

The most effective approach for a sole trader is to be cooperative without being careless. Provide what HMRC asks for, within the relevant scope, and make the officer’s job easier by presenting a clear, reconciled package. Avoid emotional explanations or defensive language. Treat it like a business process: identify what is needed, compile it accurately, and document what you sent.

HMRC enquiries can be stressful, but they are manageable when you respond promptly, keep records, and ensure your figures are supported. Even if you uncover issues, dealing with them openly and methodically usually leads to a better outcome than avoidance. Over time, improving your bookkeeping and separating accounts can make your business more resilient and make any future compliance checks far less daunting.