HMRC Red Flags in 2026: Six Areas Most Likely to Attract Attention

HMRC now receives far more third-party data than it used to, including information from digital platforms, overseas reporting systems and, increasingly, crypto reporting rules. In 2026, the areas most likely to attract attention are usually the ones where what you have declared does not match what HMRC can already see.

These are six of the main areas likely to attract attention in 2026, and what taxpayers should keep in mind.

1. Undeclared side-hustle income

Digital platforms including eBay, Vinted, Etsy, Airbnb, Uber and Fiverr now have reporting obligations to HMRC under OECD-led rules that took effect in January 2024. HMRC's own side-hustle guidance makes clear that platform income is an active compliance focus, and HMRC has run a significant nudge letter campaign aimed at online sellers.

If your gross side-hustle income is more than £1,000 in a tax year, you will usually need to tell HMRC, currently through Self Assessment. HMRC has indicated a separate reporting tool is planned for later in the decade, but for now Self Assessment is the route. The £1,000 figure is gross income, not profit, so it is the total received before any costs are deducted.

If you receive a letter asking about online selling, do not ignore it. Voluntary engagement almost always produces a better outcome than waiting for an enquiry.

2. Lifestyle that does not match declared income

HMRC increasingly uses third-party data, international information exchange and data-matching to identify risks. If you are declaring a £28,000 salary but driving a new car, holidaying abroad regularly and posting about it online, that kind of mismatch is more likely to attract attention.

This does not automatically mean wrongdoing. There are plenty of legitimate explanations, from inheritance to savings to a spouse's income. But if HMRC opens an enquiry, the burden is effectively on you to explain where the money came from and to show it has been properly taxed.

3. Unreported crypto gains

HMRC treats cryptoassets as property for Capital Gains Tax purposes. Disposals including swaps between coins, spending crypto on goods, and converting to fiat are all taxable events. The annual CGT exemption has been cut sharply in recent years, meaning far more transactions now fall into charge.

The UK is implementing the OECD's Crypto-Asset Reporting Framework. The 2026 calendar year is the first reporting period, with UK crypto service providers required to submit their first reports between January and May 2027, and the first international exchanges of data following from 2027 onwards. In practical terms, crypto is becoming much harder to keep off HMRC's radar.

4. Rental income off the books

Two separate reliefs are worth knowing about. Rent-a-Room relief allows you to earn up to £7,500 a year tax-free from letting furnished accommodation in your main home. The separate property allowance gives a further £1,000 of gross property income tax-free. Beyond those, rental income generally needs to be declared.

Short-term lettings are a particular focus, because Airbnb and similar platforms are inside the scope of the OECD reporting rules and already share host data with HMRC. HMRC also cross-checks publicly available property data against Self Assessment returns, so an undeclared second property generating rent is an obvious flag.

5. Directors taking loans instead of salary

Owner-managers who regularly draw money from their company through an overdrawn director's loan account, instead of salary or properly declared dividends, have long been an area of HMRC focus. If a shareholder-director owes the company more than £10,000 at any point in the year, it is treated as a benefit in kind. If the loan is not repaid within nine months of the end of the Corporation Tax accounting period, the company pays a Section 455 charge of 33.75% on the outstanding balance.

Using the company as a personal bank account is one of the clearest triggers for an enquiry, and the paper trail in the statutory accounts makes it easy to spot.

6. Undisclosed foreign income

UK tax residents normally pay UK tax on their worldwide income. Under the Common Reporting Standard, more than 100 jurisdictions automatically share financial account data with HMRC. That includes overseas bank accounts, investment platforms, dividends and rental income from property abroad.

Penalties for undeclared offshore income are significantly higher than for equivalent UK mistakes. Under the failure-to-correct rules, the standard penalty is 200% of the potential lost revenue, subject to reduction depending on the quality of disclosure. The practical point is simple: if there is something offshore that has not been reported, coming forward voluntarily is almost always cheaper than being found.

The bottom line

The underlying tax rules have not changed dramatically. What has changed is HMRC's ability to see the data. If you think something may have gone wrong in previous years, a voluntary disclosure usually results in significantly lower penalties than waiting for HMRC to open an enquiry.

If any of the six areas above apply to you and you are not sure whether you are compliant, the sensible move is to speak to an accountant now rather than wait for a brown envelope.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our HMRC Red Flag Checker lets you find out which areas of your finances HMRC is most likely to query, what you should be declaring, and roughly what you may owe. Try it now →