In the UK, tax compliance is taken extremely seriously. While most individuals and businesses aim to follow HMRC rules correctly, there are cases where deliberate tax evasion or serious fraud is suspected. To deal with these situations, HMRC operates a specialist department known as the Fraud Investigation Service (FIS).

But what exactly is the HMRC Fraud Investigation Service, how does it work, and what should UK taxpayers know if they ever come into contact with it? This guide breaks down the role of the FIS, the processes it uses, and the steps businesses can take to stay compliant and avoid scrutiny.

Understanding the HMRC Fraud Investigation Service

The HMRC Fraud Investigation Service is HMRC’s dedicated team for investigating the most serious cases of tax evasion, fraud, and financial crime. Established in 2016, the FIS combines HMRC’s criminal and civil investigation teams into one powerful department.

Its remit covers:

• Large-scale tax evasion schemes
• Deliberate underpayment of taxes
• Use of offshore accounts to hide income
• Serious cases of money laundering linked to tax crime
• Complex VAT, PAYE, or corporation tax fraud

Unlike routine HMRC compliance checks, the Fraud Investigation Service deals only with high-risk cases where significant sums or deliberate dishonesty are involved.

How the Fraud Investigation Service Works

The FIS has a wide range of powers to detect, investigate, and prosecute tax fraud. Its investigations usually follow two main routes:

1. Civil Investigation of Fraud (COP9)

When HMRC suspects fraud but allows the taxpayer to come clean, they may use the Contractual Disclosure Facility (CDF) under Code of Practice 9 (COP9).

• Taxpayers are invited to disclose deliberate errors in exchange for immunity from criminal prosecution.
• They must provide a full, honest disclosure of all irregularities.
• If accepted, the case is settled through financial penalties rather than court action.

2. Criminal Investigation

For the most serious cases, HMRC pursues a full criminal investigation.

• These cases may involve dawn raids, arrests, and asset seizures.
• If evidence supports prosecution, the case can proceed to court, potentially resulting in prison sentences and confiscation of assets.

What Triggers an HMRC FIS Investigation?

The Fraud Investigation Service typically becomes involved when HMRC suspects serious wrongdoing. Triggers can include:

• Discrepancies in tax returns that cannot be explained by error.
• Large unexplained wealth, such as assets inconsistent with declared income.
• Anonymous tip-offs from whistleblowers or business rivals.
• Information from banks or international tax authorities through data-sharing agreements.
• Suspicious activity reports from accountants, solicitors, or financial institutions.
• Previous non-compliance where the taxpayer has a history of underreporting income.

For small businesses, errors are usually handled through compliance checks rather than FIS. However, repeated or deliberate misreporting can escalate matters.

HMRC Fraud Investigation Powers

The FIS has some of the broadest powers of any UK government department. These include:

• The ability to demand records and documents from individuals and businesses.
• Authority to inspect business premises and seize records.
• Power to freeze bank accounts and recover unpaid taxes directly.
• The right to conduct interviews under caution (similar to police questioning).
• For criminal cases, the power to arrest suspects and seize property.

These powers mean that anyone contacted by the FIS must take the situation extremely seriously.

Civil vs. Criminal Investigations

Understanding the difference between civil and criminal investigations is crucial:

• Civil (COP9): Focused on recovering unpaid tax and applying penalties. No prosecution if the taxpayer cooperates fully.
• Criminal: Pursued where HMRC wants to send a deterrent message or believes dishonesty is serious enough to warrant prosecution. Convictions can lead to imprisonment, unlimited fines, and confiscation of assets.

How to Respond to HMRC FIS Contact

If an individual or business is contacted by the Fraud Investigation Service, the way they respond can have a major impact on the outcome.

1. Do Not Ignore Correspondence
   Ignoring letters or notices will only escalate matters.
2. Seek Professional Advice Immediately
   Tax specialists and compliance experts can help prepare a response, manage negotiations, and ensure your rights are protected.
3. Be Honest and Transparent
   Especially in COP9 cases, honesty is vital. Attempting to conceal information can lead to criminal charges.
4. Cooperate Fully
   Providing requested documents and answering questions can help resolve matters more quickly.

The Impact of an FIS Investigation on Businesses

For UK businesses, being investigated by the Fraud Investigation Service can have serious consequences, even beyond financial penalties.

• Operational disruption: Investigations can tie up resources, damage cash flow, and distract management.
• Reputation damage: News of an investigation can undermine client confidence and investor trust.
• Financial strain: Penalties, back taxes, and legal costs can put businesses under severe pressure.

This is why prevention—through good compliance practices—is far better than dealing with an investigation later.

Staying Compliant and Reducing Risk

The best way for UK businesses and individuals to avoid FIS scrutiny is to maintain full tax compliance at all times. Practical steps include:

• Keeping accurate financial records and filing returns on time.
• Ensuring PAYE, VAT, and corporation tax are calculated correctly.
• Seeking advice before entering into complex arrangements or tax planning schemes.
• Being cautious with cash transactions and ensuring transparency in all business dealings.
• Using professional payroll and compliance services to reduce errors.

The Infinity Group: Supporting Compliance and Reducing Risk

For small businesses and contractors, the complexity of HMRC rules can be daunting. This is where The Infinity Group plays a valuable role.

As payroll and compliance specialists, The Infinity Group helps businesses stay on top of their obligations by:

• Managing PAYE and payroll compliance, ensuring accurate tax deductions and submissions.
• Supporting contractors with CIS payroll and IR35 compliance.
• Providing peace of mind that all HMRC reporting is handled correctly, reducing the risk of errors that might trigger unwanted scrutiny.

By working with The Infinity Group, UK businesses and contractors can focus on growth, safe in the knowledge that their tax and payroll responsibilities are being managed professionally.

Final Thoughts

The HMRC Fraud Investigation Service is one of the most powerful arms of the UK tax authority, tasked with tackling serious fraud, evasion, and deliberate non-compliance. While most individuals and businesses will never encounter it, understanding how it works is vital for anyone managing significant tax responsibilities.

By keeping accurate records, being transparent, and seeking expert support, UK taxpayers can minimise their risks. And for those who want the reassurance of professional payroll and compliance management, partnering with a trusted specialist like The Infinity Group offers both protection and peace of mind.

Ultimately, staying compliant isn’t just about avoiding penalties—it’s about building a sustainable, trustworthy business that thrives in the long term.