In recent months, we have observed a marked shift in HMRC’s approach to tax compliance enquiries. While multi-tax enquiries are not new, what is new is the scale of cross-department collaboration and the depth of analysis undertaken long before HMRC ever sets foot on a business’s premises.
This is no longer simply a tax check. It is an end-to-end assessment of a business’s operational controls, governance, workforce practices, and supply chain integrity.
What’s changing with HMRC’s approach?
This direction of travel is highly indicative of how the new Fair Work Agency (FWA), created under the Employment Rights Act 2025, will operate when it launches in April 2026. The FWA will consolidate enforcement of key employment rights under one body, with the intention of driving compliance not just through legal obligations, but through joined up intelligence, risk-based targeting, and proactive enforcement.
HMRC has increasingly been working alongside other government bodies to build a much more complete picture of risk across specific sectors. This is no longer limited to specific sectors - the model is expanding across the entire labour market.
The FWA will adopt a similar approach. By bringing together enforcement of National Minimum Wage, holiday pay, agency worker protections, labour abuse, licensing and more, it will continue this trend toward multi-agency intelligence sharing, proactive compliance monitoring and coordinated inspections.
The underlying principle is clear: ensuring tax and employment rights compliance by ensuring operational compliance.
HMRC now audits your suppliers
One of the most significant shifts is the way HMRC now assesses supply chain governance. Compliance is no longer judged solely on a business’s own practices, but on the behaviour of those it pays and those who pay it.
Businesses are now being asked to evidence:
How suppliers are selected, onboarded, and monitored: Expect detailed questioning on governance, documentation, verification steps, and ongoing oversight.
How suppliers are vetted: Once a relatively minor area of enquiry, supplier due diligence is now a central feature—especially where supplier behaviour could expose a business to fraud, evasion, labour exploitation or other regulatory risks.
Controls around prevention of labour exploitation and modern slavery: HMRC wants to see active, demonstrable worker protection safeguards—not just statements of intent. This involves understanding the full framework a business uses to protect workers, regardless of whether those workers are directly employed or supplied through complex labour chains. This aligns closely with the FWA’s expanded remit over labour exploitation, holiday pay and minimum wage enforcement.
The message is clear: Tax risk, employment rights risk and supply chain risk are now inseparable.
Growing emphasis on joint and several liability
Joint and several liability provisions—across PAYE, VAT, and labour market enforcement—are becoming central to HMRC’s strategy.
What is notable, however, is HMRC’s emerging preference to work with compliant businesses to help identify the rogue traders or so-called bad actors within supply chains, which also emphasises the need for businesses to ensure compliance with the Corporate Criminal Offences regime. HMRC’s message appears to be, “help us identify the noncompliant operators, and we will work with you, not against you.”
The FWA is expected to take a similar stance. With powers to issue penalties, recover underpayments, and enforce labour market undertakings, it will rely heavily on businesses demonstrating robust due diligence and transparent workforce practices.
This is a significant shift, and one which can create opportunities for reputable businesses to protect themselves while demonstrating proactive collaboration.
What to expect when HMRC visits
Perhaps the most striking operational change is the sheer volume of HMRC’s pre visit activity.
We are now seeing HMRC arrive armed with:
Formal notices setting out tax at risk, sometimes arising from other parties in the supply chain
Detailed payment mapping between supply chain entities
Detailed intelligence packages indicating potential noncompliance elsewhere in the chain
Prepared assessments based on the perceived tax losses of others
This frontloading means that by the time HMRC speaks to a business, it may have already formed a robust view of the risks, and could be looking to transfer liabilities where it believes governance or due diligence has been insufficient.
This approach mirrors the anticipated direction of the Fair Work Agency, which will be equipped with a single, unified enforcement strategy and wide investigatory powers.
What does this mean for your business?
This evolving landscape places new expectations on all businesses regardless of sector and a greater importance on taking the time to assess your governance, due diligence and workforce controls and ensure they are documented and regularly reviewed.
Action to take include:
Map out supply chains end to end – a documented supply chain governance is not optional
Assess due diligence - this must be meaningful, evidenced and ongoing, not box ticking
Review and update contracts and onboarding where needed - suppliers’ practices can now directly expose you to liability
Audit NMW, holiday and SSP calculations -employment rights compliance will face significantly more joined-up scrutiny under the FWA and worker protection controls must be demonstrable and active
Those who are prepared can navigate enquiries far more effectively and often reduce liabilities significantly. Those who are not may find themselves inheriting the failings of others - whether tax-related or labour rights-related.
Review compliance and frameworks
If you are concerned about how HMRC’s new approach, or about the upcoming Fair Work Agency, may impact your business, or if you would like support reviewing governance, due diligence frameworks or enquiry readiness, please get in touch with the Armstrong Watson Tax team. Call 0808 144 5575 or email help@armstrongwatson.co.uk.
If you are concerned about how HMRC’s new approach, or about the upcoming Fair Work Agency, may impact your business, or if you would like support reviewing governance, due diligence frameworks or enquiry readiness, please get in touch with the Armstrong Watson Tax team. Call 0808 144 5575 or email help@armstrongwatson.co.uk.
