Paislei Godley, associate director at West Midlands-based Prime Accountants Group, said the boom in the breeding market during the pandemic had led HMRC to investigate the sector.

A study from the Royal Veterinary College published in 2023 revealed “concerning trends” around animal welfare linked to the pandemic and the growth in pet ownership.

Paislei said: “HMRC believes large numbers of people have started breeding and have failed to register for self-assessment – so they’re not currently completing tax returns at all.

“The pandemic led to a significant hike in breeding as pet ownership spiked, but ultimately if people are breeding and selling for trade they should be declaring it to HMRC.

“In this scenario, they are inviting taxpayers to respond voluntarily. They wouldn't send the letter if they didn't have some sort of evidence, so anyone receiving one shouldn’t ignore it.”

Paislei said breeders who don’t cooperate or aren’t fully forthcoming with HMRC could risk having 20 years of business records combed through by inspectors.

She added: “If you don’t voluntary disclose and are approached by HMRC, individuals will face higher penalties being levied. These penalties can be reduced based on their ‘Telling, Helping and Giving’ stand on penalty reductions so an un-prompted disclosure to HMRC to bring tax affairs up to date is always best.

“Penalties are a percentage of the tax loss, which can be anything between zero and 100 per cent, depending on how actively helpful you are with HMRC.”

The HMRC ‘One to Many’ approach sees it send a standard message to many customers, aiming to influence their behaviour and make them more likely to comply with their tax obligations.

For more information on Prime Accountants, which has offices in Birmingham, Solihull and Coventry, visit https://primeaccountants.co.uk.