Tax Disputes and Investigations – December 2025

This newsletter picks up a number of issues which arose from the November budget which will be of particular interest to those involved in tax disputes.  Additionally, we have focussed on some new ‘Guidelines for Compliance’ issued by HMRC which has interesting implications for taxpayers who need to make judgements about the application of complex tax rules when filing their returns. 

Finally, we have flagged some areas where we are advising clients which might be of specific interest to advisers.

As well as the items below, a few highlights from the budget include –

• A proposal for a new penalty regime for ‘reckless’ behaviour which is to be consulted on next year.  This is likely to be a helpful development as it may clear up some of the current difficulties about the meaning of ‘deliberate’ behaviour
• An enhanced whistleblower regime under which the discretionary rewards issued by HMRC will be increased significantly (which could be up to 30% of additional tax where more than £1.5m is recovered)
• Further investment in HMRC’s Debt Management capability and insolvency capability
• Additional resource and focus on dealing with risks around the Construction Industry Scheme and in respect of Electronic Sales Suppression.

The announcements, when taken together don’t appear to be the result of any particular strategic thinking, but they indicate a continuing willingness to devote significant resource to specific risk areas. 

Loan Charge Review Settlement Opportunity

The 2025 Independent Loan Charge Review, and the government’s acceptance of pretty much all of the recommendations was published alongside the budget.  The outcome will be welcome news for many of those struggling with the resolution of enquiries into Disguised Remuneration arrangements.

A further settlement opportunity will now be made available to those impacted by the loan charge which will offer genuinely better settlement terms than is currently the case.  The opportunity includes –

• Reductions in interest charges,
• The removal of IHT charges,
• A reduction in liability to take account of promoter’s fees which were likely to have been paid,
• A commitment that no penalties will be charged,
• No attempt to disallow Corporation Tax relief for contributions in employer settlements,
• The removal of the ‘stacking’ effect of the loan charge which resulted in higher tax rates being charged than would otherwise have been the case,
• A more flexible and realistic approach to payment terms than had previously been available.

The value of any reductions in liability will be capped at a maximum of  £70,000 in total but, notwithstanding that, the proposals represent a significant step forward and a meaningful effort to try to resolve this complex problem.

There are still a significant number of uncertainties which need to be ironed out, and it is hoped that the proposed guidance will deal with these issues.  In particular where individuals or employers have used pre-Disguised Remuneration schemes (before 2010), it remains to be seen whether the same terms will be offered.

Affected taxpayers are told that HMRC will begin contacting them about the new settlement opportunity early next year and are encouraged to approach HMRC proactively to agree settlement.  Those taking a proactive approach are to be dealt with first.

Cross Tax Enquiry Teams move to Fraud Investigation Service

The Autumn Budget 2024 included significant additional funding for HMRC’s compliance operations, specifically targeting high-value tax fraud and what the government terms “high-harm” cases. We have been advised by HMRC on a cross-tax enquiry we are currently working on that selected teams from Wealth Management Business & Compliance (WMBC) have now transferred to the Fraud Investigation Service (FIS) from November 2025.

Therefore, clients under enquiry may now receive correspondence on FIS letterheads rather than standard HMRC headers.

HMRC states this is a structural change only and that the nature and scope of existing enquiries remain unchanged. However, this restructure appears to us to reflect HMRC’s recognition that potential fraud cases weren’t being adequately identified or escalated within standard compliance processes.

This reorganisation is part of a wider HMRC strategy to deal with more complex risks.  As well as cross-tax enquiry teams sitting in FIS, the 2024 funding has been used to fund a new cross-tax enquiry team which sits within the WMBC part of HMRC.  This team is specifically focussed on complex cross-tax enquiries involving both individuals and companies and with a focus on offshore structures. 

It is clear that HMRC are continuing to focus on cross-tax enquiries.  Such enquiries can quickly become complex and require considerable resource to deal with.  If your client is the subject of a cross-tax enquiry, it will be important to engage with the team dealing with the process early to understand the basis on which the review is being conducted and how it can best be managed.

Guidelines for Compliance

HMRC published new guidelines for compliance in September 2025 which set out their view on the approach which ought to be taken when filing tax returns and other documents with HMRC.  The guidelines form part of a series which set out HMRC’s views on a variety of topics which are intended to help taxpayers understand HMRC’s expectations and avoid non-compliance.  The new guidelines raise a number of interesting issues.

The guidelines emphasise that HMRC’s view is (and always has been) that a taxpayer’s duty to ensure that a return or other document filed with HMRC is correct and complete to the best of their knowledge extends to a requirement that the taxpayer has a reasonable belief that any interpretation of the law taken in the return is reasonable.  The guidance indicates that HMRC expects that any interpretation taken should not be an ‘improbable’ interpretation, and that an ‘improbable’ interpretation is one which it is believed a tribunal or court is unlikely to agree with.  HMRC indicate that an improbable interpretation will not include one where the law is finely balanced between reasonable interpretations. 

The guidance indicates that taxpayers should seek advice on such issues and suggests that they should request confirmation from advisers of issues such as whether HMRC are likely to disagree with an interpretation of the law and whether the interpretation is likely to be supported by the courts or tribunals.  The guidance also encourages taxpayers to provide details of any ‘novel or uncertain’ positions taken in filing tax returns, either in the white space box where one is available or by way of separate communication. 

The guidance does not specifically reference the penalty implications of failing to comply with it, but it would be expected that HMRC will consider failures to adhere to the guidance when addressing any penalty implications.  Whether they would be correct to do so in light of the relevant case law is a different matter.  There is extensive case law which suggests that the guidance goes much further than the courts or tribunals expect taxpayers to go in seeking and clarifying advice received.  However, from a practical perspective, the publication of the guidance indicates that there will be increased scrutiny of uncertain or novel interpretations made by taxpayers and it’s likely that there will be an increased willingness to assert that penalties might be payable if a particular interpretation is found to be incorrect. 

What we’ve been working on

Consequential claims and disclosures

We continue to wrestle with the very complicated interaction between assessing provisions and the provisions at s43 and s43A TMA 1970.  It’s clear there are a number of areas where HMRC’s position does not necessarily match with taxpayers’ and advisers’ expectation. 

Hybrid Partnership arrangements

Discussions with HMRC about the treatment of clients who have been members of hybrid property partnerships continues.  It’s now clear that HMRC’s position on the application of SDLT is fixed but considerable difficulty remains about how that might apply to specific circumstances.

‘Tainting’ of pre-2017 trusts

We are dealing with a few circumstances where HMRC are reviewing whether pre-2017 trusts established by non-UK domiciled individuals have been ‘tainted’ because value has been added to the settlement.  The provisions which apply here require a granular review of all the circumstances and our current experience is that HMRC are taking an extremely robust approach.

Wishing you a joyful festive season and a wonderful New Year.