Tax Disputes and Investigations – March 2026

In this edition, we cover a range of significant developments in UK tax disputes and investigations. We share our recent experience on MTIC and HMRC internal reviews, and analyse the First-tier Tribunal’s striking findings in HMRC v Harte, where HMRC’s approach to deliberate errors drew sharp judicial criticism. We also report on the dramatic rise in HMRC’s transfer pricing yield, consider whether HMRC is shifting its approach to Code of Practice 9 investigations, and break down the implications of Lester v HMRC [2025] UKFTT 323 (TC), which challenges HMRC’s handling of consequential claims.

MTIC and HMRC internal reviews

We were delighted to achieve a superb result this month on a client engagement linked to Missing Trader Intra-Community (MTIC) fraud, working in collaboration with a specialist Indirect Taxes firm. Following an online meeting and our written representations HMRC cancelled in their entirety almost £1.3m of VAT assessments and penalties.

HMRC had alleged that our client knew or ought to have known they were part of a fraudulent supply chain but adduced no substantive evidence to support this view. This highlights the importance of applying investigative, forensic and evidence based questions, particularly in fraud linked and fraud adjacent scenarios such as this one. Questions also arose as to the process by which HMRC had gathered information and formed their view, leading to a lack of transparency and understanding on the client’s part as to the significance of questions and conversations they were participating in voluntarily.

This engagement also interestingly highlighted the potential significance for clients of HMRC’s internal review process. There has been a lot of scepticism and criticism of internal reviews within the tax disputes resolution community. However, approached with the right expertise, experience and insight HMRC reviews can yield fantastic results for clients very efficiently.

Whilst it is uncommon for them to overturn the investigating officer’s substantive position or technical stance, from the starting point of HMRC having taken an adverse view there is often essentially nothing for clients to lose in fully engaging with the review process. They can also prove a useful springboard into other non-litigation routes to resolution, such as Alternative Dispute Resolution (ADR).

Ben Proctor

“Astonishing” – HMRC v Harte and deliberate errors

In HMRC vs Shaun Harte [2026] UKUT 00112 (TCC), the Upper Tribunal (UTT) upheld the First Tier Tribunal’s decision that HMRC had incorrectly applied extended time limits in relation to a discovery assessment.

Section 29 Taxes Management Act (TMA) 1970 sets out the powers and limitations of an HMRC officer when they discover a potential loss of income tax. The time limits within which HMRC can raise a discovery assessment are determined by the taxpayer’s “behaviour” and the resulting degree of culpability of the error. The ordinary time limit where a taxpayer is deemed to have taken reasonable care is 4 years, which extends to 6 years for careless behaviour and 20 years for deliberate behaviour.

HMRC argued that where the loss of tax taken in total is caused by a number of separate errors resulting from different degrees of culpability of behaviour, any example of deliberate behaviour would enable HMRC to make an assessment on the entire amount of underpaid tax under the extended time limit of 20 years. In Mr Harte’s case, only a part of the loss of tax was brought about by deliberate error. The FTT had agreed with Mr Harte that one type of conduct that resulted in merely a part but not the entire amount of underpaid tax did not allow HMRC to assess the remainder on the same basis (deliberate error leading to a 20 year assessment time limit). The UTT has now ruled that that the FTT had interpreted the TMA 1970 provisions correctly.

The point worth highlighting here is that HMRC would pursue such an interpretation as far as the precedent setting UTT. HMRC’s case rested on a patchwork of rather controversial interpretations of past tax cases alongside an overriding public interest argument. It is hard to disagree with Mr Harte’s counsel Laurent Sykes KC’s contention that it would “be an astonishing outcome if an item shown to have arisen despite reasonable care could nonetheless be assessed twenty years later simply because a different item in the same year involved deliberate conduct”. The judges’ conclusion was less strong, contemplating the possibility that Parliament might have enacted such a scheme but ruling that in practice it has not chosen to do so.

Success for HMRC in this case would have resulted in a very significant widening and strengthening of a longstanding power which the wider tax disputes resolution community regarded as well trodden and well understood. On the basis of the stance adopted by HMRC in Harte, it seems likely that HMRC will have attempted similar arguments with other taxpayers. Anyone finding themselves or a client in this position should make sure to seek appropriate advice now that the UTT has corrected HMRC’s view.

Ben Proctor and Shamil Jeeawoody

Dramatic increase in HMRC transfer pricing yield

The headline TP statistics are as follows:

• TP yield almost doubled to £3,387m from £1,786m in the prior year. Given this result and HMRC’s recruitment drive for TP and international tax specialists, this trend is expected to continue.
• 143 TP enquiry cases were settled in 2024-25, an increase from 128 cases settled in the prior tax year. The average time to settle cases has increased from 33.1 to 41 months.
• 392 full-time equivalent staff are working on international tax issues including TP.
• HMRC agreed 26 advanced pricing agreements (APAs) during the year with an average time to reach APA agreement decreasing from 53 months in the prior year to 43.9 months.
• The number of mutual agreement procedure (MAP) cases resolved increased from 86 in the prior year to 115 with the average time to resolve such cases decreasing from 28.8 months to 24.8 months.

DPT is an anti-avoidance levy on large multinational enterprises (those with worldwide revenues exceeding €750m) that shift profits out of the UK using contrived arrangements or avoid creating a taxable presence. The net amount of DPT received by HMRC decreased slightly to £94m in the 2024-25 UK tax year from £108m in the prior year.

However, DPT notifications received by HMRC increased from 16 to 42 reflecting an increased number of taxpayers self-assessing as potentially falling within the scope of the DPT legislation.

The most striking point here is clearly the dramatic increase in yield year on year. This is a major result by HMRC and very likely to inspire still further increased activity and resources in this area. However, it is also relevant to highlight that, prior to 2024-25 HMRC’s TP yield had been broadly flat or declining since 2016/17 – a 7-year period.

Could this therefore represent the long delayed full emergence of HMRC from the effects of the Covid pandemic? Perhaps. However, the increase in the average time to settle cases from 33.1 to 41 months is a concerning retrograde step. In our view, any taxpayer involved in a TP enquiry that has lasted longer than 18 months should seek alternative or supplementary advice with a view to achieving a reset and refreshed, more dynamic and structured approach.

These statistics clearly demonstrate that HMRC struggles to achieve this independently but the relevant experience and expertise does exist in the private sector.

Ben Proctor

Code of Practice 9 (‘COP9’) Investigations – a Change of Approach?

Recent experience of assisting clients to prepare Code of Practice 9 (‘CoP9’) disclosure reports suggests that HMRC’s Fraud Investigation Service (‘FIS’) may be hardening their approach. A recent discussion with HMRC indicated that individual officers are being strongly encouraged to ensure that disclosure reports are submitted within 6 months of the opening of the CoP9 investigation. Interestingly, where CoP9 has been accepted by the taxpayer and an outline disclosure has been submitted, the 6 months period is considered to start when CoP9 has been issued (rather than for example when the opening meeting takes place).

Additionally, we have been advised that officers are being encouraged to ensure that a more robust approach to progress meetings is taken, so HMRC will ask for specific written follow up from meetings and to ensure they have sight of work done (such as sight of analysis carried out or other working papers).

We are advised that there has been no specific change to HMRC”s guidance, but our own experience and that of other professionals suggests that FIS are trying to establish this more robust approach as business as usual.

Whether it is realistic to expect FIS to be able to resource this appropriately, for example by taking over a larger number of investigations, remains to be seen. However, those dealing with CoP9 investigations should be aware that FIS will be expecting reports to be prepared more quickly going forward, which in turn will require that advisers are able to devote the required time and effort to comply with HMRC’s accelerated timescales.

Jon Preshaw

A Challenge to HMRC’s Approach to Consequential Claims – Lester v HMRC UKFTT 323 (TC) 09807

This case was recently decided at First Tier Tribunal, and concerned the use of losses following the conclusion of an enquiry by HMRC.

In 2019, HMRC amended Mr Lester’s 2006/07 tax return, following HMRC enquiries into the Clavis Fund 2 partnership. This resulted in a tax charge of £606,936.80 for 2006/07 which arose because losses from the partnership were disallowed. Mr Lester made consequential claims to carry back claims to relieve the profits arising from this amendment, using losses accrued from four partnerships in subsequent years.

HMRC refused Mr Lester’s claims to relieve the profits under s72 ITA 2007 for carry back loss relief as they stated the claims were now out of time and could not be allowed, and that Mr Lester had already made a claim to carry forward the losses under s83 TMA 1970 by including these amounts in his returns in subsequent years, and that those claims had not been revoked. The tribunal’s decision turned on whether the legislation at s43C TMA 1970 meant that the time limit for making the carry back claims was extended and Mr Lester had therefore made his claims in time. The tribunal also consider whether HMRC had issued an appealable decision to Mr Lester.

HMRC argued that the provisions of s43A and s43C were narrow in scope and limited the losses applicable to those arising in the years in which the additional profits arose. The tribunal rejected HMRC’s argument and found that even though a valid claim to carry forward the losses had been made, s43 allowed Mr Lester to carry back the losses to the earlier period because of HMRC’s amendment to his 2006/07 return. The tribunal also found that HMRC had provided Mr Lester with a valid decision of this view which he could appeal (so removing the need for Mr Lester to take separate Judicial Review proceedings).

While not binding, this result gives much needed clarity on how consequential claims operate in practice. The FTT’s view was that the purpose of the legislation following an amendment of a return after enquiry is to put an individual in the place they would have been had the return been filed in accordance with the adjustments made by HMRC. This appears to us to be a common-sense approach which reflects the broader spirit of the consequential claims legislation. It will be interesting to see if HMRC appeal this aspect of the decision further or, if not, whether they amend any of their guidance given that this currently appears to be inconsistent with the tribunal’s approach.

The tribunal also provided helpful clarification of the formalities required for an enquiry to have been opened. Although HMRC never explicitly sent a letter advising that an enquiry had been opened into the claim, the FTT found it was reasonable for Mr Lester to conclude that HMRC had opened an enquiry into his claim as the officer dealing with the matter sent a letter stating that he intended to do so. The officer indicated that he would provide a formal letter confirming that the enquiry had been opened but formal confirmation was never issued. However, the tribunal were content that the officer’s initial letter was sufficient.

James Bryans

In other news…

We were delighted to welcome Shamil Jeeawoody to the team, who joined us in February as a Tax Associate. Shamil brings strong experience from his time at BDO, and will be a key part of the team supporting Ben, Clare, James and Jon with our ongoing work resolving tax disputes with HMRC.