When Labour were elected a little over a year ago, we noted some interesting political and cultural similarities with the time of the last Labour victory in 1997 (and some stark differences). A year on, however, and it is increasingly the case that this does not feel like a Labour government only a year on from a landslide electoral success.
It may be tempting to assume that political and economic narratives rarely change, but with Labour's difficulties, Reform riding high in the polls and political turbulence in the US and in Europe, this feels like a period when that assumption could be severely tested.
In the midst of that picture of change, however, from a tax investigations and disputes perspective there remains a consistent focus by this government on issues of non-compliance and tax avoidance. While this consistency may not be of much comfort to taxpayers, it is at least clear that this remains a priority for HMRC and that compliance and tax risk management should therefore be front of mind for taxpayers.
There were a number of developments over the summer that have illustrated the government's commitment to clamping down on these issues and we are now starting to see measures in full use, in some cases for the first time.
Approach to avoidance and non-compliance
The suite of draft legislation for the Finance Bill 2025-26, published on Legislation Day (21 July) did not contain many surprises, with most of the measures due to come into force in April 2026 having been announced previously, but the message throughout was that non-compliance will be a strong focus, alongside a commitment to simplifying and modernising the tax administration system including in HMRC's "Transformation Roadmap", which we summarised here.
It is hoped that the increased scrutiny taxpayers receive from HMRC will be accompanied by a more user friendly and efficient administration system in due course.
The ICAEW have recently published nudge letters HMRC have sent to taxpayers on unallowable purpose and on the temporary non-residence rules. The letters on unallowable purpose include reference to recent successes HMRC have had in the courts, but it is important to note that unallowable purpose will always involve an assessment of the facts in each case. Nevertheless, it is clear that HMRC are emboldened by these decisions to challenge the positions taken by other taxpayers.
The new "failure to prevent fraud" offence for large organisations came into effect on 1 September 2025. The offence is potentially wide-reaching, with the power to hold an organisation criminally liable where an employee, agent, subsidiary or other "associated person" commits a fraud intending to benefit the organisation or its clients. HMRC have been heavily criticised for failing to use similar criminal offence powers in the past, leading many to view these as hollow threats, but that has recently changed with the first charge brought against an accountancy firm under the offence of "failure to prevent the criminal facilitation of tax evasion".
Taxpayers and advisors may have once viewed HMRC's suite of anti-avoidance and criminal offence measures as being too broad and untested to have real teeth, but the reality is that they are starting to bite, and HMRC are showing increasing willingness to enforce them. This is a space to watch with interest and there is some concern about how far certain measures can be taken (see our piece on "legal interpretation disputes" below) but, as demonstrated in the recent decision in Osmond (also discussed below), it is hoped that the Courts will not allow HMRC's enforcement of these rules to extend beyond the bounds of reality.
As always, we provide a round-up of our commentary on recent topics below, as well as a look at developments in the case law.
Subject to interpretation
A more efficient tax administration system, as promised in the "Transformation Roadmap" will be welcomed by taxpayers. However, the roadmap also included a commitment to address what are described as "legal interpretation disputes" – where a taxpayer's interpretation of the law is different from HMRC's – through revised guidance and legislative changes. This approach presupposes that HMRC's interpretation is the correct one and, as demonstrated by the courts, that is not always the case. Sarah Ling and Jackelyn West highlight the concerns with HMRC's proposed measures in a contributed article for Tax Journal: Closing the tax gap: HMRC's approach to "legal interpretation disputes" - Macfarlanes.
Navigating interest withholding tax
The requirement to deduct withholding tax (WHT) on UK sourced interest impacts a wide range of taxpayers, but it is an area that is often difficult for taxpayers to navigate and it is not always clear how the relevant exemptions and concessions should apply. HMRC are now carrying out an internal review of their administrative approach to interest WHT cases. It is not understood why HMRC are carrying out this review now, or what it is intended to achieve, but it is hoped that the outcome will align with HMRC's broader commitment for tax simplification. In a contributed article for Tax Journal, Bezhan Salehy, Rebecca Rose and Elvira Colomer Fatjo consider the common pitfalls of the UK interest WHT system.
Update: the meaning of purpose in Osmond and Allen v HMRC
A year ago we wrote about the First tier Tribunal's somewhat unusual decision in Osmond and ors v HMRC [2024] UKFTT 00378 that, despite a finding on the facts that the taxpayer did not have a main purpose of obtaining an income tax advantage, they were essentially deemed to have such a purpose as they were seeking a (legitimate) CGT advantage through EIS disposal relief. We are not surprised, therefore, that the Upper Tribunal has now reversed that decision, confirming that a distinction must be drawn between purpose and effect. Gideon Sanitt, Jackelyn West and Simon Fraser consider the UT's decision.
Trust residence: POEM v CMC
The Court of Appeal has recently delivered its decision in Haworth v HMRC [2025] EWCA Civ 822, a 20 year dispute concerning the test that is to be applied to determine the residence of a trust under a treaty.
The Appellants argued that the "place of effective management" (POEM) test for the purposes of the treaty was synonymous with the "central management and control" (CMC) test for determining corporate residence. HMRC maintained (based on precedent) that POEM is a different, broader test. The Court of Appeal agreed that POEM was a distinct test. Paul Hardwick, Gideon Sanitt and Jackelyn West consider the Court of Appeal's decision, and what this means for trusts or corporate entities going forward: Haworth v HMRC: there's no place like POEM - Macfarlanes.
It's not too late
The recent case of Medpro Healthcare Limited & Anor v HMRC [2025] UKUT 255 (TCC) was a rare decision in which the Upper Tribunal departed from precedent set by the Upper Tribunal in a different case (Martland), regarding the balancing of factors to be considered when allowing late appeals against HMRC decisions to the Tribunal. The Martland test had been followed in numerous subsequent appeals however, looking at the construction of the statute, the Upper Tribunal held that it was wrong. Sarah Ling and Sophie Rhind take a look at this unique decision, and consider whether it will make any practical difference to taxpayers.
"Need to know" series on tax disputes
With HMRC taking an increasingly aggressive approach to compliance, more and more taxpayers are finding themselves involved in the enquiry and appeal process. This can be a daunting experience - different taxes are subject to different administrative regimes and HMRC have a wide range of powers to gather information about a taxpayer's affairs. We have recently launched a 'need to know' series of short articles providing practical insights to help clients understand the essential elements and be informed and prepared for HMRC investigations and tax disputes. The latest editions cover amending self-assessment returns, settlements and alternative dispute resolution, and nudge letters. Read the series so far.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
