UK Budget 2026: businesses face heightened tax controversy risks

The measures include a review of HMRC’s ‘special measures’ regime for large businesses, further investment in compliance activity and a new approach to wealthy taxpayer compliance.

HMRC has also confirmed that it will replace the Litigation and Settlement Strategy (LSS) with a new ‘tax dispute resolution framework’ and introduce a general requirement for taxpayers to correct inaccuracies in their tax affairs.

Jake Landman, tax law expert at Pinsent Masons, said: “The announcements demonstrate the government’s continued focus on improving tax compliance and increasing tax revenues through enhanced enforcement activity.”

An important point for large businesses in managing their relationship with HMRC is the authority’s decision to review its approach to persistent non-compliance within the large business population. After committing to review their special measures regime in the government response to Public Accounts Committee (PAC) recommendations, which highlighted HMRC’s failure to use the regime so far, HMRC is now committing to a wider review of persistent non-compliance by large businesses. Engagement is planned for early 2027.

Landman said: “Large businesses should treat HMRC’s reconsideration of these provisions as a live risk, although the focus is on those with consistently negative relationships with HMRC and those who have sought to conceal information or obstruct HMRC in their investigations.”

The Budget also confirmed further investment in HMRC compliance activity, including the recruitment of additional compliance officers.

Landman added: “This commitment to recruit even more compliance officers reflects both the government’s continued focus on reducing tax non-compliance and the fact that investment into investigations has, historically, generated more in tax recovered than it costs.”

Alongside the Budget, HMRC also confirmed that it has finalised its replacement for the LSS, the tax dispute resolution framework, which is expected to be published in April 2027.

“Many have felt that the LSS needs to be improved in a number of respects for some time now and so the new framework will be watched closely,” said Landman.

“It is unclear yet how big a change this new framework will be, however.”

Measures aimed at wealthy taxpayers also point towards a more sophisticated and targeted compliance strategy. HMRC said it intends to use greater segmentation, technology, data analysis and artificial intelligence (AI) tools to identify risks earlier and deploy resources more effectively.

Ian Robotham, a tax disputes and investigations expert with Pinsent Masons, said: “Particularly noteworthy is HMRC’s move towards greater segmentation of the wealthy population, with different approaches reflecting different taxpayer circumstances.”

HMRC said that it identified more than 200 billionaires with a UK tax footprint this summer and has allocated each a customer compliance manager.

Robotham said: “The broader direction is towards identifying risks earlier through combining better data, managed and connected with technology and AI tools, with greater specialist resource so that it can target specialist compliance activity where it will have greatest impact, while reducing unnecessary contact for taxpayers whose affairs present less risk.”

“At the same time, HMRC expressly recognises the need for enquiries to be better managed. It says it will explain the risks being examined, make focused and proportionate information requests, coordinate activity where different HMRC teams are involved and keep taxpayers informed of progress. Taxpayers will welcome these commitments if this means that disputes are more tightly focused and resolved more efficiently,” he added.

Meanwhile, the government has confirmed that a new general requirement to correct inaccuracies, together with customer correction notices, will be introduced from 1 April 2028.

Landman said: “The confirmation of the introduction of a general requirement to correct and new customer correction notices, as well as the knock-on consequences for penalties, is not surprising given the previous announcements made.”

 “The introduction has been given a reasonable lead time. However, despite a few small changes to the policy paper which provide some additional information on the penalty impact, significant questions remain, including on the meaning of ‘becoming aware’ of an inaccuracy. The impact of ‘deemed deliberate’ inaccuracies has the potential to be very substantial due to the 20-year assessment period, which could lead to lengthy disputes with HMRC,” he said.