UK government guidance could signal shift in tax policymaking and HMRC disputes

In an open letter published on 7 September, the chancellor, first secretary of state and attorney general set out what they described as a drive to restore the agency of government by reducing administrative barriers to decision-making. The letter focuses on three areas: consultation, legal considerations and judicial review.

The most immediate consequence for tax professionals may arise from the government’s position on consultation. The ministers argued that a “consultation culture” has contributed to delays and stated that there is “no general duty of consultation”, with formal consultation only to be used where there is a statutory requirement, where failing to consult would be “conspicuously unfair”, or where ministers consider it appropriate to seek external input.

“The approach marks a notable shift from the long-standing culture of tax policymaking,” said Abigail McGregor, tax expert at Pinsent Masons.

“Although HM Treasury and HMRC withdrew the formal Tax Consultation Framework in September 2025, the process it embodies has largely continued in practice, albeit that the references to the ‘five stages’ of tax policy development being replaced with the three principles of tax policy making. Major tax reforms have typically involved extensive stakeholder engagement, often beginning with a call for evidence, followed by consultation on policy design and then technical consultation on draft legislation and implementation,” she said.

The 2011 framework, which guided policy development for more than a decade, committed the government to engaging interested parties through the policy lifecycle and to carrying out at least one formal public consultation on significant reform proposals. It also envisaged consultation on policy design, draft legislation and implementation issues, reflecting a view that scrutiny improves the quality and workability of tax law.

McGregor said: “One of the new principles of tax policy making is a ‘smart and agile approach to consultation’ with a suggestion that formal consultation will only be used in a ‘targeted and precise’ way. While the new ministerial letter does not specifically address tax policy, it reinforces a fundamental shift in the approach to consultation and a strict application of its principles could lead to considerably fewer formal consultations, possibly with opportunities to engage with government through different, and less transparent, channels.”

Alongside the letter, the attorney general published updated guidance for government lawyers on assessing the legality of policy decisions. The guidance says that ministers may properly proceed with a course of action whether there is a “tenable legal argument” supporting it, even if the legal risk is high. Government lawyers are instructed to advise that a proposal is unlawful only where there is no tenable legal argument capable of being properly advanced before a court.

The guidance goes further by expressly recognising that decisions can remain “proper and constitutional” even where the government is assessed as significantly more likely to lose than win if challenged. Under the guidance’s risk framework, a proposal carrying a greater than 70% likelihood of a successful legal challenge may still be pursued provided a tenable legal argument exists.

Bryn Reynolds, tax expert at Pinsent Masons, said: “For tax professionals, the revised position questions whether it could influence HMRC’s litigation strategy towards legal uncertainty.”

HMRC’s litigation and settlement strategy has long emphasised that disputes should be resolved in accordance with its assessment of the law. Where HMRC believes that it is unlikely to succeed in litigation then it will, in the majority of cases, concede the issue. At the same time, HMRC has historically taken a robust approach to taxpayers adopting what it considers novel interpretations of legislation or positions that are finely balanced.

Reynolds said: “Against that backdrop, some may see a degree of tension between the government’s new legal risk framework, which expressly permits ministers to proceed on the basis of a merely tenable legal argument, and HMRC’s expectations of taxpayers when adopting uncertain legal positions. We would generally expect HMRC to issue a careless or deliberate penalty where a taxpayer has adopted a position that had only a tenable legal argument.”

“Whether the new guidance affects HMRC’s operational approach remains unclear. The attorney general’s document is directed at government lawyers advising ministers on public law risk rather than tax administration specifically. However, it reflects a broader policy message that legal uncertainty should not necessarily prevent government action and that ministers are entitled to accept higher levels of legal risk where they consider it justified,” he added.