HMRC has published a policy paper and draft legislation that proposes a statutory obligation on taxpayers to correct errors in past tax returns. It is proposed that this new legislation should feature in Finance Bill 2026/27 and would come into effect on a day to be appointed. The draft legislation is presently out for consultation until September and so may change.
The same draft legislation also covers a proposed power for HMRC to issue correction notices where it has reason to suspect an error in a document that can be corrected. This note concentrates on the proposed obligation to self-correct.
The genesis of this proposal is the HMRC Tax Administration Framework Review in 2024/25. Responses to that review were published in April 2025 and one of the proposals that the Government said it would take forward was approaches to taxpayer self-correction. This current proposal is presented as part of an approach to modernise and simplify tax administration.
To date the precise legal (as opposed to professional or ethical) obligation to correct the position when a taxpayer discovers a mistake in a tax return already submitted to HMRC may have been unclear. This proposal intends to address that situation.
Under the new proposal, when a person “becomes aware” of an inaccuracy in a return that has led to an underpayment of tax and, at that time, the inaccuracy may be corrected either by the taxpayer themself or HMRC in some way, the taxpayer must either correct the inaccuracy themselves if they are able to do so or inform HMRC of the inaccuracy. Section 118(6) TMA 1970 is amended so that failure to comply with the obligation to correct will lead to the inaccuracy being treated as deliberate on the taxpayer’s part. Such treatment would impact upon HMRC’s assessing powers, the quantum of any penalty for non-compliance and open the possibility of ‘naming and shaming’ in connection with what may previously have been an innocent error.
It should be noted that the draft legislation is not restricted to a particular type of inaccuracy or error. The governing concept is an “inaccuracy in relation to which Condition 1(2) of [Schedule 24 FA 2007] is satisfied”. So, the test proposed is: does the inaccuracy “amount to or lead to (i) an understatement of a liability to tax, (ii) a false or inflated statement of loss or (iii) a false or inflated claim to repayment of tax.” Consequently, a wholly innocent mistake is within scope.
The trigger for the obligation to self-correct is that the taxpayer becomes “aware” of the inaccuracy. The concept of ‘becoming aware’ is not unknown in tax legislation but is a term that has an inherent vagueness of meaning. Actual knowledge is clearly within scope but what about the jurisprudence on ‘blind eye knowledge’? Is a decision not to look at what the taxpayer suspects might be a problem within scope?
There are a number of questions and concerns with this proposed legislation. For example;
• How does this proposal interact with the declaratory nature of judicial decisions? Does a return that was submitted based upon a particular view of the law become inaccurate and liable to correction when a subsequent judicial decision overturns that view of the law? How does the taxpayer deal with conflicting decisions as a case proceeds on appeal? Suppose the initial view of the law was arguably “in accordance with the practice generally prevailing at the time when it was made”?
• Precisely when does the taxpayer “become aware” of the inaccuracy so as to become subject to the obligation to correct? Suppose that the taxpayer is not an individual?
Hopefully these and other questions will be answered by the current consultation on the draft clauses. However, it does seem likely that some provision relating to an obligation to self-correct will appear in next year’s Finance Bill. Taxpayers should be aware of this upcoming new obligation.
Should you wish to discuss this Insight, please contact:
Iain MacWhannell, Partner in our Tax Disputes Team:
imw@jha.com
+44 (0)20 7851 8888
Steve Bousher
*The class of documents potentially within the new obligation is wider than simply tax returns. The class includes all documents of types that fall within paragraph 1(4) of schedule 24 Finance Act 2007. This note refers simply to ‘returns’ as a convenient shorthand.
On 19 March 2026, the Upper Tribunal (‘UT’) released its decision in the case of L Rowland & Co (Retail) Ltd v HMRC [2026] UKUT 00130 (TCC). The decision concerns the FTT’s approach to case management directions regarding witness evidence and raises important strategic considerations for taxpayers. A copy can be found here: Rowland_v_HMRC_Final_Decisison_for_release_to_the_parties.pdf
The underlying FTT appeal concerns whether around 1400 locum pharmacists were employed or self-employed for the purposes of PAYE and National Insurance (HMRC having issued Regulation 80 Determinations and Section 8 Decisions with a total value of c.£16M. A further £12M is at issue in subsequent tax years).
The taxpayer provided witness statements for only two locums. HMRC had wanted to interview and obtain documents from locums during the inquiry stage, but the taxpayer refused to give HMRC access and suggested that they would seek judicial review and an interim injunction if HMRC approached the locums. HMRC therefore decided not to proceed with this strategy, which (as HMRC went on to acknowledge) in turn meant that they were unable to fully plead their case.
The FTT directed each party to name five locums as witnesses to form a ‘sample’ and that if the taxpayer would not call the witnesses voluntarily, the FTT would issue witness summonses. The FTT directed HMRC to then provide ‘further and better particulars’ on the issue of whether a relationship of employment existed between each locum and the taxpayer, in all the relevant circumstances.
The taxpayer appealed to the UT on the grounds that the FTT had no jurisdiction to require a party to call evidence from a particular witness (‘Ground 1’) and that even if the FTT had such jurisdiction, the FTT had exercised its discretion incorrectly (‘Ground 2’). The UT allowed the appeal on Ground 2, deciding that the FTT can call additional witnesses on its own initiative, but that it should do so very sparingly, especially in proceedings akin to a commercial case where both parties are well-represented. The UT decided that the FTT had not acted neutrally, but had undermined the principle of ‘party autonomy’—it encroached upon the strategic choices of the parties by effectively allowing witnesses to be cross-examined by HMRC which the taxpayer did not wish to call.
The UT also said that the FTT had erred in its further and better particulars direction because it reversed the usual order of witness evidence coming after pleadings, effectively allowing HMRC to unfairly delay the completion of their pleadings and prevent the taxpayer from being fully aware of HMRC’s case / knowing which witnesses to select. This also made it impossible for the taxpayer (and the FTT) to know whether any sample would be representative. The UT’s view was that HMRC ought to know what their case is, having issued high value ‘best judgment’ assessments concluding that all the locums were employees, and that “HMRC are not entitled to use the tribunal litigation process to discover what their case will be”.
HMRC have now been directed to produce further and better particulars within 28 days of the decision i.e. without sight of the witness evidence that they had hoped for, in a case where such evidence is critical. The UT did not accept that the taxpayer’s threat of judicial review was a good reason for HMRC’s failure to try and interview the locums or apply for summonses in respect of them.
The UT also highlighted risks for the taxpayer, including: (1) HMRC could argue that the taxpayer had only established the position in relation to two locums, proving nothing about the employment status of the other 1,398 (i.e. the appeal could be dismissed in relation to the majority of the assessments); (2) HMRC could invite the FTT to draw adverse inferences from the taxpayer’s failure to call witnesses.
If you have a dispute with HMRC which involves any of the issues referred to above and would like to discuss how we might be able to assist you, please contact:
- Iain MacWhannell, Partner in our Tax Disputes Team:
https://uk.jha.com/our-people/profile/iain-macwhannell
imw@jha.com
+44 (0)20 7851 8888
- Julia Glukhikh, Associate:
https://uk.jha.com/our-people/profile/julia-glukhikh
Julia.Glukhikh@jha.com
+44 (0)20 7851 8888
- Thomas Hemming, Associate:
https://uk.jha.com/our-people/profile/thomas-hemming
Thomas.Hemming@jha.com
+44 (0)20 7851 8888
From 6 April 2026, amendments to the CIS legislation will enable HMRC to adopt a stricter approach against CIS scheme businesses that engage with other businesses involved in the alleged fraudulent evasion of tax.
This follows previous measures in 2021 to tackle abuse of the CIS and VAT lost from supply chain fraud, and 2024 legislation regarding Gross Payment Status (‘GPS’) tests. HMRC’s policy paper on the latest changes can be found here: Tackling Construction Industry Scheme fraud - GOV.UK
The legislation will be amended to introduce a Kittel-style test so that where it can be shown that a business ‘knew or should have known’ that they entered into a transaction connected with the fraudulent evasion of tax, the following may occur:
The time limit for reapplication following immediate cancellation of GPS will also increase from one to five years. Other grounds for immediate GPS cancellation include where a business has:
Next steps
Businesses operating within the CIS should be aware of these changes and conduct due diligence on their supply chains.
JHA&B have considerable expertise in successfully resolving tax disputes, especially involving HMRC’s application of Kittel, where HMRC have alleged fraud or that a business ‘knew or should have known’ that they entered into a transaction connected with the fraudulent evasion of tax.
If you have a dispute with HMRC concerning any of the issues mentioned above and would like us to assist, please contact:
HMRC has published a policy paper and draft legislation that proposes a statutory obligation on taxpayers to correct errors in past tax returns. It is proposed that this new legislation should feature in Finance Bill 2026/27 and would come into effect on a day to be appointed. The draft legislation is presently out for consultation until September and so may change.
The same draft legislation also covers a proposed power for HMRC to issue correction notices where it has reason to suspect an error in a document that can be corrected. This note concentrates on the proposed obligation to self-correct.
The genesis of this proposal is the HMRC Tax Administration Framework Review in 2024/25. Responses to that review were published in April 2025 and one of the proposals that the Government said it would take forward was approaches to taxpayer self-correction. This current proposal is presented as part of an approach to modernise and simplify tax administration.
To date the precise legal (as opposed to professional or ethical) obligation to correct the position when a taxpayer discovers a mistake in a tax return already submitted to HMRC may have been unclear. This proposal intends to address that situation.
Under the new proposal, when a person “becomes aware” of an inaccuracy in a return that has led to an underpayment of tax and, at that time, the inaccuracy may be corrected either by the taxpayer themself or HMRC in some way, the taxpayer must either correct the inaccuracy themselves if they are able to do so or inform HMRC of the inaccuracy. Section 118(6) TMA 1970 is amended so that failure to comply with the obligation to correct will lead to the inaccuracy being treated as deliberate on the taxpayer’s part. Such treatment would impact upon HMRC’s assessing powers, the quantum of any penalty for non-compliance and open the possibility of ‘naming and shaming’ in connection with what may previously have been an innocent error.
It should be noted that the draft legislation is not restricted to a particular type of inaccuracy or error. The governing concept is an “inaccuracy in relation to which Condition 1(2) of [Schedule 24 FA 2007] is satisfied”. So, the test proposed is: does the inaccuracy “amount to or lead to (i) an understatement of a liability to tax, (ii) a false or inflated statement of loss or (iii) a false or inflated claim to repayment of tax.” Consequently, a wholly innocent mistake is within scope.
The trigger for the obligation to self-correct is that the taxpayer becomes “aware” of the inaccuracy. The concept of ‘becoming aware’ is not unknown in tax legislation but is a term that has an inherent vagueness of meaning. Actual knowledge is clearly within scope but what about the jurisprudence on ‘blind eye knowledge’? Is a decision not to look at what the taxpayer suspects might be a problem within scope?
There are a number of questions and concerns with this proposed legislation. For example;
• How does this proposal interact with the declaratory nature of judicial decisions? Does a return that was submitted based upon a particular view of the law become inaccurate and liable to correction when a subsequent judicial decision overturns that view of the law? How does the taxpayer deal with conflicting decisions as a case proceeds on appeal? Suppose the initial view of the law was arguably “in accordance with the practice generally prevailing at the time when it was made”?
• Precisely when does the taxpayer “become aware” of the inaccuracy so as to become subject to the obligation to correct? Suppose that the taxpayer is not an individual?
Hopefully these and other questions will be answered by the current consultation on the draft clauses. However, it does seem likely that some provision relating to an obligation to self-correct will appear in next year’s Finance Bill. Taxpayers should be aware of this upcoming new obligation.
Should you wish to discuss this Insight, please contact:
Iain MacWhannell, Partner in our Tax Disputes Team:
imw@jha.com
+44 (0)20 7851 8888
Steve Bousher
*The class of documents potentially within the new obligation is wider than simply tax returns. The class includes all documents of types that fall within paragraph 1(4) of schedule 24 Finance Act 2007. This note refers simply to ‘returns’ as a convenient shorthand.
On 19 March 2026, the Upper Tribunal (‘UT’) released its decision in the case of L Rowland & Co (Retail) Ltd v HMRC [2026] UKUT 00130 (TCC). The decision concerns the FTT’s approach to case management directions regarding witness evidence and raises important strategic considerations for taxpayers. A copy can be found here: Rowland_v_HMRC_Final_Decisison_for_release_to_the_parties.pdf
The underlying FTT appeal concerns whether around 1400 locum pharmacists were employed or self-employed for the purposes of PAYE and National Insurance (HMRC having issued Regulation 80 Determinations and Section 8 Decisions with a total value of c.£16M. A further £12M is at issue in subsequent tax years).
The taxpayer provided witness statements for only two locums. HMRC had wanted to interview and obtain documents from locums during the inquiry stage, but the taxpayer refused to give HMRC access and suggested that they would seek judicial review and an interim injunction if HMRC approached the locums. HMRC therefore decided not to proceed with this strategy, which (as HMRC went on to acknowledge) in turn meant that they were unable to fully plead their case.
The FTT directed each party to name five locums as witnesses to form a ‘sample’ and that if the taxpayer would not call the witnesses voluntarily, the FTT would issue witness summonses. The FTT directed HMRC to then provide ‘further and better particulars’ on the issue of whether a relationship of employment existed between each locum and the taxpayer, in all the relevant circumstances.
The taxpayer appealed to the UT on the grounds that the FTT had no jurisdiction to require a party to call evidence from a particular witness (‘Ground 1’) and that even if the FTT had such jurisdiction, the FTT had exercised its discretion incorrectly (‘Ground 2’). The UT allowed the appeal on Ground 2, deciding that the FTT can call additional witnesses on its own initiative, but that it should do so very sparingly, especially in proceedings akin to a commercial case where both parties are well-represented. The UT decided that the FTT had not acted neutrally, but had undermined the principle of ‘party autonomy’—it encroached upon the strategic choices of the parties by effectively allowing witnesses to be cross-examined by HMRC which the taxpayer did not wish to call.
The UT also said that the FTT had erred in its further and better particulars direction because it reversed the usual order of witness evidence coming after pleadings, effectively allowing HMRC to unfairly delay the completion of their pleadings and prevent the taxpayer from being fully aware of HMRC’s case / knowing which witnesses to select. This also made it impossible for the taxpayer (and the FTT) to know whether any sample would be representative. The UT’s view was that HMRC ought to know what their case is, having issued high value ‘best judgment’ assessments concluding that all the locums were employees, and that “HMRC are not entitled to use the tribunal litigation process to discover what their case will be”.
HMRC have now been directed to produce further and better particulars within 28 days of the decision i.e. without sight of the witness evidence that they had hoped for, in a case where such evidence is critical. The UT did not accept that the taxpayer’s threat of judicial review was a good reason for HMRC’s failure to try and interview the locums or apply for summonses in respect of them.
The UT also highlighted risks for the taxpayer, including: (1) HMRC could argue that the taxpayer had only established the position in relation to two locums, proving nothing about the employment status of the other 1,398 (i.e. the appeal could be dismissed in relation to the majority of the assessments); (2) HMRC could invite the FTT to draw adverse inferences from the taxpayer’s failure to call witnesses.
If you have a dispute with HMRC which involves any of the issues referred to above and would like to discuss how we might be able to assist you, please contact:
- Iain MacWhannell, Partner in our Tax Disputes Team:
https://uk.jha.com/our-people/profile/iain-macwhannell
imw@jha.com
+44 (0)20 7851 8888
- Julia Glukhikh, Associate:
https://uk.jha.com/our-people/profile/julia-glukhikh
Julia.Glukhikh@jha.com
+44 (0)20 7851 8888
- Thomas Hemming, Associate:
https://uk.jha.com/our-people/profile/thomas-hemming
Thomas.Hemming@jha.com
+44 (0)20 7851 8888
From 6 April 2026, amendments to the CIS legislation will enable HMRC to adopt a stricter approach against CIS scheme businesses that engage with other businesses involved in the alleged fraudulent evasion of tax.
This follows previous measures in 2021 to tackle abuse of the CIS and VAT lost from supply chain fraud, and 2024 legislation regarding Gross Payment Status (‘GPS’) tests. HMRC’s policy paper on the latest changes can be found here: Tackling Construction Industry Scheme fraud - GOV.UK
The legislation will be amended to introduce a Kittel-style test so that where it can be shown that a business ‘knew or should have known’ that they entered into a transaction connected with the fraudulent evasion of tax, the following may occur:
The time limit for reapplication following immediate cancellation of GPS will also increase from one to five years. Other grounds for immediate GPS cancellation include where a business has:
Next steps
Businesses operating within the CIS should be aware of these changes and conduct due diligence on their supply chains.
JHA&B have considerable expertise in successfully resolving tax disputes, especially involving HMRC’s application of Kittel, where HMRC have alleged fraud or that a business ‘knew or should have known’ that they entered into a transaction connected with the fraudulent evasion of tax.
If you have a dispute with HMRC concerning any of the issues mentioned above and would like us to assist, please contact:
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