Schedule 36 Finance Act 2008 contains information and inspection powers, which HMRC regularly use as an investigative tool against taxpayers during tax investigations and before tax disputes have become litigious. It also includes a penalty regime. HMRC may use this tool in Transfer Pricing investigations and disputes.
Schedule 36 has seen several amendments aimed at strengthening HMRC's powers in areas of particular enforcement interest to HMRC. It can therefore be a useful marker of HMRC's current priorities. The targeted Transfer Pricing amendments made to Schedule 36 in 2023 underscore a growing HMRC appetite for investigation and enforcement action in this area. Below is a brief introduction to Schedule 36 in the Transfer Pricing context.
HMRC’s Schedule 36 powers
Part 1 of Schedule 36 enables HMRC to issue information notices compelling a person to provide information or produce documents (provided they are reasonably required for checking a tax position). Part 2 gives HMRC the power to enter a person's business premises and inspect the premises, business assets and business documents (again, where reasonably required for checking that person's tax position). Part 4 contains restrictions on HMRC’s powers. Part 5 covers appeal rights.
Notably, there is no right of appeal against a requirement in an information notice to produce statutory records. The master file and local file under the Transfer Pricing Records Regulations 2023 are considered statutory records. HMRC also have targeted Transfer Pricing Schedule 36 powers which (as per HMRC’s Transfer Pricing Documentation policy paper published 15 March 2023) are part of a wider package designed to “ensure that businesses maintain, and provide upon request, transfer pricing documentation prepared in accordance with OECD Transfer Pricing Guidelines”. Specifically, Schedule 36 was amended by Schedule 5 to Finance (No.2) Act 2023 so that an information notice can specify the prescribed Transfer Pricing records (i.e. the master file and local file), and can be issued outside an enquiry, and so that the "possession or power" requirement is disapplied where documents are in the possession or power of another member of a multinational group.
In the Transfer Pricing context therefore, taxpayers may see HMRC use its Schedule 36 powers with particular confidence, informed heavily by policy. Schedule 5 to Finance (No.2) Act 2023 also inserted paragraph 3C into Schedule 24 Finance Act 2007 (and parallel provisions into Schedule 18 Finance Act 1998 and TMA 1970) so that where the taxpayer has failed to maintain or produce the specified Transfer Pricing records, an inaccuracy is presumed ‘careless’ unless reasonable care is shown—potentially exposing the taxpayer to substantial tax-geared penalties and extended assessment time limits.
The Schedule 36 penalty regime
Part 7 contains the penalty regime for non-compliance. Penalties range from small, fixed amounts (under paragraphs 39 and 40) to potentially unlimited tribunal-imposed penalties (under paragraph 50).
There is a right of appeal to the FTT against both the decision that a penalty is payable under paragraphs 39 or 40 and the amount of the penalty. No liability arises under paragraphs 39 or 40 if the person satisfies HMRC or the FTT that there was a reasonable excuse for failing to comply with the information notice or for obstructing an HMRC officer.
Paragraph 50 contains a tax-related penalty: where a person has become liable to a paragraph 39 penalty, the failure or obstruction continues after that penalty is imposed, and an officer has reason to believe that, as a result, the amount of tax the person has paid or is likely to pay is significantly less than it would otherwise have been, HMRC can apply to the Upper Tribunal (within 12 months of the relevant date) for an additional penalty. In deciding the amount, the Upper Tribunal must have regard to the tax which has not been, or is not likely to be, paid—this can mean a very substantial penalty in high value Transfer Pricing contexts.
Taxpayers should also be aware that paragraphs 53-55 create a criminal offence where a person conceals, destroys or disposes of a document (or arranges for the same) that is the subject of a Tribunal-approved information notice (or where HMRC has informed the person that the document is or is likely to be the subject of such a notice). This can lead to a fine and / or a custodial sentence of up to 2 years.
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
- Thomas Hemming, Associate:
https://uk.jha.com/our-people/profile/thomas-hemming
Thomas.Hemming@jha.com
+44 (0)20 7851 8888
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
Schedule 36 Finance Act 2008 contains information and inspection powers, which HMRC regularly use as an investigative tool against taxpayers during tax investigations and before tax disputes have become litigious. It also includes a penalty regime. HMRC may use this tool in Transfer Pricing investigations and disputes.
Schedule 36 has seen several amendments aimed at strengthening HMRC's powers in areas of particular enforcement interest to HMRC. It can therefore be a useful marker of HMRC's current priorities. The targeted Transfer Pricing amendments made to Schedule 36 in 2023 underscore a growing HMRC appetite for investigation and enforcement action in this area. Below is a brief introduction to Schedule 36 in the Transfer Pricing context.
HMRC’s Schedule 36 powers
Part 1 of Schedule 36 enables HMRC to issue information notices compelling a person to provide information or produce documents (provided they are reasonably required for checking a tax position). Part 2 gives HMRC the power to enter a person's business premises and inspect the premises, business assets and business documents (again, where reasonably required for checking that person's tax position). Part 4 contains restrictions on HMRC’s powers. Part 5 covers appeal rights.
Notably, there is no right of appeal against a requirement in an information notice to produce statutory records. The master file and local file under the Transfer Pricing Records Regulations 2023 are considered statutory records. HMRC also have targeted Transfer Pricing Schedule 36 powers which (as per HMRC’s Transfer Pricing Documentation policy paper published 15 March 2023) are part of a wider package designed to “ensure that businesses maintain, and provide upon request, transfer pricing documentation prepared in accordance with OECD Transfer Pricing Guidelines”. Specifically, Schedule 36 was amended by Schedule 5 to Finance (No.2) Act 2023 so that an information notice can specify the prescribed Transfer Pricing records (i.e. the master file and local file), and can be issued outside an enquiry, and so that the "possession or power" requirement is disapplied where documents are in the possession or power of another member of a multinational group.
In the Transfer Pricing context therefore, taxpayers may see HMRC use its Schedule 36 powers with particular confidence, informed heavily by policy. Schedule 5 to Finance (No.2) Act 2023 also inserted paragraph 3C into Schedule 24 Finance Act 2007 (and parallel provisions into Schedule 18 Finance Act 1998 and TMA 1970) so that where the taxpayer has failed to maintain or produce the specified Transfer Pricing records, an inaccuracy is presumed ‘careless’ unless reasonable care is shown—potentially exposing the taxpayer to substantial tax-geared penalties and extended assessment time limits.
The Schedule 36 penalty regime
Part 7 contains the penalty regime for non-compliance. Penalties range from small, fixed amounts (under paragraphs 39 and 40) to potentially unlimited tribunal-imposed penalties (under paragraph 50).
There is a right of appeal to the FTT against both the decision that a penalty is payable under paragraphs 39 or 40 and the amount of the penalty. No liability arises under paragraphs 39 or 40 if the person satisfies HMRC or the FTT that there was a reasonable excuse for failing to comply with the information notice or for obstructing an HMRC officer.
Paragraph 50 contains a tax-related penalty: where a person has become liable to a paragraph 39 penalty, the failure or obstruction continues after that penalty is imposed, and an officer has reason to believe that, as a result, the amount of tax the person has paid or is likely to pay is significantly less than it would otherwise have been, HMRC can apply to the Upper Tribunal (within 12 months of the relevant date) for an additional penalty. In deciding the amount, the Upper Tribunal must have regard to the tax which has not been, or is not likely to be, paid—this can mean a very substantial penalty in high value Transfer Pricing contexts.
Taxpayers should also be aware that paragraphs 53-55 create a criminal offence where a person conceals, destroys or disposes of a document (or arranges for the same) that is the subject of a Tribunal-approved information notice (or where HMRC has informed the person that the document is or is likely to be the subject of such a notice). This can lead to a fine and / or a custodial sentence of up to 2 years.
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
- Thomas Hemming, Associate:
https://uk.jha.com/our-people/profile/thomas-hemming
Thomas.Hemming@jha.com
+44 (0)20 7851 8888
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
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