HMRC is reviewing around 45 million PAYE accounts to check whether taxpayers paid the correct amount of tax for the last tax year. P800 letters are already being issued, with HMRC confirming that the reconciliation process will continue through to November 2026 and that overpayments have been prioritised.

For taxpayers who have overpaid PAYE, the review could result in a refund. According to a recent report by FT Adviser, around £620 million is due in HMRC refunds, with taxpayers warned they may need to take action to receive the money owed to them.

If a P800 arrives, it is worth checking it carefully rather than assuming HMRC will handle everything automatically. You should make sure the information used in the calculation is correct and establish what, if anything, you need to do to receive your tax repayment.

Could you have overpaid tax without knowing?

PAYE is designed to collect Income Tax automatically from wages and pensions, which can lead to the understandable assumption that the amount deducted must be correct. However, the amount collected during the year will not always match a taxpayer’s final liability.

Tax deductions are based on the information available to HMRC and your employer or pension provider at the time. If your circumstances change, or the information being used is incomplete or out of date, you could end up paying more tax than was actually due.

HMRC lists several circumstances that can lead to a P800 calculation. These include:

• Being placed on the wrong tax code
• Finishing one job and starting another while receiving pay from both in the same month
• Starting to receive a workplace pension 

Overpayments can also arise when someone has multiple sources of income or when their circumstances change during the tax year.

People with more than one source of income should pay particular attention. Each source of income may appear to be taxed correctly in isolation, while the taxpayer’s overall position still results in an overpayment once all of their income and allowances are taken into account.

What is a P800 tax calculation?

After the end of a tax year, HMRC reconciles PAYE records to establish whether the correct amount of tax has been collected. Where its figures show that an employed taxpayer or pension recipient has paid too much or too little, HMRC may issue a P800 tax calculation.

The P800 sets out HMRC’s calculation of the income on which you should have paid tax, the tax it believes was due and the amount that has actually been paid. If the calculation shows that you have paid too much, it should also tell you what happens with the resulting tax repayment.

Receiving a P800 showing an overpayment is good news, but the figures should still be checked. Compare the income and tax deducted with your own records and make sure the sources of income shown by HMRC are correct. If something does not look right, it is better to resolve the discrepancy before assuming the repayment figure is accurate.

HMRC says you’re due a tax repayment – what happens next?

The next step depends on what your P800 tells you, so taxpayers should not assume that every HMRC tax repayment is dealt with in exactly the same way.

If your letter says that you can claim the repayment online, you will need to make the claim. This can be done using HMRC’s online service and, for taxpayers with a UK bank account, through a Personal Tax Account or the HMRC app. HMRC currently states that an online repayment should normally be received within five working days.

In other circumstances, the P800 may say that HMRC will send you a cheque. Where this applies, HMRC says the cheque should arrive automatically within 14 days of the date shown on the letter.

The safest approach is to follow the instructions on your own P800 rather than relying on what happened with a previous repayment or somebody else’s experience. Being told that you have overpaid tax does not necessarily mean the next step will be the same in every case.

Before claiming, check that HMRC has got it right

Discovering that you are due money may make it tempting to go straight to the repayment process, but the calculation should be reviewed first. The repayment shown on your P800 is only as reliable as the information HMRC has used to calculate it.

Check the employment and pension income shown against your own records, together with the tax deducted and the tax codes used during the year. You should also consider whether all relevant income has been included and whether anything appears to have been duplicated.

There is another reason to understand the cause of the overpayment. Receiving the money may solve the immediate problem, but it does not necessarily correct the underlying cause. If an incorrect tax code or inaccurate information remains on HMRC’s records, the same issue could affect deductions in a later year.

For some taxpayers, the more important question is therefore not simply, “How do I claim my tax repayment?” but “Why did I overpay tax in the first place, and could the same problem happen again?”

How far back can you claim overpaid tax?

Receiving a repayment for the latest year may also provide a reason to look at your position in earlier years. If the overpayment arose from an issue that persisted for some time, the same problem may have affected more than one tax year.

Claims for repayment of overpaid Income Tax are normally subject to a four-year time limit from the end of the relevant tax year. Someone who discovers a recurring error should therefore consider whether earlier years also need to be reviewed rather than assuming the latest P800 tells the whole story.

This can be particularly relevant where the cause of the overpayment was not a one-off event, but an ongoing issue with the information used to calculate your tax.

Do you need a tax repayment company?

Tax repayment companies offer to submit claims to HMRC on behalf of taxpayers, usually in return for a fee or a proportion of the repayment received. However, eligible repayment claims can be made directly to HMRC without paying a third party simply to process the claim.

Professional tax advice serves a different purpose. If your affairs involve several sources of income, earlier tax years or a calculation that does not appear correct, the issue may be establishing how much tax you should have paid rather than simply submitting a claim for the figure HMRC has provided.

Watch out for HMRC tax refund scams

A message saying that you are owed a tax repayment can seem more convincing when you already know that HMRC is reviewing millions of PAYE records. That makes it particularly important to be cautious about unexpected emails or text messages asking you to follow a link to receive a refund.

Rather than using links in unexpected messages, check your position independently through GOV.UK, your Personal Tax Account or the official HMRC app. Be especially wary of communications that ask for personal, banking, or card information, or suggest that you must act immediately to avoid losing a refund.

When might professional tax advice help?

For many taxpayers, checking a P800 and claiming a repayment will be relatively straightforward. Advice may become more useful where there are several sources of income, employment and pension income are received together, or property and investment income are also involved. Repeated tax code problems, or evidence that earlier years may be affected, can also justify a review of the wider position.

In these circumstances, the question is no longer simply how to claim a repayment. Reviewing the wider tax position can establish whether HMRC has used the correct information, whether the offered repayment is accurate, and whether the cause of the overpayment needs to be corrected to prevent the problem from recurring.

Don’t leave a tax repayment unclaimed

With around 45 million PAYE accounts being reviewed and taxpayers reportedly due hundreds of millions of pounds in repayments, HMRC’s current reconciliation exercise is worth paying attention to. If you receive a P800 showing that you have overpaid tax, check the figures carefully and establish what action you need to take to receive the money.

Claiming a tax repayment may only be part of the issue. Understanding why too much tax was paid can help identify incorrect information, recurring tax code problems or earlier years that also need attention.

If you have received a P800, believe you may have overpaid tax or are concerned that HMRC’s calculation does not reflect your circumstances, Wilkins Southworth can review the calculation, consider why the overpayment arose and establish whether any further action may be required.

Contact one of the team to discuss your circumstances and find out how our personal tax advisory services can help.

For years, Companies House has been criticised as a toothless beast. Companies could be formed quickly and cheaply, information was largely accepted at face value, and there were limited powers to challenge suspicious filings.

Making it easy to start a company has obvious benefits for the UK economy. Unfortunately, a system designed around speed and trust also creates opportunities for those with less legitimate intentions.

New research provides a striking illustration of the problem. An analysis of Companies House records by anti-money laundering software provider SmartSearch identified more than 3,000 dissolved companies that apparently operated as hairdressers, beauty salons, mini-marts and convenience stores and displayed remarkably similar characteristics. SmartSearch estimates that between £310 million and £464 million may have moved through the companies it identified.

With Companies House now operating under stronger legislation, mandatory identity checks and greater powers to challenge corporate information, perhaps the tide is finally turning.

What did the research uncover?

SmartSearch analysed Companies House records between 2016 and 2026, focusing specifically on businesses registered in the beauty and convenience store sectors. It identified 3,097 dissolved companies with average lifespans of just 170 to 194 days, with unusual similarities in where and when these businesses appeared.

According to the research, companies were heavily concentrated around the same postcodes and registered addresses. Some 83% of the suspect hairdressing companies and 92% of the suspect convenience stores were incorporated during the first two quarters of the year, while more than half were subsequently dissolved in the fourth quarter. The pattern then repeated in subsequent years.

One area of Cardiff alone reportedly contained 119 suspected companies across the two sectors. Of course, a short-lived company, a shared registered address, or a particular incorporation date is not evidence of criminality. However, when thousands of apparently unrelated companies start displaying the same characteristics, it is reasonable to ask why.

How did Companies House become a weak link?

The UK has traditionally made it relatively straightforward to establish a company. For genuine entrepreneurs, that is a good thing; nobody wants to spend weeks navigating bureaucracy before they can start trading. The problem was what happened after incorporation.

Historically, Companies House was primarily responsible for receiving and publishing information. Its ability to question whether that information was accurate was much more limited. Consequently, appearing on the Companies House register was never the same as having a company’s directors, address, and activities independently verified.

Recent evidence to the House of Commons Treasury Committee highlights why this matters. Paul Monaghan, chief executive of the Fair Tax Foundation, told MPs that the Insolvency Service had recently closed five illegal company service providers which, between them, had established 12,000 illegal UK companies.

His criticism went to the heart of the problem. If the overriding objective is to make companies extremely cheap and quick to establish, what safeguards are needed to prevent that convenience from being exploited? The answer isn’t to make life unnecessarily difficult for legitimate businesses, but to make it considerably more difficult to abuse the system.

The problem could extend far beyond a few high street shops

The headline estimate of up to £464 million is significant, but perhaps the most concerning aspect of the SmartSearch research is its relatively narrow scope: it only examined two sectors.

SmartSearch’s modelling suggests that between £310 million and £464 million may have moved through the identified companies. The paper argues that if similar patterns exist across other sectors identified as high risk in the 2025 national risk assessment, the figure over the past decade could exceed £1 billion.

The research also comes amid wider government attention on supposedly “dodgy” retail businesses. Earlier this year, the government announced a specialist unit targeting outlets such as vape and sweet shops suspected of being used to process criminal cash.

This should not cast suspicion on the thousands of perfectly legitimate businesses operating in these sectors. The issue is that an ordinary-looking business can potentially provide a useful front for activity that has little connection with what appears to be happening behind the counter.

Companies House now has powers to ask questions

This is where the position has changed considerably. The Economic Crime and Corporate Transparency Act 2023 expanded the role of the Registrar of Companies, meaning Companies House is no longer expected simply to accept information that has been correctly submitted and add it to the register.

It now has greater powers to query information and request supporting evidence. It can reject new filings where there are reasonable grounds to question whether the information complies with legal requirements, while its powers to remove material already on the register have also been expanded.

There are stronger controls over registered office addresses, greater scope to analyse information for suspicious behaviour and wider powers to share information with other public authorities.

Identity verification is another significant area of change. Since 18 November 2025, identity verification has been a legal requirement, phased in for company directors and people with significant control (PSCs). New directors need to verify their identity when incorporating a company or being appointed, while existing directors are being brought into the system through their confirmation statements.

Taken together, these aren’t cosmetic changes. They move Companies House closer to being an active gatekeeper rather than a passive filing cabinet.

Are we beginning to see the teeth?

There is evidence that Companies House is starting to use its expanded role. In June 2026, Companies House reported that misleading information was being removed from the register at scale and highlighted the need for closer collaboration with HMRC, the Insolvency Service and other partners.

SmartSearch chief executive Phil Cotter also acknowledged that Companies House had made “real progress” since the Economic Crime and Corporate Transparency Act came into force, although the question is whether it can move quickly enough.

Perhaps the most striking feature of the SmartSearch research isn’t one questionable company but the repetition: similar businesses, similar locations, similar lifespans and similar incorporation and dissolution cycles. The information was there; the challenge is spotting the pattern, investigating it and intervening before another generation of companies appears.

New legislation and identity verification make that more achievable, but powers written into legislation only make a difference when sufficient resources, technology, and people are available to use them.

What does this mean for legitimate businesses?

Legitimate businesses arguably have more to gain than lose from a Companies House register that people can actually trust. Banks, suppliers, customers, investors and professional advisers regularly use Companies House information when assessing businesses. Unfortunately, a register containing false addresses, fabricated appointments and companies established for unlawful purposes undermines confidence in everyone who uses it.

However, a more active Companies House also means directors need to take their own responsibilities seriously. Registered office details, directors, PSC information and confirmation statements should accurately reflect the current position of the business, with errors corrected rather than left sitting on the register for years.

Identity verification also means directors and PSCs need to understand when they must provide their Companies House personal code, the unique 11-character code issued after their identity has been successfully verified. Existing directors are generally required to provide it through their company’s next confirmation statement, while the requirements for PSCs depend on their circumstances.

None of this should trouble a properly managed company. In fact, stronger checks should make it harder for fraudulent businesses to hide among legitimate ones. However, the days when Companies House filings could be treated as little more than an annual administrative exercise appear to be disappearing.

Is change finally happening at Companies House?

There will always be a balance between making the UK an attractive place to establish a business and ensuring the system cannot easily be exploited. For too long, critics have argued that the balance was weighted heavily towards speed and convenience, with Companies House collecting enormous amounts of information but having limited ability to challenge what it was told.

That is now beginning to change. Companies House can question filings, request evidence, remove information, share data, and require directors and PSCs to verify their identities. Those are meaningful powers, although the SmartSearch findings demonstrate both why they are needed and the scale of the task ahead.

Perhaps the real test isn’t whether Companies House has finally grown teeth, but whether it can bite quickly enough when the warning signs appear.

At Wilkins Southworth, we help businesses ensure their accounting, tax and corporate affairs are properly managed and compliant. If you’re unsure whether your Companies House records accurately reflect your current business structure, need assistance with correcting historical information, or are dealing with an HMRC enquiry, please contact our team to discuss your situation.

If you’ve recently seen headlines questioning Business Relief investment funds, you’re not alone.

Recent national media coverage has shone a spotlight on how some private Business Relief investments are valued, raising questions about transparency, governance and the wider role these investments now play in inheritance tax planning.

While the headlines have focused on individual providers, the underlying issues are much broader. As more investors consider Business Relief as part of their estate planning, it is worth understanding why private investments are valued differently from listed shares and what questions to ask before making any investment decision.

The recent debate also serves as a useful reminder that tax planning and investment decisions should never be viewed in isolation. While the potential inheritance tax advantages often attract the initial interest, investors should also understand what they are investing in, how those businesses are expected to generate returns and how the investment fits within their wider financial objectives. 

In many respects, the recent headlines have highlighted the importance of due diligence rather than raising entirely new questions.

Why Business Relief is back in the spotlight

Business Relief has been part of the UK’s inheritance tax system for many years. Originally introduced to help ensure that trading businesses did not have to be broken up simply to meet an inheritance tax liability, it remains an important relief for many business owners and investors.

Over time, however, the market has evolved. Alongside family businesses, a growing number of professionally managed investment structures now seek to qualify for Business Relief, giving investors another option to consider as part of their inheritance tax planning.

Recent changes to the inheritance tax landscape have only increased interest in these investments. The growth reflects wider developments in both estate planning and investment markets. 

While AIM-listed companies were once the most familiar route for many investors, private Business Relief investments have become increasingly prominent, offering exposure to established trading businesses operating across sectors such as:

• Renewable energy
• Healthcare
• Telecommunications
• Infrastructure

As these investments have become more popular, it is perhaps inevitable that commentators, regulators and investors have started asking more detailed questions about how they operate. That scrutiny should not necessarily be viewed negatively, because understanding how private investments work is simply part of making informed financial decisions.

One question in particular has attracted significant attention: how do you value a company that is not listed on the stock market?

Why private companies are valued differently

When you buy shares in a listed company, the price is visible every day. Buyers and sellers collectively determine what the market believes those shares are worth, with prices continually responding to new information and changing market sentiment.

Private companies work very differently. Because their shares are not traded on a public exchange, there is no continuously quoted market price and no active market establishing a value every day.

That does not mean there is no realistic value. It simply means that the value has to be assessed rather than observed.

Professional valuers use a range of recognised methodologies to estimate a business’s value at a particular point in time. Depending on the nature of the company, they may consider profitability, future cash generation, the value of the underlying assets, comparable businesses and wider economic conditions. In practice, several recognised valuation methods are often considered before reaching an overall conclusion.

Just as importantly, valuations are not fixed, with many factors influencing how a company is valued over time, such as:

• Economic conditions
• Interest rates
• Sector performance
• Trading results

Regular reviews, therefore, form an important part of managing many private investment structures.

Valuation is judgement as well as mathematics

Many people assume there is a single “correct” valuation for a business. In reality, valuation is as much about professional judgement as it is about calculation.

A mature trading company with predictable profits may be valued quite differently from a business investing heavily today in infrastructure, and expected to generate rising income over many years. Different assumptions about growth, borrowing costs or future profitability can all influence the final outcome.

It is therefore entirely possible for experienced professionals, applying accepted valuation principles, to arrive at different conclusions. That does not necessarily mean one valuation is right and another is wrong. Rather, it reflects the fact that valuing private businesses is fundamentally different from pricing listed shares, where thousands of market participants collectively determine the price every day.

The bigger questions for investors

Recent headlines have naturally focused on valuation, but that is only one part of the picture.

Anyone considering a private Business Relief investment should also understand how frequently valuations are reviewed, whether independent specialists are involved, how the underlying businesses are managed and what options exist if they wish to realise their investment in the future.

It is also important to recognise that these are generally intended as long-term investments. Unlike listed shares, they may not always be able to be bought or sold at short notice, and liquidity arrangements can vary across different investment structures. Understanding those arrangements is just as important as understanding how the investment itself is valued.

Equally important is understanding what sits behind the valuation. What businesses does the investment own? How do those businesses generate income? Are they established trading companies producing reliable cash flows, or businesses investing for longer-term growth?

These are commercial questions rather than tax questions, but they matter just as much.

Looking beyond the inheritance tax benefit

One risk with any tax-efficient investment is focusing on the tax relief before considering the investment itself.

Business Relief investments are intended to support trading businesses and should be assessed accordingly. The potential inheritance tax advantages may be attractive, but they should never be the sole reason for investing.

Before committing capital, investors should understand how the investment is valued, who oversees the valuation process, the level of investment risk involved, and how the investment fits within their broader financial objectives. Those discussions should involve both a tax adviser and, where appropriate, an FCA-authorised independent financial adviser.

The most successful inheritance tax planning is rarely driven by a single product or investment. Instead, it starts with a clear understanding of what you are trying to achieve, before identifying the most appropriate combination of tax planning and investment strategies.

Business Relief is rarely the whole answer

For some families, Business Relief investments can form part of an effective inheritance tax strategy. For others, different approaches may be more appropriate.

Lifetime gifting, pension planning, trusts, Family Investment Companies and succession planning can all play an important role, depending on an individual’s objectives and personal circumstances. In many cases, the most effective plans combine several complementary strategies rather than relying on one solution.

The right approach will always depend on personal circumstances, family objectives and an individual’s attitude to investment risk. That is why tailored advice remains so important.

Conclusion

The recent media attention surrounding Business Relief investments has prompted some worthwhile questions. Investors should understand how private companies are valued, but they should also recognise that valuation is only one aspect of a much wider decision.

The more important question is not whether a particular investment carries inheritance tax advantages, but whether it is the right investment in the first place. Tax relief should support good financial planning, not drive it.

At Wilkins Southworth, we work with individuals, families and business owners to develop inheritance tax strategies that align with their broader financial objectives. If you are considering Business Relief investments as part of your estate planning, we can help you understand how they fit alongside your broader tax strategy and work with your financial adviser to ensure your plans are aligned.

If you made a mistake on your tax return ten years ago, there was always a chance it would never be spotted.

That wasn’t necessarily because HMRC lacked the information. More often than not, it simply didn’t have the time, technology or resources to compare everything it already held.

A property sale here, dividend income there, or company accounts filed separately from a personal tax return. Unless something obvious caught an inspector’s attention, many assumed those pieces of the puzzle would remain exactly that, separate pieces.

Today, that assumption is becoming increasingly risky.

HMRC recently revealed that its use of digital analytics and artificial intelligence (AI) helped recover or protect around £10 billion in tax during the last financial year. At the same time, the tax authority continues to target the UK’s estimated £59.2 billion tax gap – the difference between the amount of tax that should have been collected and what actually reached the Treasury.

Those figures are significant for one simple reason. They demonstrate that HMRC’s investment in technology is no longer a future ambition or an experimental project. It is delivering measurable results today.

The proof, as the saying goes, really is in the pudding. The conversation has moved on. The question is no longer whether HMRC can use AI effectively; it’s how much more effective it will become.

This doesn’t mean AI is replacing tax inspectors or that every taxpayer is suddenly under suspicion. Far from it. However, it does represent a significant shift in how HMRC identifies potential errors, inconsistencies and non-compliance. For businesses, company directors, landlords and individuals alike, understanding this change has never been more important.

From legacy systems to leading analytics

It might seem surprising that HMRC is now being talked about as a leader in data analytics.

After all, it wasn’t that long ago that the department was making headlines for ageing computer systems, lengthy telephone queues and delays in processing correspondence. We’ve previously written about HMRC’s legacy IT infrastructure and the challenges it created for both taxpayers and advisers.

Those systems haven’t disappeared overnight. However, while many taxpayers still experience frustration with HMRC’s customer service, something very different has been happening behind the scenes.

Rather than replacing every legacy system at once, HMRC has invested heavily in sophisticated analytical technology designed specifically to support compliance work. The result is an organisation that may still face operational challenges but has become significantly more capable of analysing data and identifying potential tax risks.

The irony is difficult to ignore. While taxpayers may still spend time waiting to speak to someone on the telephone, HMRC’s computers are becoming increasingly effective at spotting inconsistencies in the information they already hold.

Slow customer service and sophisticated analytics aren’t contradictory. They simply reflect two very different parts of the same organisation.

AI isn’t replacing tax inspectors

Artificial intelligence often attracts dramatic headlines, creating the impression that computers are making decisions about taxpayers without any human involvement. That isn’t what’s happening.

Instead, AI is best thought of as an exceptionally efficient research assistant. It doesn’t make decisions or accuse taxpayers of wrongdoing; it simply helps experienced investigators identify the cases that deserve a closer look.

Rather than determining whether someone has underpaid tax, these systems analyse vast quantities of information. This allows them to identify unusual patterns and highlight cases that may warrant further investigation. Experienced HMRC officers still make the decisions, but they are now supported by technology capable of reviewing millions of pieces of information far more quickly than any individual could.

One of the best-known examples is HMRC’s Connect system, which has been developed over many years to compare information from a wide range of legitimate sources. According to published figures, Connect supported around 540,000 tax enquiries during the 2024/25 tax year, demonstrating the central role data analysis plays in HMRC’s compliance activity.

AI isn’t looking for guilt; it’s looking for anomalies, and those anomalies help HMRC decide where questions should be asked.

Joining the dots like never before

Most people think about their financial affairs in separate compartments:

• Their accountant prepares the company accounts.
• Their solicitor handles a property purchase.
• Their investment manager issues annual tax certificates.
• Their bank manages their accounts.

Each organisation only sees part of the picture, while increasingly, HMRC can compare much more.

Information from Self Assessment tax returns, Corporation Tax returns, Companies House filings and Land Registry records. This also extends to investment income, overseas reporting agreements, online marketplaces, and, where appropriate, information obtained using HMRC’s legal powers, all of which can contribute to building a broader picture.

Viewed individually, none of this information is remarkable. The real power lies in comparing it.

Imagine a company director receives dividends from their business, sells an investment property and repays a director’s loan in the same tax year. None of those events is unusual individually. But if one source of information doesn’t align with another, modern analytics can identify the discrepancy far more quickly than was possible only a few years ago.

Individually, each piece of information tells a small part of the story. Together, they paint a much broader picture, and that’s exactly where AI excels.

It’s the inconsistencies that trigger questions

One of the biggest misconceptions about HMRC’s use of AI is that everyone is constantly being monitored. The reality is far more reassuring.

Most enquiries don’t begin because HMRC knows something is wrong. They begin because something doesn’t quite look right.

Technology helps identify unusual patterns that may deserve further investigation. These might include discrepancies between company filings and personal tax returns, unexplained director loan balances, undeclared rental income or financial activity that appears inconsistent with other information HMRC already holds.

Importantly, an enquiry does not automatically imply wrongdoing. There are many legitimate reasons why transactions may appear unusual at first glance, and genuine mistakes happen.

However, as HMRC’s analytical capabilities continue to improve, the likelihood of inconsistencies remaining unnoticed is steadily reducing.

Technology is only part of the picture

Artificial intelligence is just one element of HMRC’s wider compliance strategy.

The department is also making greater use of information-sharing agreements, expanding its legal powers to obtain financial information and strengthening incentives for whistleblowers to report serious tax evasion.

Under HMRC’s enhanced reward scheme, eligible informants whose information leads to the recovery of more than £1.5 million can receive between 15% and 30% of the additional tax recovered.

Alongside this, HMRC’s Fraud Investigation Service secured 260 criminal convictions during the 2025/26 tax year, underlining its continued focus on tackling serious tax fraud.

Taken together, these developments paint a clear picture. AI is not replacing traditional compliance activity, but it is making it more targeted, more efficient and increasingly data-driven.

Good records have never been more important

For taxpayers who keep accurate records and seek professional advice, these developments should not be a cause for concern. In many ways, they reinforce principles that have always represented good practice.

Business owners should ensure that director loan accounts are properly maintained, dividend decisions are fully documented, and company records accurately reflect transactions throughout the year. Landlords should retain comprehensive records of rental income and allowable expenses, while individuals should ensure tax returns are prepared using complete and accurate information.

A sensible compliance health check

As HMRC’s analytical capabilities continue to evolve, it’s worth asking yourself a few simple questions:

• Are your company records accurate and up to date?
• Do director loan accounts reconcile correctly?
• Are dividend payments properly documented?
• Have all property income sources been declared?
• Could significant transactions be easily explained if HMRC asked questions?

If the answer to any of these is “I’m not sure”, now is the time to review them – not after an enquiry arrives.

Good bookkeeping has always mattered. Today, it matters even more because technology makes inconsistencies easier to identify. Well-maintained records don’t just help you comply with your obligations; they make responding to any HMRC enquiry significantly quicker and less stressful.

Looking Ahead

Artificial intelligence is transforming almost every industry, and tax administration is no exception. 

For years, many assumed HMRC simply lacked the technology to connect every piece of financial information it already held. Recent evidence suggests that assumption is becoming outdated.

The proof is no longer theoretical. HMRC’s own figures show that investment in AI and digital analytics is delivering tangible results, helping recover billions of pounds in tax while allowing compliance teams to focus their efforts more effectively.

For most taxpayers, this isn’t a reason to panic. It is, however, a timely reminder that accurate records, consistent reporting and proactive tax advice have never been more valuable.

The best tax strategy has never been trying to stay below the radar. It’s making sure there’s nothing for the radar to find.

As HMRC continues to expand its use of AI and data analytics, ensuring your tax affairs are accurate, consistent and well-documented has never been more important. Whether you’re a business owner, company director, landlord or individual taxpayer, the team at Wilkins Southworth can help you review your tax affairs and ensure they’re prepared for an increasingly data-driven compliance environment. 

If you’d like to discuss your circumstances, we’d be delighted to help.

For many businesses, paying HMRC is a straightforward part of the monthly routine. Calculate the liability, make the payment before the deadline and move on to running the business.

That process, however, could soon look rather different.

HMRC is consulting on proposals that would require most VAT and PAYE payments to be made by direct debit, replacing the wide range of payment methods currently used by businesses. 

If implemented, the changes would affect around 2.4 million businesses, sole traders and employers. More significantly, HMRC is also considering penalties for businesses that fail to pay by the required method, even where the correct amount of tax has been paid on time.

While the consultation focuses on VAT and PAYE, it also offers another indication of the direction HMRC is taking as it continues to digitise the UK’s tax system. 

Why HMRC Direct Debit could become mandatory

The proposed HMRC Direct Debit rules form part of a wider consultation published by HMRC in June 2026. At present, businesses can settle VAT and PAYE liabilities using various payment methods, including bank transfers, debit cards, standing orders and, in some cases, cheques. Despite HMRC encouraging direct debit as its preferred payment option, relatively few businesses have adopted it.

According to HMRC, only around 330,000 of the 2.73 million businesses registered for VAT or PAYE currently pay by direct debit. The remaining 2.4 million continue to use alternative methods.

HMRC believes mandatory direct debit would:

• reduce administrative work for businesses and HMRC
• minimise payment reference errors
• reduce incorrectly allocated payments
• lower the number of late payments
• improve overall compliance.

From HMRC’s perspective, the proposal represents a logical extension of the digital systems already introduced through initiatives such as Making Tax Digital.

A wider move towards digital tax administration

Viewed in isolation, changing the way businesses pay VAT and PAYE may appear relatively minor. In reality, it forms part of a much broader programme of digital reform.

Over the past decade, HMRC has steadily moved towards a more automated tax system:

• digital record keeping
• online taxpayer accounts
• Making Tax Digital 

Together with expanded information-gathering powers, they all demonstrate a clear direction of travel. 

The proposal also sits alongside HMRC’s plans to replace certain paper-based VAT processes with online services, reinforcing the department’s wider move towards digital tax administration. 

Rather than relying on businesses to initiate each VAT or PAYE payment manually, HMRC would collect amounts automatically through an authorised Direct Debit once the relevant return has been submitted. HMRC believes this will reduce manual intervention and help minimise incorrectly allocated payments. 

For businesses already paying by direct debit, little is likely to change. For many others, however, it would require adjustments to existing payment processes and internal controls.

What would the new rules mean in practice?

Under the proposals, businesses would authorise HMRC to collect VAT and PAYE liabilities directly from their bank account. 

Once a VAT return has been submitted, HMRC would notify the business of the amount due and collect payment three working days after the normal payment deadline. The consultation recognises that some businesses will still require alternative arrangements.

For example:

• businesses making payments exceeding the £20 million Bacs direct debit limit would continue using other electronic payment methods
• overseas businesses without UK bank accounts would remain outside the proposed rules
• certain other limited exceptions may apply following consultation

For the vast majority of businesses, however, direct debit would become the default method of payment.

The proposal that has attracted the most attention

Perhaps the most surprising aspect of the consultation is not the move towards direct debit itself, but the potential consequences of failing to use it.

HMRC is seeking views on whether businesses should face penalties if they fail to pay by direct debit, even where the correct amount of VAT or PAYE has been paid in full and by the due date.

The consultation also considers whether certain payment deadline extensions should only remain available to businesses paying by direct debit.

At this stage, these are proposals rather than confirmed policy. Nevertheless, they illustrate how the payment method could become an increasingly important aspect of tax compliance rather than simply an administrative choice.

Businesses should remember that the consultation is seeking views on these changes. No decisions have yet been made regarding the introduction of mandatory direct debit or any associated penalties.

There could be benefits for businesses

While some businesses may view mandatory direct debit as reducing flexibility, there are potential advantages. 

Automated payments may reduce the risk of:

• missed payment deadlines
• incorrectly entered payment references
• payments allocated to the wrong tax period
• avoidable late payment penalties.

For businesses with established accounting systems and predictable cash flow, automation may actually simplify routine tax compliance.

As with many digital reforms, much will depend on how the final rules are implemented and whether sufficient flexibility remains for businesses with more complex payment arrangements.

Other VAT changes are also on the way

The consultation is not limited to payment methods. HMRC also plans to replace paper-based VAT forms with new online submission tools by the end of 2026.  

While less high-profile than the direct debit proposals, these changes reinforce HMRC’s wider objective of replacing paper-based administration with fully digital services wherever possible.

Taken together, the proposals suggest that businesses should expect further digital changes over the coming years rather than viewing this consultation as a one-off initiative.

What should businesses do now?

There is no immediate need for businesses to change how they pay HMRC. The consultation remains open until 16 August 2026, and the proposals may evolve before any legislation is introduced.

However, businesses that currently pay VAT or PAYE by bank transfer or other manual methods may wish to consider how mandatory HMRC Direct Debit payments could affect their existing financial procedures, cash flow management and internal approval processes.

Speaking to your accountant before any changes are introduced can help ensure you understand both the practical implications and any opportunities to simplify your tax administration.

Conclusion

The proposal to mandate HMRC Direct Debit for VAT and PAYE payments may appear to be a relatively small administrative change. In reality, it reflects a much broader shift in the way HMRC interacts with businesses.

Whether or not the changes proceed in their current form, the direction of travel is becoming increasingly clear. HMRC continues to automate more aspects of tax administration, from record keeping and reporting through to the way taxes are ultimately collected.

With almost 87% of VAT and PAYE-registered businesses currently using payment methods other than direct debit, this would represent one of the biggest administrative changes to business tax payments in recent years.

For businesses, understanding these developments early will make any future transition far easier. If you’d like to discuss how these proposals could affect your business or your wider tax compliance procedures, the team at Wilkins Southworth would be pleased to help.

Imagine paying £1.6 million in tax, only to find yourself facing a potential penalty of almost £460,000 because HMRC believes you failed to take reasonable care after your accountant submitted the wrong figures. 

It sounds extraordinary, but situations like this are becoming increasingly common as HM Revenue & Customs (HMRC) strengthens its compliance activity and places greater emphasis on taxpayer behaviour rather than simply identifying errors.

It’s Easy to Assume

Most people assume that once they’ve appointed a qualified accountant, responsibility for preparing an accurate tax return rests entirely with that adviser. It’s an understandable assumption because that’s precisely why professionals are engaged. 

The law, though, takes a slightly different view. While accountants prepare returns and provide advice, taxpayers remain responsible for the declarations they sign.

That doesn’t mean every professional mistake automatically becomes the taxpayer’s fault, but it does mean HMRC will often ask a different question when inaccuracies are discovered: did the taxpayer take reasonable care?

The answer can determine whether an enquiry ends with a straightforward correction to a tax return or a substantial financial penalty.

Understanding the HMRC Reasonable Care Standard

The phrase HMRC reasonable care appears regularly in tax legislation and HMRC guidance, yet it is often misunderstood.

Reasonable care does not require taxpayers to become tax experts or guarantee that every figure on a return is correct. Instead, it asks a much simpler question: what would a prudent and reasonable person have done in the same circumstances?

The answer will rarely be identical for every taxpayer. Someone completing a straightforward Self Assessment return will not be judged in exactly the same way as the owner of a group of companies or an individual with complex investment or overseas income. 

HMRC recognises that people have different levels of knowledge and that many will rely on professional advice.

Schedule 24 Finance Act 2007 focuses on behaviour rather than simply identifying mistakes. Broadly speaking, inaccuracies fall into three categories:

• reasonable care has been taken
• careless behaviour
• deliberate, or deliberate and concealed, behaviour

The financial consequences increase significantly as behaviour becomes more serious.

This distinction matters because two taxpayers could submit almost identical incorrect tax returns and receive completely different outcomes. One may simply be asked to correct the position, while the other could face an HMRC penalty for an inaccurate tax return. 

The difference often comes down to the steps they took before submitting the return.

Can You Rely on Professional Advice?

This is where many taxpayers become uncertain. If an accountant makes a mistake, surely the accountant should be responsible?

In practice, the answer isn’t always as straightforward as people expect.

Signing a tax return is more than an administrative exercise. It is a formal declaration that, to the best of your knowledge, the information is complete and accurate. At the same time, the law recognises that tax legislation has become increasingly complex and that taxpayers are entitled to seek advice from suitably qualified professionals.

HMRC’s own guidance recognises that seeking appropriate professional advice can form part of demonstrating reasonable care, provided the taxpayer also supplies complete and accurate information. 

That doesn’t mean taxpayers can simply hand over paperwork and forget about it. Reasonable reliance on professional advice is very different from blind reliance. If an adviser requests information that is never provided, or if figures on a return are clearly inconsistent and no questions are asked, HMRC may conclude that the taxpayer has failed to meet their obligations.

On the other hand, appointing an experienced Chartered Accountant, answering questions honestly, supplying all relevant information and raising concerns where something appears incorrect are all factors that support a reasonable care defence.

It’s a subtle distinction, but an important one. Taxpayers are not expected to know every detail of UK tax legislation, but they are expected to behave reasonably throughout the process.

When a Genuine Mistake Became a Serious HMRC Enquiry

A recent Wilkins Southworth case illustrates how these principles work in practice.

The story began when a client approached us after their previous accountant had submitted an incorrect tax return. The client did exactly what most people would do. They reviewed the return, spotted errors and asked their accountant to correct them. Unfortunately, the amended return also contained significant inaccuracies.

Although the client had already paid approximately £1.6 million in tax, the amended return incorrectly showed a liability of just over £65,000.

From HMRC’s perspective, this was far more than a minor discrepancy. Had the amended return been accepted without question, it could have resulted in a repayment of approximately £1.55 million, together with interest. Unsurprisingly, HMRC opened an enquiry and argued that the taxpayer had behaved carelessly.

Under Schedule 24 of the Finance Act 2007, the proposed penalty approached £460,000.

At first glance, HMRC’s position was understandable, given that the figures were plainly wrong. The real issue, however, wasn’t the existence of an inaccurate tax return but whether those inaccuracies resulted from careless behaviour by the taxpayer.

Our defence focused almost entirely on that question.

The client had appointed a Chartered Accountant, supplied the necessary information, and, when they identified errors in the original return, immediately raised those concerns with their adviser and asked for them to be corrected. In other words, they had behaved exactly as a prudent taxpayer might reasonably be expected to behave.

Applying the principles behind HMRC reasonable care, we argued that our client had taken appropriate steps to meet their obligations and could not reasonably be expected to identify every technical error made by a professional adviser.

Following detailed representations, HMRC accepted that our client had taken reasonable care and withdrew the proposed penalty. 

Why More Taxpayers Could Face This Situation

This case is far from unique. It reflects a broader shift in the way HMRC approaches compliance.

Digital reporting, improved data matching and greater access to financial information mean discrepancies are identified much more quickly than they were a decade ago. Initiatives such as Making Tax Digital are also changing the relationship between taxpayers and HMRC, allowing compliance checks to become more targeted and efficient.

As a result, enquiries increasingly focus on behaviour as well as the figures themselves.

We regularly meet clients who assume that engaging an accountant transfers all responsibility to the adviser. That’s understandable, but it isn’t how the legislation works. Professional advice helps taxpayers meet their obligations; it doesn’t replace those obligations altogether.

Reviewing returns before signing them, keeping accurate records and asking questions when something doesn’t look right are more than sensible habits. If HMRC later opens a compliance check, they may also become valuable evidence that you exercised reasonable care.

Demonstrating Reasonable Care

No accountant can promise that mistakes will never happen. Tax legislation changes regularly, HMRC guidance evolves, and even experienced professionals sometimes disagree on how complex rules should be interpreted.

What taxpayers can control is how they approach their own responsibilities.

Choosing an appropriately qualified adviser is the obvious starting point. Beyond that, providing complete information, retaining supporting records, reading tax returns before signing them and questioning figures that appear inconsistent all help demonstrate responsible behaviour.

These aren’t onerous requirements. They’re simply the practical steps that any prudent taxpayer would normally be expected to take.

Final Thoughts

Mistakes happen, particularly in an area as complex as UK tax legislation. The purpose of the penalty regime isn’t to punish every inaccuracy; it’s to distinguish between taxpayers who have acted responsibly and those who have failed to meet the standards expected of them.

The difference between reasonable care and careless behaviour isn’t always measured by what went wrong. More often, it’s measured by what the taxpayer did before anything went wrong.

The recent Wilkins Southworth case demonstrates that these principles are far more than legal theory. They can have significant financial consequences when HMRC opens an enquiry or considers penalties for inaccuracies in tax returns.

Understanding HMRC reasonable care isn’t simply a technical issue for accountants. It affects every taxpayer who signs a tax return and expects professional advice to protect their interests. As this case demonstrates, the difference between reasonable care and careless behaviour can have significant financial consequences. 

If HMRC has opened an enquiry into your tax affairs or you’re concerned about a potential Schedule 24 penalty, contact the team at Wilkins Southworth for clear, practical advice tailored to your circumstances. 

A cancelled flight, an overnight airport hotel and a few days spent travelling between overseas destinations would not strike most people as particularly significant tax events. Yet in a recent First-tier Tribunal case, those seemingly routine travel arrangements were enough to determine whether an individual remained non-resident for UK tax purposes.

The decision in Parker v HMRC considered two aspects of the Statutory Residence Test that frequently arise in practice: the transit exemption and exceptional circumstances. While the facts involved an engineer working overseas, the judgment provides useful guidance for anyone whose residence position depends on carefully managing the number of days spent in the UK.

The outcome was far from academic. Had HMRC succeeded, the taxpayer would have become a UK resident and faced an additional tax liability of almost £65,000.

Why 4 Days Could Cost You UK Non-Resident Status

The Statutory Residence Test determines whether an individual is resident in the UK for tax purposes. Although the rules are detailed, many residence disputes ultimately come down to day counts and whether particular days should be included or excluded.

For those working abroad, even a small increase in UK days can have significant consequences. Residence status may affect not only employment income but also overseas investments, rental income, capital gains and wider reporting obligations.

In Mr Parker’s case, the difference of 4 days between 89 and 93 days in the UK determined the outcome.

HMRC accepted that he had been present in the UK at midnight on 100 occasions during the relevant tax year. Seven of those days were disregarded because of Covid-related provisions. The remaining dispute centred on four days: three involving transit through Heathrow Airport and one arising from a flight cancellation caused by severe weather.

The transit day dispute

The legislation contains an exemption designed to prevent individuals from being treated as spending a day in the UK simply because they are travelling through it on an international journey.

Mr Parker worked in Iraq and travelled extensively between overseas locations. On several occasions, he arrived at Heathrow Airport, stayed overnight in a nearby hotel and departed the following day for another destination outside the UK.

HMRC argued that the exemption should not apply because the various flights had been booked separately. In its view, each journey ended when Mr Parker arrived in the UK, and a new journey began when he departed.

The Tribunal was unconvinced.

The judges described the distinction between through-tickets and separately booked flights as arbitrary, noting that nothing in the legislation required a journey to be booked on a single ticket for the transit exemption to apply. Mr Parker’s explanation was straightforward: separate bookings were often cheaper and easier to arrange. The Tribunal accepted that practical reality.

The decision will be welcomed by many people who travel internationally. Modern travel arrangements are rarely designed around tax rules and are more likely to reflect airline pricing, availability and convenience. The Tribunal’s willingness to focus on the substance of the journey rather than the booking structure suggests a more pragmatic approach than HMRC’s interpretation.

The case also raised an interesting question about family contact during transit.

On some of the journeys, Mr Parker met his wife and stepdaughter because they were travelling onwards with him. HMRC argued that these meetings represented activities unrelated to his passage through the UK and therefore prevented the exemption from applying.

Again, the Tribunal disagreed. It found that meeting family members who were joining the same journey was fundamentally different from travelling into the UK to spend time with family or friends. Mr Parker remained within the airport environment, staying at an airport hotel and travelling between the hotel and Heathrow. The judges concluded that these activities remained closely connected to his onward travel and did not undermine the transit exemption.

Exceptional circumstances and cancelled flights

The second issue arose on 29 February 2020 when Mr Parker boarded a British Airways flight from Heathrow to Dublin.

Before departure, severe weather associated with Storm Jorge caused Dublin Airport to close. The flight was cancelled, passengers were required to disembark, and British Airways arranged hotel accommodation before rebooking them on flights the following day.

The Statutory Residence Test allows certain days to be ignored where exceptional circumstances beyond an individual’s control prevent them from leaving the UK.

HMRC argued that flight disruption is a normal feature of international travel and that alternative arrangements may have been available. The Tribunal took a different view.

While poor weather itself may not be unusual, the judges looked at the overall circumstances rather than focusing on a single factor. Dublin Airport had been forced to close, flights were being cancelled, diverted and delayed, and widespread disruption affected travellers throughout the day. Viewed as a whole, the circumstances were not routine and were capable of being exceptional.

Perhaps the most significant part of the judgment was the Tribunal’s focus on practical reality.

Mr Parker had already boarded the aircraft when the flight was cancelled. His luggage remained with the airline, and British Airways had arranged replacement travel for the following morning. HMRC suggested he could have explored alternative routes out of the UK, but the Tribunal considered that expectation unrealistic in the circumstances.

The judges concluded that the correct question was not whether some theoretical route out of the UK might have existed, but whether Mr Parker was realistically able to leave the country that day. On the facts, he was not. By accepting the airline’s arrangements and departing on the next available flight, he had left as soon as circumstances genuinely permitted.

Wider lessons from the decision

Although the case concerned one taxpayer’s residence position, the principles are likely to have wider relevance.

International travel has become increasingly vulnerable to disruption, whether from severe weather, industrial action, technical failures or operational issues. For individuals whose residence position depends on remaining below particular day-count thresholds, unexpected events can quickly become significant.

The case also demonstrates the importance of maintaining detailed records. Throughout the dispute, evidence such as boarding passes, hotel invoices, travel confirmations and flight information played an important role in establishing the facts.

Residence enquiries often begin years after the relevant tax year has ended. What seems obvious at the time can be surprisingly difficult to reconstruct later. Keeping comprehensive travel records may prove invaluable if HMRC subsequently questions a residence position.

Conclusion

The Parker decision provides welcome clarification on two areas of the Statutory Residence Test that regularly create uncertainty. The Tribunal rejected HMRC’s narrow interpretation of the transit exemption and adopted a practical approach when assessing exceptional circumstances, focusing on the realities of international travel rather than artificial distinctions or hypothetical alternatives.

Residence disputes rarely arise because someone deliberately ignored the rules. More often, they stem from travel arrangements, unexpected disruption and the practical realities of modern working life. The Parker case is a reminder that a handful of days can sometimes determine a tax position worth many thousands of pounds.

At Wilkins Southworth, we advise individuals and families on UK residence, overseas work arrangements and international tax planning. If you would like to discuss your residence position or review how the Statutory Residence Test applies to your circumstances, please contact our team.

The abolition of the remittance basis from April 2025 represented one of the biggest changes to UK international tax rules in decades. The reforms form part of the wider non-dom tax changes introduced from April 2025. 

Recently, much of the discussion surrounding the reforms has focused on the four-year Foreign Income and Gains (FIG) relief available to qualifying new residents arriving in the UK. However, what has received far less attention is the reporting side of the regime.

Under the previous remittance basis system, offshore income and gains often remained outside HMRC reporting requirements if they were not brought into the UK. For many internationally mobile individuals, particularly those with offshore investment portfolios or overseas property interests, the regime offered a degree of privacy alongside tax efficiency.

As we now know, the foreign income and gains relief system operates very differently. 

While the new rules may still provide valuable relief for qualifying individuals, HMRC’s disclosure expectations are now significantly greater than under the old regime. In many cases, clients fully appreciate this only when they begin preparing their first tax return under the new rules.

Background to the foreign income and gains relief rules 

The foreign income and gains relief regime was introduced from 6 April 2025 alongside the abolition of the remittance basis of taxation. Broadly speaking, the UK has moved away from a domicile-based system towards one that is far more heavily based on residence.

Under the new framework, qualifying new residents may claim relief on certain foreign income and gains arising during their first four years of UK residence. To qualify, an individual must generally have been a non-UK resident for at least 10 consecutive tax years before becoming a UK resident again.

Where relief applies, qualifying foreign income and gains can usually be brought into the UK without an additional UK tax charge. That remains one of the more attractive features of the regime for internationally mobile individuals and families relocating to the UK.

At first glance, the rules may appear relatively straightforward. In practice, however, the compliance and reporting obligations are considerably more detailed than many clients expect.

The major change: Worldwide reporting and disclosure

The most significant practical difference between the old remittance basis and the FIG regime is the level of disclosure.

Under the remittance basis, foreign income and gains that remained offshore often did not need to be fully reported to HMRC. For many non-domiciled individuals, this created a relatively contained reporting environment, particularly where offshore income was retained outside the UK.

The FIG regime changes that position considerably.

Foreign income and gains generally need to be identified and reported as part of the UK Self Assessment process where relief is claimed, even where no UK tax ultimately becomes payable. Claims are also made on a source-by-source basis rather than through a broad exemption mechanism.

In practical terms, this may involve reporting:

• Overseas bank interest
• Foreign dividends
• Offshore investment portfolio income
• Rental income from overseas properties
• Gains on foreign share disposals
• Certain trust distributions

For clients with multiple accounts, investment platforms or international structures, the reporting exercise can become significantly more detailed than under the previous regime.

Importantly, the relief itself may remove the UK tax charge, but it does not remove the reporting requirement. That distinction is becoming increasingly important.

Many offshore structures and investment arrangements were originally established during a period when disclosure expectations were materially lower. The UK tax system has now moved much closer towards full transparency of overseas income and gains.

Why this matters more than some clients realise

The practical challenges posed by the FIG regime are not always obvious at first. 

Many internationally mobile individuals have historically organised their affairs around the old remittance basis rules. As a result, records, investment structures and reporting systems may not have been designed with detailed UK disclosure requirements in mind.

This can create difficulties where individuals now need to:

• Identify multiple offshore income sources
• Separate different categories of foreign income and gains
• Reconcile overseas reporting periods with UK tax years
• Calculate foreign currency conversions accurately
• Coordinate information between advisers across several jurisdictions

Some clients may incorrectly assume that if foreign income is exempt from UK tax under the FIG regime, there is nothing to report. Under the new system, that assumption can quickly create problems.

At the same time, HMRC continues to expand its focus on offshore compliance and international reporting consistency. The department already receives large volumes of overseas financial information through international information-sharing agreements and increasingly uses digital analysis to identify inconsistencies between returns, accounts and offshore data.

This wider direction of travel is difficult to ignore. The UK tax system has become far more transparent in recent years, particularly regarding offshore wealth and international structures.

The wider planning implications

Although the FIG regime offers valuable planning opportunities in certain situations, making a claim is not always as straightforward as many clients initially assume. A FIG claim can affect several allowances and reliefs, including:

• Personal allowance entitlement
• Capital gains tax annual exempt amount
• Certain foreign losses
• Relief for finance costs relating to overseas property income

The position can become more complicated where clients have multiple sources of foreign income or gains, or where overseas tax rules interact with UK reporting obligations.

In some situations, a partial claim may prove more beneficial than claiming relief on every source of foreign income. In others, the administrative burden associated with reporting may itself become a significant consideration.

Coordination between UK advisers and overseas professionals is also becoming increasingly important, particularly for clients with:

• International investment portfolios
• Overseas businesses
• Trusts
• Foreign property holdings
• Family wealth structures spanning several jurisdictions

The regime is not simply a “claim and forget” exercise. Ongoing review is likely to become increasingly important as HMRC guidance and international reporting standards continue to develop.

Which clients are most likely to be affected?

The FIG regime is particularly relevant for:

• Non-doms previously using the remittance basis
• Returning UK residents
• Internationally mobile executives
• Entrepreneurs relocating to the UK
• Offshore investors
• Clients with overseas property portfolios
• Beneficiaries of offshore trusts

Even relatively straightforward offshore arrangements may now involve a much greater degree of reporting analysis and disclosure than under the previous system. For some clients, the compliance burden may ultimately outweigh the immediate UK tax exposure.

Conclusion

Foreign income and gains relief still offers potentially valuable opportunities for qualifying new residents arriving in the UK. However, the reporting framework surrounding offshore income and gains has changed considerably since the abolition of the remittance basis.

The days of relatively limited offshore disclosure have largely disappeared. Transparency, reporting accuracy and international information sharing now sit much closer to the centre of the UK international tax system.

For internationally mobile individuals, effective planning increasingly involves not only managing tax exposure, but also ensuring offshore reporting is complete, consistent and properly documented.

At Wilkins Southworth, we advise internationally mobile individuals and families on offshore reporting, residence issues and wider international tax planning. If you would like to discuss how the FIG regime may affect your circumstances, please feel free to contact our team.

HMRC has suffered another defeat in one of the UK’s longest-running employment status disputes.

In May 2026, the tribunal again ruled that football referees engaged by Professional Game Match Officials Limited (PGMOL) were self-employed rather than employees for tax purposes. The dispute, involving around £584,000 in tax liabilities, has now been running for almost a decade.

Although the case centres on professional football referees, the underlying issues affect thousands of UK businesses. Construction firms, consultants, IT companies and property businesses all rely heavily on contractors and self-employed workers. The same employment status rules apply across all of them.

That is what makes the PGMOL case so significant. Even after years of litigation, HMRC and the courts still reached very different conclusions on how the arrangements should be treated.

Background to the Employment Status Dispute

The case involved referees engaged by PGMOL between 2014 and 2016. HMRC argued the officials should have been treated as employees, meaning PAYE and National Insurance should have been deducted.

PGMOL maintained that the referees were self-employed because appointments were accepted individually, with no obligation to provide or accept ongoing work.

This type of dispute is far from unusual. Employment status remains one of the most heavily contested areas of UK tax law, particularly since the IR35 reforms increased scrutiny of contractor arrangements.

The financial consequences can be severe. Businesses found to have incorrectly treated workers as self-employed may face liabilities for unpaid PAYE, National Insurance, interest and penalties stretching back several years.

Timeline of the employment status case

The dispute has moved through several courts and tribunals:-

• August 2018 – The First-tier Tribunal ruled the referees were self-employed.
• May 2020 – The Upper Tribunal dismissed HMRC’s appeal.
• September 2021 – The Court of Appeal referred the matter back for reconsideration.
• September 2024 – The Supreme Court clarified aspects of the legal framework surrounding employment status assessments.
• May 2026 – The tribunal again ruled the referees were self-employed.

HMRC is reportedly considering whether to appeal again.

The length of the case highlights the wider problem facing businesses. Employment status disputes can take years to resolve, creating prolonged uncertainty and significant professional costs.

Why HMRC lost the employment status case

Employment status cases are rarely decided on a single factor. Courts normally assess the overall working relationship rather than relying solely on contractual wording.

Several key tests are usually considered:-

• the degree of control
• mutuality of obligation
• personal service requirements
• financial risk
• independence

In the PGMOL case, the tribunal focused heavily on the absence of guaranteed ongoing work. Referees accepted individual appointments rather than operating under continuous employment arrangements.

Professional standards and oversight existed, but the tribunal found them insufficient to create a traditional employment relationship.

That distinction matters because many businesses mistakenly assume that supervision or compliance requirements automatically point towards employment. In reality, self-employed contractors often operate within structured and regulated environments.

The courts continue to focus on practical working arrangements rather than labels alone.

A business may describe someone as self-employed in a contract. However, if they work fixed hours under close supervision with little independence, HMRC may still argue the relationship resembles employment.

Criticism of HMRC’s CEST employment status tool

The recent ruling has also reignited criticism of HMRC’s Check Employment Status for Tax (CEST) tool.

Critics argue the tool oversimplifies a highly complex area of law and struggles to reflect how tribunals assess real-world working arrangements. That criticism has existed since CEST was introduced in 2017.

The underlying issue is that employment status rarely depends on one single factor. Tribunals examine multiple aspects of the relationship together, often placing different weight on individual elements depending on the circumstances.

This creates obvious challenges for businesses seeking certainty.

A company may complete a CEST assessment in good faith and still face an HMRC challenge years later. Different advisers can also review the same arrangement and reach different conclusions.

The PGMOL case demonstrates just how subjective employment status disputes can become.

What businesses should learn about employment status

This case contains several important lessons for businesses using contractors and freelance workers.

First, contracts alone are not enough. If day-to-day working practices differ from the written agreement, tribunals will usually place greater weight on the practical reality of the relationship.

Second, employment status reviews should not be treated as one-off exercises. Contractor relationships often evolve over time, particularly where workers become integrated into the business.

Third, consistency matters. HMRC increasingly uses data analysis and cross-checking systems to identify discrepancies involving payroll, invoices and contractor payments.

Sectors heavily reliant on contractors remain particularly exposed, including:-

• construction
• consultancy
• IT services
• logistics
• healthcare
• property services

For many businesses, the uncomfortable reality is that employment status reviews are no longer something that can be postponed indefinitely.

Why employment status rules remain so difficult

The broader issue exposed by the PGMOL case is the continuing complexity of UK employment status law.

After years of litigation and multiple appeals, the courts still needed to reconsider the same arrangements under revised legal guidance. That alone demonstrates how difficult it is to apply these rules consistently.

Modern working patterns have only added to the uncertainty. Flexible contracting, consultancy arrangements and freelance work have blurred many of the traditional boundaries between employment and self-employment.

At the same time, HMRC continues to focus heavily on compliance in this area because of the tax revenues at stake. The result is a system where many businesses struggle to apply the rules confidently, even with professional advice.

Conclusion

HMRC’s latest defeat in the PGMOL case is another reminder that employment status remains one of the most difficult areas of UK tax law.

The ruling reinforces a point the courts have repeatedly made: employment status depends on the practical reality of the working relationship, not simply the wording of a contract or the result of an online assessment tool.

Businesses that use contractors, consultants and self-employed workers should review their arrangements regularly rather than wait for HMRC scrutiny.

At Wilkins Southworth, we advise businesses on employment status reviews, IR35 concerns and HMRC disputes. If you are unsure whether your current arrangements could attract HMRC attention, our team can help you assess the risks and strengthen your position.

Wilkins Southworth were pleased to act for a client in a successful defence of an HM Revenue & Customs (HMRC) enquiry.

Our client approached us after his accountant had filed his 2025 tax return.  The tax return was filed with HMRC incorrectly and our client notified his accountant of the errors.  His accountant then refiled the tax return, but again it was incorrect.

HMRC opened up an enquiry into our client’s tax affairs and he then approached Wilkins Southworth to act for him.

We resolved their questions quite quickly but HM Revenue & Customs then contended that despite our client having paid his full tax liability of £1.6 million in January 2025, his last accountant had incorrectly filed an amended 2024/25 tax return, which our client hadn’t signed, stating a tax liability of a little over £65,000.

The contention from HMRC was that if they had not opened up an enquiry they would have refunded our client around £1.55 million plus interest.  Therefore, they contended that our client was Careless.

HMRC are now being proactive in this area and the First Tier Tribunal case of Douglas Boulton and The Commissioners for His Majesty’s Revenue and Customs reflects this.

HMRC alleged that a penalty of up to 30% under Schedule 24 Finance Act 2007 could be levied, which would have given rise to a maximum liability of around £460,000, for our client.

Schedule 24 Finance Act 2007 states penalties may be chargeable if the errors are found to result from Careless or Deliberate behaviour.  It is the taxpayer’s obligation to ensure their tax return is complete and accurate and by signing the tax return they make a formal declaration to that effect.

HMRC guidance CH82160 explains.

HMRC factsheet CC/FS7a ‘Penalties for inaccuracies in returns and documents’ explains how penalties for inaccuracies in returns and documents are levied.   Penalties will be charged if the behaviour is Careless, Deliberate or Deliberate and Concealed.  HMRC will work out the potential lost revenue (PLR) and this arises as:

• A result of correcting an inaccuracy in a return or document.
• An incorrect repayment.
• An incorrect claim.

Careless prompted disclosures suffer penalties of between 15% to 30%.

Our defence highlighted that the standard of ‘Reasonable Care’ is the behaviour which a prudent and reasonable person in the position of the taxpayer would adopt.

When our client appointed a Chartered Accountant and provided that person with the complete facts, you are entitled to rely on their advice (assuming the advisor was sufficiently qualified in the area of tax that the advice was given on) even if it turns out that your advisor was careless.

Needless to say, Wilkins Southworth won the argument.