HMRC is slowly but surely moving towards a tougher approach when it comes to taxpayer compliance, writes Tarandeep Singh Sangra.
Many practitioners will be aware of the various recent developments that I will be discussing in this article. These changes have come about rather discreetly and are certainly coordinated; contrary to many other changes, all of this feels somewhat intentional. Unless, of course, I am connecting dots that were never meant to be!
For the purpose of this article I am not focusing on a single, or even multiple reforms; we need to step back and look at the broader landscape to truly understand what is happening here.
There is a series of shifts, all of which appear disconnected, and potentially of little consequence; but when taken together point towards a clear strategic shift by HMRC. The direction of travel is clear; moving discreetly away from the established model of trust-based self-assessing (self-reporting) towards more data-driven and cross-checked compliance. One may wonder why it’s still referred to as a self-assessment at all.
Tax advisers
In the previous edition of this magazine I shared my thoughts on Mandatory Tax Advisor Registration, or MTAR. Combine this with the new Sanctionable Conduct regime, and it is clear that tax advisers are well and truly under the microscope.
Without going into detail in these points, as they are worthy of their own discussions, all tax advisers should be operating with the mindset that one wrong move, or mistake, is all it takes to be out of the club.
Reliefs
There are two key reliefs that have seen huge compliance changes; whilst the reliefs are not necessarily being removed, the way they are accessed has changed. We are seeing an incremental move from automatic operations to claims-based and notification-based systems.
Historically, Incorporation Relief under s162 TCGA 1992 applied automatically where the conditions were met, though an individual could elect for the relief to not apply. For incorporations on or after 6 April 2026 Incorporation Relief must now be claimed.
Whilst the mechanics and criteria of the relief remain unchanged, the compliance risk is exponentially increased; whether through missed claims, late notifications or increased scrutiny from HMRC.
I questioned, almost a decade ago (whilst still an Inspector), why there was not a notification requirement for Incorporation Relief. Except where the business being incorporated held significant property, it was extremely difficult to identify individuals who have benefitted from the relief. Therefore, any targeted interventions or projects were not the easiest to devise.
What’s now clear is that HMRC want visibility and a clear audit trail.
Changes were also made at the Autumn 2025 budget, affecting share-for-share exchanges on or after 26 November 2025. The changes only affect s137: the anti-avoidance rules.
Old wording: the exchange, reconstruction or amalgamation in question is effected for bona fide commercial reasons and does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoidance of liability to capital gains tax or corporation tax.
New wording: arrangements relating to an exchange or scheme of reconstruction as regards which section 135 or 136 applies if the main purpose, or one of the main purposes, of the arrangements is to reduce or avoid liability to capital gains tax or corporation tax.
The changes are subtle, and move the emphasis away from ‘bona fide commercial reasons’ and the reconstruction not forming part of a scheme, rendering the Delinian principle obsolete.
Whilst many advisers are still regularly submitting and obtaining clearance for share exchanges, it is clear that HMRC are closing the net.
Let’s take a step back: assume a demerger before the sale of assets to different parties. Why would a client appoint a tax adviser to provide tax advice on the overall transaction, who ultimately submits the clearance application, unless one or the main purposes of the arrangement is to reduce or avoid Capital Gains Tax or Corporation Tax?
This argument is of course defunct if the adviser is solely appointed because the purchasing parties require the target assets to be in ‘clean shells’ before acquisition, but how likely and often is that going to be full extent of the reality?
So why am I specifically highlighting these two changes, particularly Incorporation Relief? First, these are two of the most recent changes which affect a large proportion of advice provided. Second – and this is tin foil hat time – I’ve had the feeling for some time now that certain planning arrangements were simply too good to be true, and have had their heyday.
There is an abundance of individuals who have benefitted from transferring property portfolios into limited companies via partnerships for example, paying zero CT and SDLT. Now look under the new – the Incorporation Relief needs reporting to HMRC, a potential enquiry indicator.
The other, possibly more pertinent point, is that such a scheme could be considered to breach 4.4.3 of the HMRC standard for agents . Why is that important? A sanction, per its dictionary definition, is a penalty for a breach of a rule. So not only is the net narrower for the planning, but the implications for the adviser are potentially infinitely greater under Sanctionable Conduct.
Reporting requirements
From the 2025/26 tax return onwards, directors of close companies are required to report the specific dividend amount received from each close company as well as the highest level of shareholding held during the period for each of those close companies.
Historically, HMRC would only be able to manually reconcile dividends and shareholding information against Companies House data if that was actually kept up-to-date.
I fondly recall the days of attempting to reconcile an individual’s declared dividends against their directorships and shareholdings; I imagine enhanced reporting and AI will take much of this ‘fun’ away from the modern crop of inspectors.
Now imagine the admin burden for an entrepreneurial individual? Beyond the admin burden is where the real impact lies, yet further parameters for HMRC to use as part of their risk assessing process.
When I first read about these changes, I understood the ‘why’ in relation to close company dividends; I didn’t quite grasp the same in relation to highest percentage shareholding during the tax year for each close company.
But now that I read this alongside the changes to s137, it makes more sense; this presents strong, contemporaneous data that HMRC can use to profile and select cases where there may have been a scheme or arrangements with a purpose of reducing or avoiding tax.
HMRC recently launched a consultation on ‘Reporting company payments to participators’, which ran for 12 weeks, ending on 10 June 2026. The findings are yet to be published.
The consultation focused on plans that require close companies to provide details of transactions between the company and its participators, including:
• payments, via cash, bank transfer or otherwise
• sales of assets to the company
• purchases of assets from the company
• dividends or other distributions
• any other transfer of value from the company to the participator
It seems that HMRC are seeking to mitigate any risk of evasion and gather more accurate data to assist with their case profiling and risking process. The risk is that we may end up with multiple overlapping disclosure requirements that make inconsistency more likely, which ultimately drives enquiries.
It seems one of the main purposes (pun intended) of this consultation is to counteract potential bed and breakfasting, despite specific legislation to combat this, and also ‘write offs’ of overdrawn DLAs. This could be interpreted as a direct response to the number of Quillan arguments we have been recently seeing.
Ultimately, HMRC’s risk assessing will only be as effective as the information that it is provided. Those that avoid and evade will always find a way to continue to do so.
5,000 compliance caseworkers
What are HMRC going to do with all this additional information? The cynical answer is: in time, make people like myself very, very busy.
The reality is that HMRC’s biggest hurdle will be instilling the ‘inspector mindset’ and passing on the collective experience and nous. This task is not to be underestimated, as the new caseworkers reflect an additional one-sixth of the current workforce, ignoring back-end functions such as HR, etc..
It is also worth noting that these new entrants, not to discredit them in any way, do not require any previous relevant knowledge or experience, and the recruitment process primarily focuses on competencies. The caseworkers will receive three months of initial training, at which point they will be unleashed; with a further six months of stewardship under a mentor.
Looking back at my own time in HMRC, I cannot comprehend being ready to tackle the type of contentious issues I have been privileged to deal with and exposed to within nine months of joining the department; notwithstanding I had even studied Accounting and Tax at undergraduate level.
Slightly off-topic, but it’s worth explaining why HMRC have this problem. In the early 2000’s there was essentially a 10-year hiatus on external recruitment, including at graduate and entry-level, effectively meaning a lack of new young professionals joining HMRC. Not surprisingly, as a direct result, HMRC’s demographic aged by about 10 years. This problem had been recognised by the early 2010’s when external recruitment, including at graduate level, was significantly amped up. It seems, however, that HMRC are still playing catch up.
Making Tax Digital
Must I say more? Five ‘returns’ per year.
It’s almost as if trading whilst unincorporated is administratively, and sometimes financially, disproportionate. The good news is that those carrying on a business can transfer their business as a going concern to a company, free of any Capital Gains Tax so long as the qualifying conditions are met, and avoid MTD entirely.
Can you see the circle forming now… s162 is no longer automatic and must be claimed and notified to HMRC. It’s almost as if incorporating is incentivised.
Companies House reporting
Whilst this reporting requirement is not specific to HMRC, it is worthwhile mentioning. From April 2028, all companies, irrespective of size, will be required to file Profit & Loss accounts with Companies House, with the option to file abridged accounts being removed. The original proposals were to bring this in from April 2027; it is a small relief that it has been delayed by a year.
Some may see this as going to back to the long-forgotten trade-off that transparency is the price of limited liability, which I believe was initially a fair compromise.
Small and micro-entities will, however, be able to opt out of having their Profit & Loss accounts published. The key point here is that this is not an automatic entitlement… yet further administrative burden.
An extract from Companies House announcement which is pertinent is: “Where a company opts out of publishing its profit and loss accounts, Companies House, law enforcement and HMRC will still have access to help identify and tackle fraud, economic crime and tax evasion.”
It will be interesting to see if there is an automatic exchange of information through a government gateway to clash the Companies House P&L data against accounts filed with HMRC. I recall being able to reconcile very few sets of Balance Sheets filed with Companies House to those with HMRC, and I imagine this change will only amplify this problem.
Conclusion
Tax returns, quarterly updates and relief claims are increasingly being treated as structured information returns, moving away from once-a-year exercises.
MTD for ITSA rapidly accelerates this rubbish. More frequent, timely and cleaner data making it easier for HMRC to compare various data sources in real time. Alongside that, reliefs associated with ownership changes and reorganisations are being pulled into a world of explicit claims and primed for easier downstream challenge by design.
Tax advisers are under increasing pressure to deliver more for less, or at least the same, whilst under increased scrutiny by HMRC.
Reading between the lines, it is possible to pull together all these shifts and imagine that HMRC is positioning itself to challenge exponentially more cases. Inconsistency across various reporting requirements is going to be a huge factor. Not necessarily because inconsistency means it is wrong, but more so because human intervention is required; and in a world full of AI, timesheets and additional reporting requirements, I fear that the bulk of the load will be passed on to the filing accountants, who are likely caught between a rock and a hard place. Nobody likes to pass on additional burden and increase their fees, but also who wants to work for free?
Only time will tell if all the above link together as I have imagined here. But one thing I am certain of… the direction of travel has and HMRC are in the driving seat.
STOP PRESS: HMRC policy paper
Following the submission of this article, HMRC issued a policy paper on 23 June 2026, called ‘Tax update 2026: simplification, modernisation and fairness summary’. There were 40 measures announced in this paper, a mixture of consultations, reviews and calls for evidence. Some of the headlines that caught my attention are:
• Publishing deliberate defaulters – threshold increased to £50,000 PLR for relevant penalties.
• ITSA payments – consultation on implementing more timely payments for customers in PAYE.
• Distributions consultation.
• Supplementary data for VAT returns.
• CT QIP – augmented profit calculation basis being reviewed.
• National Insurance – consultation on removing NI from the scope of the Limitation Act 1980 to align with other forms of tax. This will be a huge change.
• Introduction of software standards to prevent Electronic Sales Suppression (ESS) – consultation.
• Tackling lower value debts – consultation. Seeking to extend existing direct recovery from bank account powers.
• Payment of VAT and PAYE by Direct Debit – consultation.
• Introduction of a criminal offence for making reckless untrue statements or declarations in direct tax – consultation to align the legal framework with indirect tax.
• Reforms to Schedule 36. Scarce on details but includes updating the definitions of computer records.
One interesting update, issued on the same date but not included in the above policy paper is the open consultation on the introduction of MTAR for customs intermediaries. Customs intermediaries are otherwise exempt from MTAR under the current list of exemptions found at Schedule 20 of the Finance Act 2026. It’s astonishing that we already have an open consultation relating to a regime that effectively came into effect only five weeks prior!
I am sure there will be plenty of dissection and commentary of each of the above measures over the coming days and weeks. What’s even more clear now is that HMRC are leaving no stone unturned and this only reinforces our above hypothesis.
• Tarandeep Singh Sangra is Managing Director at Fortis Tax