Navigating the Tax Dispute Lifecycle: Insights from the London Tax Network Conference 2026

In an era where tax compliance is increasingly scrutinised through data analytics and risk profiling, understanding how an HMRC tax investigation can develop is a survival skill for all taxpayers. At the London Tax Network (LTN) Tax Conference in September 2026, Mala Kapacee provided a comprehensive roadmap for taxpayers and advisers, demystifying how investigations begin, may escalate, and ultimately resolve.

The Myth of the “Random Check”

We still meet clients who believe that HMRC checks are random; nowadays, there is no such thing. HMRC employs sophisticated risk assessment models to select cases for intervention and random checks are a thing of the past.

Being in a high-risk industry increases the probability of scrutiny, though it does not guarantee an investigation. Key red flags that may trigger case selection include:

• Financial Anomalies: Consistent losses while competitors are profitable, or significant discrepancies between VAT and Income Tax figures.
• Transaction Types: High levels of cash transactions.
• Compliance History: A record of late filings or amended returns.
• Industry Risk: Sectors such as construction, hospitality, and cryptocurrency are under heightened watch as they are harder to regulate (e.g. high use of cash).
• Aggressive Planning: The use of tax avoidance arrangements that HMRC deems aggressive.

Identifying the intervention: Enquiry, investigation or fishing expedition

When initial contact is made—whether by letter or phone (always verify it’s not a scam!)—it is crucial to distinguish between an enquiry, a investigation, and “fishing expeditions.”

An enquiry is always opened with reference to the relevant legislation, e.g.s9a, TMA 1970 for an investigation into an individual’s tax return. Investigations (to my mind) are any other HMRC intervention and could lead to formal enquiries, discovery assessments or worse.

HMRC open ‘compliance checks’ frequently, however these are not governed by a legislative framework. If the letter does not refer to legislation, it may be an informal request for information.

Informal queries may form part of a larger in depth investigation later on and need to be managed carefully to prevent/mitigate escalation. On the other hand, informal enquiries may just be fishing expeditions, whether HMRC has a ‘hunch’ but no reasonable grounds for suspicion of tax loss.

When looking at informal information requests, advisers should consider whether the request falls within the usual Schedule 36, FA2008 safeguards – is it proportionate, reasonably required and in the taxpayer’s power or possession to obtain and is there a reasonable suspicion of tax loss – and whether they should ask that the request is formalised. If the request is formalised, the safeguards apply and the request can be appealed if necessary. However this must be balanced with the potential impact on penalties and communication with HMRC needs to reflect full cooperation while protecting the client’s interests.

At this initial approach, advisers must carefully assess whether HMRC has already formed a view on the taxpayer’s behaviour. This may be identified by the types of questions and whether HMRC have already carried out a business records check or test purchases (for example).

Signs of Escalation

An enquiry into a single year or aspect can quickly morph into a full-blown investigation covering multiple years and issues. Indicators that the situation is escalating include:

• Wider information requests beyond the initial scope.
• Requests for face-to-face meetings.
• HMRC obtaining or referring to third-party information.
• The “Silent Treatment”: A sudden period of silence from HMRC can be a strategic pause as they gather more data, often preceding a discovery assessment (or potentially a criminal investigation).

Discovery Assessments

Discovery assessments are governed by time limits that depend heavily on the taxpayer’s behaviour (innocent, careless, or deliberate). Note that “staleness” is no longer a valid defence; if HMRC discovers an underpayment, they can assess it within the relevant behavioural window regardless of when the matter was discovered.

Strategic Advice

In terms of mitigating risk during tax diputes, there are a few strategies to keep in mind at every stage.

• Challenge Early: Consider challenging information requests before HMRC has enough data to make a discovery assessment.
• Disclosure Option: If stopping the discovery is impossible, consider making a disclosure to reduce penalties.
• Technical Defense: Note that no discovery assessment can be made if the year is still within the standard enquiry window — a technical point that may buy valuable time. See example A of how technical points can indirectly assist with appeals.

The Appeals Process: From HMRC to the FTT

If an agreement cannot be reached, the appeal process begins. These are the critical steps and deadlines: • Written Conclusions: HMRC must advise their conclusions in writing
• 30-Day Deadline: Appeals must usually be made within 30 days of a penalty or assessment
• Correspondence & Review: HMRC should enter into correspondenceregrding an appeal before providing a final view.
• Taxpayers can request an independent review (often requiring a “view of the matter” letter) if the appeal result is not satisfatory.
• First-tier Tribunal (FTT): After independent review, you may apply to the FTT for appealable decisions. The deadline for filing this application is 30 days from the date of the letter of HMRC’s conclusion.

The First-tier Tribunal (FTT)

Appealing to the FTT is not merely a rehash of arguments made with HMRC. Three things to be aware of:

• De Novo Hearing: The Tribunal makes its own decision based on facts and law; it does not simply review HMRC’s reasoning and therefore the liabilities could go up or down;
• Burden of Proof: Generally, the burden lies on the taxpayer to prove HMRC’s assessment is excessive or wrong. However, in penalty cases involving behavior (e.g., “deliberate”), HMRC must prove the behavior occurred. Often, proving that HMRC is incorrect will require a taxpayer to show on the balance of probabilities that they themselves are correct.
• Framing the Narrative:
  • Tax Cases: Focus on statutory interpretation and factual accuracy.
  • Penalty Cases: Focus on the client’s state of mind at the time of filing (a subjective test). Contemporaneous records, such as emails and notes of advice, are vital evidence.

Good case handling requires proactive management and strategic realism. Taxpayers and advisers should document interactions and decision making, understand HMRC’s likely strategy and know when to fight and when to fold.

For those navigating tax disputes, early intervention, technical expertise and a clear assessment of commercial risk are your best defences. Some clients want their day in court; most want a cost-effective strategy.

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