At a glance
- HMRC disputes are common, stressful, and require a pragmatic approach from accountants.
- Respond promptly to HMRC within 30 days with clear, organised supporting documents.
- For complex cases, escalate using specialists, fee protection, or Alternative Dispute Resolution.
The dreaded brown envelope isn’t what it used to be. Today, an enquiry from HM Revenue & Customs is less likely to be a random check and more likely to be a targeted query directed by a sophisticated AI. The new technology, though, still leads to old-fashioned worry for clients. It threatens fines, disruption, and in the worst cases, criminal proceedings.
For clients’ accountants, this is a critical test. HMRC disputes are a common feature of practice life, arising from anything from a disallowed expense to the treatment of a complex non-cash transaction. Navigating them is no longer just about organised paperwork – it’s about understanding the taxman’s new digital arsenal.
Experts suggest a cool head and a pragmatic plan for dealing with these disputes. You will need to communicate clearly with both a potentially stressed client and a demanding tax authority. You should also proffer the data, documents, and clarifications needed to resolve the case.
This guide may help with identifying the new data-driven disputes, preparing a solid objection, knowing when to escalate, and deciding to call in specialists.
The all-seeing eye: identifying emerging disputes
Many of today’s investigations begin with HMRC Connect. This system, launched in 2010, is HMRC’s primary weapon against a tax gap the government estimated in June 2025 to be £46.8 billion in 2023/24.
Like similar systems in other advanced nations, Connect uses large public and private datasets (with a reported 55 billion items of data). It uses them to find apparent discrepancies between the tax information someone declares and their business and lifestyle. Its sources include:
- online marketplaces like eBay, Etsy, and Airbnb
- payment processors such as PayPal and Stripe
- banks and financial institutions, including offshore accounts under the Common Reporting Standard
- government agencies like the Land Registry and the DVLA
- social media and company websites.
Yogesh Patel, managing director at accounting firm Telic, sees HMRC using Connect to target entire sectors with mass data requests. “If they want to investigate a particular type of business, they will do a blanket search on them,” he says. “Even if a business has been genuine for many years, and there are no issues, they could receive a nudge letter.”
“If they want to investigate a particular or type of business, they will do a blanket search on them”
– Yogesh Patel
These initial requests can be vague. Patel advises accountants to contact HMRC directly to clarify what is needed. This can shut down an irrelevant enquiry before it gathers steam. “Sometimes it’s best to get on the phone to nip it in the bud and save [client] costs,” he notes.
Be prepared for a challenge. “One issue is there’s more junior staff and less experienced people dealing with these disputes, so sometimes it can take a bit of back-and-forth to speak to the right person.”
First contact: preparing an effective objection
Once an enquiry is formalised, the clock starts ticking. Objections typically require a response to HMRC within 30 days, complete with supporting evidence. Many disputes can be settled at this stage with prompt, organised action. Those who have dealt extensively with the system say good record-keeping is your first line of defence.
Nigel Harris, managing director of Harris & Company Chartered Accountants, stresses the need for speed. “We aim to answer the questions they’ve asked us,” he says. “It normally means finding some additional information, and we put it in an email and make sure we respond within the time period.”
Simple disputes over expenses might be resolved by providing bank statements and invoices. Cases involving the interpretation of tax law or complex accounting entries will naturally require more detailed argument.
The impasse: knowing when to escalate
Sometimes, an enquiry stalls. It might drag on for months or years, or you may fundamentally disagree with HMRC’s position. At this point, you need to consider escalation.
Harris recalls a case concerning foreign tax credits that involved two years of back-and-forth communication. HMRC eventually conceded that no amendments were needed. While frustrating, this shows that persistence can pay off. Cases involving significant sums of money will naturally motivate a stronger pushback.
This is where fee protection services prove their worth. This insurance allows you and your client to claim for the professional fees incurred during a tax investigation. With a policy in place, the insurer covers your firm’s fees, removing cost as a barrier to mounting a robust defence.
Many fee protection policies also provide access to expert helplines staffed by tax and legal specialists. This may be a useful source of tactical advice in the early stages of a complex dispute.
Calling for backup: legal specialists and adr
For the most complex, high-stakes cases, accountants will often partner with specialists. These can include tax barristers, subject-matter experts, and even former HMRC inspectors who know the internal workings of the system. Your fee protection provider may be able to refer you to firms with the right expertise.
This is non-negotiable for the most serious investigations. For Code of Practice 8 (tax avoidance) and Code of Practice 9 (suspected tax fraud) cases, Telic’s Patel insists accountants must work with experienced specialists to minimise risk for their clients.
Before heading to a tribunal, however, there is another option: Alternative Dispute Resolution (ADR). This service uses an independent HMRC facilitator to help both parties find common ground. It can be faster and cheaper than a formal tribunal.
Mark Lee FCA, an accountant mentor and speaker, argues that accountants should use ADR more often. “If you are banging your head against a brick wall with HMRC, then asking to go for ADR rather than pursuing an appeal to the tribunal should enhance the prospect of resolving things without it costing the client a fortune,” he says. “The only cost would be the accountants’ fees. HMRC provides the ADR option free of charge.”
The data seems to support lee. In its 2022-23 review, HMRC reported that 85% of the applications it accepted for ADR were resolved between the two parties, avoiding the need for a tribunal.
The human factor: communicating through the stress
An investigation can cause a client severe stress. An accountant can add value beyond technical advice by acting as a calm and communicative guide. Patel says he handholds clients through the process, with constant communication and regular updates.
Patel also recommends actively managing deadlines with HMRC. If a client has a legitimate reason – such as illness or a planned holiday – he advises asking for an extension. It shows the accountant is engaged with the process, and reduces pressure on the client.
“We often ask for extensions where we have good reason to do so,” he explains. This provides context to HMRC and “makes them less likely to jump to conclusions.” It is another simple step that can help keep a stressful situation under control.
