As 2026 gets well underway, it seems that GCs and finance teams across all sectors are being kept on their toes in ensuring compliance with the UK’s increasingly complex tax system and handling any tax disputes that arise.

Published: 26 January 2026
Author: Michael Scaife & Thomas Wilkinson

If you are a GC reading this, you are not alone! Shoosmiths has released the Litigation risk 2026 report, compiling insights from over 360 general counsel and senior lawyers across our major sectors. 14% of respondents dealt with tax disputes in 2025, including 28% of respondents in the financial services sector, 17% in the consumer and retail sector, 12% in the automotive sector, 13% in the real estate sector, and 5% in the technology sector.

With 43% of respondents predicting that tax litigation risk will increase over the next three years (57% in the financial services sector), we have identified three themes to watch out for this year, and three actions to take now to ensure your organisation is well positioned to deal with Tax Litigation risk.

Three themes to watch out for in 2026

1) A more digital, data-driven HMRC – more automated enquires and fewer ‘human’ touchpoints

HMRC already holds vast quantities of data from returns submitted to it. It also aggregates data from numerous other sources (such as Companies House and HM Land Registry) using its “Connect” system. That system is great at analysing vast datasets for inconsistencies and anomalies but needs a lot of human oversight.

Our expectation is that 2026 will see a shift towards the replacement of human intervention wherever possible. For example, HMRC is preparing to launch a proof-of-concept for a new ‘Caseworker Assistant’ – an AI tool embedded in its case management system. It will focus on summarising case histories, answering case-specific questions and monitoring for returned documents. According to Simon Price, HMRC’s Director for Insight, AI and Innovation, this should result in a noticeable reduction in case handling time and allow staff to redirect their effort to more complex issues.

For taxpayers, this may mean that complex enquiries are dealt with more efficiently which would no doubt be a welcome development. However, it may be that, in the meantime, there are more frequent minor interventions, triggered without much human review or oversight. It is possible that these systems may suffer from ‘teething’ problems and that, as a result,  taxpayers face enquiries which contain errors or inaccuracies. It is possible that the burden will increasingly fall on the taxpayer to explain why the system has got things wrong in these circumstances.

2) Self-Correction – a shift of obligation

HMRC consulted on a range of compliance ideas last year, in the consultation ‘The Tax Administration Framework Review: New ways to tackle non-compliance’. We are expecting some of those ideas to be taken forward this year, including the possible introduction of a ‘self-correction’ power, enabling HMRC to require taxpayers to amend a return or explain why no amendment is required within a specified timeframe.

This would represent a significant shift, placing the onus on the taxpayer to consider a possible error and take steps to rectify it in circumstances where HMRC may not have fully explained to a taxpayer why they consider that amendment may be necessary Correction would no longer be a limited HMRC power confined to obvious errors, but a structured compliance tool sitting between “doing nothing” and opening an enquiry. In effect, taxpayers could be compelled to do more of the analysis and engage with HMRC’s view of the data, even where that view might be wrong or unsubstantiated.

3) More technical litigation - time limits for tax appeals

Time limits for challenging HMRC decisions are strict. For many years, the starting point for late appeal applications has been the Martland test, as set out in William Martland v The Commissioners for HMRC [2018] UKUT 0178 (TCC). Under this test, the Tribunal considers (a) the length of the delay; (b) the reasons for the delay; and (c) the merits of the proposed appeal, to be balanced against the prejudice which would be caused to both parties by granting or refusing permission. Essentially, the longer the delay, the more compelling the explanation for the delay needs to be for the Tribunal to accept an appeal outside of the statutory time limits.  The case of HMRC v Katib [2019] UKUT 189 (TCC)further emphasised that the need for statutory time limits to be respected was a matter of particular importance to the exercise of the Tribunal’s discretion. Delays can therefore result in lost opportunities for taxpayers, even if the underlying tax dispute is relatively strong.

There was some optimism following the Upper Tribunal’s 2025 decision in Medpro Healthcare Ltd & Anor v HMRC [2025] UKIT 255 (TCC) that Tribunals could exercise a broader and more case-sensitive discretion to carry out the full Martland balancing exercise, and give more weight to a holistic balancing exercise without the length of the delay overshadowing the merits of the case rather than focusing on the ‘particular importance’ of the need for statutory time limits to be respected.

However, 2026 has already kicked off with the Court of Appeal judgment in HMRC v Medpro Healthcare Ltd & others [2026] EWCA Civ 14 which essentially takes taxpayers back to the more hostile environment in which late appeals will rarely be allowed, reinforcing the need to take action quickly on receiving assessments from HMRC.

Three actions to take

It is a bit late for New Year’s resolutions, but here are three manageable actions that might pave the way to a smoother 2026:

1. Strengthen evidence and documentation

With automation rising, contemporary evidence will be critical in disputes — particularly cross‑border matters. Ensuring a strong evidence infrastructure will be key to your organisation’s readiness to respond to any enquiry or dispute. Please reach out to your usual Shoosmiths contact if you would like help in creating a tax preparedness package to ensure valuations, motivations and commercial decision-making processes are recorded in case of HMRC enquiry.

2. AI integration into compliance readiness

Integrate AI into all compliance‑readiness assessments by carrying out a litigation‑preparedness review that identifies potential areas of exposure. Ensure the organisation’s use of AI is examined throughout the process so that any dependence on AI‑generated outputs is tested and any related vulnerabilities are fully understood and, where possible, appropriately addressed. Think about the impact of AI on legal professional privilege.

3. Prioritise ethics in the company culture

Foster an ethical environment built on trust, transparency, and openness, with leadership clearly modelling a commitment to integrity, speaking up, and seeking support when needed. Consider the wider impact of decisions, including potential unintended tax consequences, and be ready to make disclosures promptly if and when tax errors are identified in order to mitigate penalties and maintain a good relationship with HMRC.

And, of course, keep up-to-date with Shoosmiths’ Litigation risk 2026 report to see how your own experiences compare with others in your sector.

Please contact us if you would like more information or help in preparing for the changing tax litigation landscape this year.