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April's round up of the latest tax investigation news and cases:
HMRC issued 582,000 fines for late VAT payment in 2024-25, a slight rise on the 569,000 handed out the year before, with the total value of penalties reaching £302m. That is a 2.7% increase on the £294m collected in 2023-24, and it lands at a time when many businesses are already feeling the squeeze from rising costs and tighter margins.
To put those numbers in context, there are around 2.3 million entities VAT registered in the UK. The volume of fines being issued is therefore the equivalent of roughly 25% of all VAT-registered companies and sole traders being penalised in the space of a year.
A big part of the explanation lies in the tougher penalty regime that HMRC introduced back in 2023. Under that system, the bar for picking up a fine is considerably lower than it used to be, and the penalties trigger more quickly when payment slips past the deadline.
The mechanics are worth understanding if you handle VAT for a business. Once a payment is 16 days overdue, HMRC charges a penalty equal to 3% of the outstanding VAT. If the bill is still unpaid at 31 days overdue, a further 3% penalty is applied on top. After that, daily interest continues to accrue until the debt is cleared. What used to be a relatively forgiving system has become one where short delays now have real financial consequences, and businesses that fall behind even briefly can find the cost of catching up has crept up well beyond the underlying tax.
The VAT fine numbers are part of a much larger story about overdue tax in the UK. HMRC is currently sitting on £42.8bn of overdue tax debts across all taxes for the 2024-25 financial year, with only £5.7bn of that figure covered by agreed repayment arrangements. That gap suggests there is a significant chunk of debt where there is no formal plan in place between the taxpayer and HMRC, which leaves businesses and individuals exposed to escalating penalties, interest and, eventually, enforcement action.
For VAT specifically, the trend is unmistakable. The combination of a stricter penalty regime, a higher volume of fines and a rising total of overdue debt points to a system where HMRC is leaning much harder on automated penalty processes than it once did. There is less informal forbearance, and the assumption seems to be that if a business cannot pay on time, it should be making contact with HMRC to set out a plan rather than waiting and hoping the position resolves itself.
If your business is finding it harder to keep VAT payments on schedule, the worst thing you can do is ignore the problem. Penalties stack up quickly under the current rules, and once a fine has been issued, the conversation with HMRC becomes considerably more complicated.
Engaging with HMRC early — ideally before a payment becomes overdue — gives you the best chance of agreeing a Time to Pay arrangement that keeps further penalties at bay. It also helps to have a clear picture of your VAT liabilities a few weeks ahead of each return, so you are not caught short by a bill that is bigger than expected.
If you have already received a penalty and you think it has been issued in error, or if there are reasonable excuses for the late payment, there is usually scope to challenge it. Acting quickly matters, because the appeal windows are short, and the penalty regime is not designed to be lenient with taxpayers who delay.
When the situation feels out of hand, getting a specialist tax adviser involved as early as possible can make the difference between a manageable outcome and a much harder one.
HMRC has just rolled out Microsoft Copilot to 28,000 of its officials, marking one of the biggest single deployments of the AI assistant anywhere in UK government. The decision comes off the back of a four-month trial, and the licences are cleared for use even on material classified as 'Official-Sensitive'.
The ambition behind the move is hardly understated. HMRC's chief AI officer, James Mitton, has said the department wants to become "the most AI-enabled tax authority on the planet" and is keen to put "fairly potent AI tools that they can safely play with" into the hands of staff.
The business case for the rollout leans heavily on a 2025 Cabinet Office trial that ran across roughly a dozen government departments, HMRC among them. The headline numbers from that pilot are eye-catching: participants reported saving an average of 26 minutes a day, more than 70% said Copilot cut the time they spent hunting for information, and 82% said they would not want to give it up once they had it.
For an organisation the size of HMRC, those minutes add up quickly. Copilot sits inside the everyday Microsoft tools that most civil servants already live in — Word, Outlook, Excel and Teams — which means employees can lean on it to draft documents, summarise long threads, pull insights out of spreadsheets and retrieve information without having to leave the apps they were already using.
The 28,000 licences are only part of the story. HMRC is also preparing to switch on Copilot's agentic-style features, which go beyond simple drafting and summarising and let the AI carry out multi-step tasks on a user's behalf. That puts the department firmly at the front of the pack on AI adoption inside Whitehall.
The picture is not entirely rosy. The same evaluation that produced those upbeat productivity numbers also flagged "limitations… when dealing with complex, nuanced, or data-heavy aspects of work", along with concerns about how the tool handles sensitive data. Those caveats sit a little uncomfortably alongside HMRC's plan to let staff use Copilot inside Official-Sensitive contexts, where the consequences of an AI getting something wrong, or surfacing the wrong piece of information, are significantly higher than in a standard office setting.
For now, HMRC seems comfortable that the productivity case outweighs those risks. Governance arrangements have been put in place around how the tool is deployed, and the pilot results were strong enough to justify scaling the rollout up dramatically rather than holding back. Whether the live deployment delivers the same gains as a controlled trial — and whether the limitations the evaluators flagged stay manageable at full scale — is the question that will define whether this counts as a genuine leap forward or simply a high-profile experiment.
For taxpayers and the advisers who deal with HMRC on their behalf, the practical takeaway is that interactions with the department are increasingly likely to involve AI somewhere in the chain — whether that is in how letters are drafted, how case notes are summarised or how staff search internal guidance. That is not, in itself, a cause for alarm, but it is worth keeping in mind when correspondence feels off, or when a response does not quite match the question that was asked.
If you have a query that is not being resolved through standard HMRC channels, getting a specialist tax professional involved early remains the most reliable way to keep things on track.
A First Tier Tribunal has dismissed an appeal from an NHS locum doctor who claimed travel and subsistence expenses based on working nine days a week — a calculation the tribunal pointed out is, on the face of it, impossible. The case is a useful reminder of just how unforgiving HMRC and the courts have become when expense claims cannot be backed up with evidence, and how quickly "careless" can tip over into "deliberate" once the numbers stop adding up.
The appellant, Dr Nwaneri, appealed against HMRC penalties and closure notices covering three years of work at various NHS Trust hospitals, where he had claimed expenses without producing supporting documentation. The hearing turned on whether his behaviour was deliberate, and the tribunal worked through the claims and the evidence in detail, including cross-examination of the doctor, who appeared without representation.
In April 2024, HMRC opened enquiries under section 9A of the Taxes Management Act 1970 for the tax years 2019-20 to 2021-22. The officer's amendments removed the expenses claimed by the appellant, with the disallowed figure reaching £30,393.40 in one of the years. At the same time, HMRC asked for documentation to substantiate what had been claimed.
Three separate penalties were then issued under Schedule 24 of the Finance Act 2007, totalling £31,802.27 across the three tax years. The penalties related to underpaid income tax on subsistence and travel expenses Dr Nwaneri said he had incurred in performing the duties of his employment.
During the period in question, he was working full time as a locum at NHS Trusts in places including Southport and Shrewsbury, doing a mix of shifts and claiming travel costs alongside a daily food bill of £14.
At the hearing, Dr Nwaneri stressed that, as he put it, "he was a practising doctor with a demanding job who was subject to regulatory oversight and had an inherent professional standing. In such circumstances, he said that it would be irrational for him to jeopardise his career by knowingly submitting inaccurate documents".
He pushed back firmly against the suggestion that his behaviour was deliberate, arguing that "at its highest, his behaviour was careless". He also told the tribunal that during the relevant period he had prepared the returns himself, rather than using the accountant he usually relied on.
The tribunal's problem was that the figures simply did not stand up to scrutiny — and there was no documentation to fall back on.
The mileage claim was a striking example. Dr Nwaneri said he had travelled 23,400 miles to and from NHS Southport and 24,960 miles to and from NHS Shrewsbury, a combined 48,340 miles. The tribunal noted that there was no objective evidence to back this up, and that he had a single vehicle at the time, a Ford Galaxy. According to the DVLA mileage records, that car covered 18,000 miles in the 2019-20 tax year — a long way short of what was being claimed.
Pressed on the difference, Dr Nwaneri told the tribunal he had "guessed the mileage", and accepted it had been overstated by 30,000 miles. He framed the issue as "human error / mistake and not a fabrication". No bank statements, receipts or other documentation were ever produced to HMRC or to the tribunal in support of the travel and subsistence expenses on the returns.
The other glaring issue was the working pattern underpinning the calculation. The mileage had been worked out on the basis of nine working days a week, even though the doctor told the tribunal he actually worked five days a week for 52 weeks a year.
Judge Newstead Taylor put the point bluntly: "The appellant's evidence was that he incurred travel expenses nine days per week. This is impossible. There are only seven days in a week."
The judge accepted that giving evidence is "an unfamiliar and stressful experience" for someone in Dr Nwaneri's position, but still found his evidence "lacking in credibility especially regarding the basis of and explanation for the expenses declared in the returns and the later spreadsheets".
On the 2019-20 figures, the tribunal was unequivocal: "We find on the balance of probabilities and in light of the knowing inclusion of mileage for nine days per week, that the appellant knowingly included significantly excessive mileage in the 2019/20 return."
Under cross-examination, Dr Nwaneri accepted there "was an error somewhere in terms of calculation" and said he "didn't see this error" when he was preparing the 2019/20 return.
The tribunal looked at the Tooth and Auxilium decisions when working through the question of deliberate behaviour, and acknowledged that a missing receipt, on its own, might have been a "compliance issue" rather than something more serious. But once all the factors were taken cumulatively, the appeal was dismissed.
Judge Taylor concluded: "In the circumstances, we have concluded that the inaccuracies in the returns were deliberate on the appellant's part… Accordingly, we find that Condition 2 [Sch 24, FA 2007] is satisfied and that the appellant's behaviour was deliberate."
This decision is not just a story about one locum doctor. It is a reminder of how the system actually works when an expense claim is challenged.
If you are claiming travel and subsistence expenses, the burden falls squarely on you to evidence them. Mileage logs, receipts, bank statements and a clear working pattern are not nice-to-haves — they are what stands between you and a penalty if HMRC opens an enquiry. Reconstructing figures after the event, or "guessing" what feels reasonable, exposes you to exactly the sort of cross-examination Dr Nwaneri faced, where small inconsistencies snowball into a finding of deliberate behaviour.
It is also worth noting how quickly the framing shifted in this case. Dr Nwaneri argued his behaviour was, at worst, careless. The tribunal disagreed — and the difference between careless and deliberate matters enormously, because it affects both the size of the penalty and the consequences that flow from it.
If you are facing an HMRC enquiry into employment expenses, or you are concerned about historic claims that may not be properly supported, getting specialist tax advice in early — and certainly before a hearing — is by far the safest route. Going it alone in front of a tribunal, particularly when the evidential picture is patchy, rarely ends well.
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