When HMRC Asks How the Tax Figure Was Produced

November 10, 2026

Cover card: When HMRC Asks How the Tax Figure Was Produced. A field note by Charles Pycraft

London ยท November 2026

On 9 November 2026, Business Matters reported that HMRC is set to gain the ability to inspect how tax figures are produced, including the software and automated systems behind them. The piece, quoting the tax insurance provider Qdos, is about a measure HMRC first published in July. The proposals would not give HMRC a new right to open every firm's accounting software. They would change what HMRC can ask for, once it already has a lawful basis to require information.

I wrote about the same package in October. The policy paper has since been updated, and the gaps are clearer.

What the paper actually proposes

HMRC's policy paper, Reforming information powers and modernising computer records law, was first published on 13 July 2026, with draft legislation. A technical consultation closed on 7 September 2026. The collection page was updated on 3 November 2026 with revised information about the number of businesses affected. The changes would take effect on and after Royal Assent to Finance Bill 2026-27. If the Bill is passed in the usual way, that points to 2027, as Qdos said. Nothing is in force until then.

The first part modernises section 114 of the Finance Act 2008, the provision on computer records. The paper says the updates are meant to reflect how tax information is now created, stored and processed using software, automated systems and cloud-based services. Where HMRC already has the legal right to request information, it would be able to obtain and understand relevant information held in digital systems, including how relevant tax figures have been produced. The draft clauses would retitle the section "Digital information", replace the old language of "any computer and any associated apparatus" with "anything", and extend the people who may have to give assistance to include "any person who created, developed or produced that thing". A Schedule 36 notice to a third party or intermediary could, the paper says, extend to "whatever is needed to understand how relevant tax figures have been produced".

HMRC is careful to say these changes do not create a new standalone information power. Section 114 would remain a supporting provision, used only where HMRC already has a lawful basis under Schedule 36. The existing test, that information or documents must be reasonably required to check a tax position, would continue to apply. In the impact assessment, HMRC also says the approach to examining software would continue to be on a voluntary basis first. That is a statement of practice, not a limit written into the draft clauses.

The second part reforms Schedule 36 itself. It would lift the four-year time limit on information notices after a person's death, subject to tribunal approval (or an authorised officer, for a Financial Institution Notice), extend Financial Institution Notices to certain cryptoasset service providers, and widen identification notices to include National Insurance numbers and email addresses. It would also repeal the statutory duty to lay an annual report before the House of Commons on the use of Financial Institution Notices. HMRC says it will continue to publish the data.

A safeguard already tested in the tribunal

"Reasonably required" is the central safeguard. It is also regularly contested.

On 28 May 2026, the First-tier Tribunal allowed the appeal in Lifeplus Europe Ltd v HMRC [2026] UKFTT 797 (TC). HMRC had opened a transfer pricing enquiry in 2016 and, on 2 October 2023, issued a Schedule 36 notice requiring the UK company to produce its US parent's group and entity accounts for 2014 to 2022. The tribunal held that HMRC had not shown the documents were reasonably required to check the company's tax position, and that they were not in the company's possession or power.

This note makes no comment on the company, the group, or their advisers. Even after years of correspondence, HMRC still has to show a proper connection between the material it wants and the tax issue it is checking, and that the recipient can actually produce it. Widening section 114 so that a notice may reach software, cloud systems, and the people who built them does not remove that test. It is likely to produce more arguments about what "whatever is needed to understand how relevant tax figures have been produced" really covers.

There is a second gap in the package itself. When Financial Institution Notices were introduced in the Finance Act 2021, they did not need prior tribunal approval. The Act did require the Treasury to lay an annual report before the House of Commons on the number of notices issued. The 2026 paper would repeal that statutory duty, while saying HMRC will continue to publish the figures. A statutory report to Parliament is a different thing from a promise to keep releasing data. The paper also records that, in the 2023 call for evidence, some respondents raised intellectual property concerns about the mechanism for looking at commercial tax software, while not objecting to sharing how that software produces a calculation. The draft clauses still reach the person who created, developed or produced the software.

When the systems themselves are messy

More returns are now generated by software, including under Making Tax Digital. That does not always produce a clean trail of what was used.

HMRC's own June 2026 software developer newsletter listed live service issues, including incorrect State Pension values that "may affect tax calculations", with a fix then scheduled for December 2026, and an invalid expense appearing in calculations. In August 2026, after the first Making Tax Digital for Income Tax quarterly deadline of 7 August, ICAEW reported a survey of 142 practitioners by the peer group Accountants Therapy. Only 48 said they had submitted all of their clients' quarterly reports on time. Digital record keeping was among the barriers cited (29%), and 19% reported software problems that led to non-filing.

Seb Maley, chief executive of Qdos, put the practical consequence plainly in the Business Matters report: automation may make tax administration easier, but it does not remove responsibility from the taxpayer or the business liable for the tax. If something goes wrong, those parties will face the questions.

What to do

None of this is in force until the Finance Bill receives Royal Assent. Firms and advisers can still prepare for a check that looks past the submitted figure. Keep a copy of the files actually used to produce a return or a quarterly update, separate from the live system if the software can overwrite or recalculate them later. Record those files on or shortly after the date they were used, so that you can later show the copy is unchanged since it was recorded. Ask your software provider what it can show about how a figure was produced, and what it cannot. If a Schedule 36 notice arrives, the questions that decided Lifeplus still apply: is the material reasonably required to check the tax position, and is it in the recipient's possession or power?

A dated record of a file is a narrow thing. It does not say whether a figure is right, whether software was used correctly, or when a document was first created. It can show that the file presented today matches the file recorded on a given date.

I handle business development and communications for Partisan, which was founded by Oliver. Partisan records a file's fingerprint without seeing or keeping the file, gives a dated receipt, and shows the file is unchanged since it was recorded. If that would help the records you or your clients keep, the details are at partisangateway.com.

Charles Pycraft

This note is general commentary on public sources and is not tax advice. Earlier field note: When HMRC asks for the records, it asks about the past.