Dealing with historic tax issues

We advise many clients in the Financial Services sector in relation to tax issues arising for their own account as taxpayers.

In the eighth article in our series to be published throughout 2025, our tax specialists consider the process for businesses in the Financial Services sector to deal with historic tax issues that subsequently come to light.

Financial Services sector clients as taxpayer

Throughout our 2025 series, we have provided commentary on key tax areas for businesses in the Financial Services sector to shine a light on current issues we have addressed in practice. We have explored areas where those businesses can be exposed including as lender, employer or trustee. If you would like to read any of our previous articles, please visit our dedicated hub.

Benefits of planning ahead

Of course, the ideal situation is to seek tax advice ahead of a proposed transaction or implementation of a new project. The following recent examples of advice from our Tax team show how seeking tax advice early will bring with it a benefit.

Using tax losses

We advised a new entrant bank on the availability of existing trading losses and whether those losses could be utilised against a proposed new work stream which looked to extend financing arrangements down the supply chain to the end hire purchase user. Our tax advice allowed our Financial Services client to make informed strategic decisions in its growth of offerings.

Payment processing facilities

We advised a newly acquired subsidiary of a US headquartered bank in relation to the VAT implications of providing payment processing services. There was a concern that due to anomalies in the reporting capabilities of the system there was insufficient information to determine the VAT status of some of the services. We worked with the inhouse IT team to analyse records and compile a dossier to evidence that there were no VAT liabilities.

Where there are aspects of uncertainty, advance clearance can also be sought from HM Revenue & Customs (HMRC).

How to deal with historic tax issues?

We do come across situations where contemporaneous advice has not been sought; or despite a client’s best intentions mistakes have occurred. What happens when it doesn’t quite go to plan?

Stage 1: Identifying the tax risk and initial steps

It may be that HMRC discovers an issue as part of a routine visit or enquiry. If that’s the case then HMRC will usually raise an assessment for the underpaid tax and there is a process to go through if the taxpayer disagrees with the assessment; whether that be its validity, its scope or its quantum. We regularly advise taxpayers in relation to assessments raised by HMRC.

Often, however, it is the taxpayer that becomes aware of its own error or omission. Errors can of course occur in relation to any tax.

In our experience, the taxpayer spends some time looking internally at the information it has to hand and its understanding of the legislation to identify the extent of the underpayment of tax. We are often asked to advise at this early stage. If there has been a failure to account for tax it is important to establish:

• whether that is a one-off event; or
• if there are a number of similar events that should be dealt with together.

We can assist with setting clear parameters for the effectiveness of the initial review.

To illustrate this, the following two examples are helpful.

Stage 2: Disclosure to HMRC

Clients who have found themselves falling within the above circumstances have, following thorough investigation, made a disclosure to HMRC in order to pay the correct amount of tax.

The benefit of “going cap in hand” to HMRC is that a disclosure that is made voluntarily (as opposed to being discovered by HMRC) will generally result in lower penalties; it may even be possible to argue that no penalty should be levied at all and we would always seek to mitigate penalties if the circumstances support such mitigation.

Of course, there are often additional reasons to make a disclosure: the Code of Practice on Taxation for Banks and also for reputational purposes and to have certainty over liability.

Disclosures to HMRC should always be full and frank. Liability to tax is of course subject to time limitations and therefore careful framing of the information provided to HMRC is key, as is having an understanding of how HMRC will receive any disclosure. Our advice always seeks to ensure that the correct amount of tax, but no more, is paid.

TLT comment

Putting right a tax error can be an arduous task. At TLT, we work with our clients to streamline the process, ensure only the correct amount of tax is paid and achieve a swift resolution. We regularly advise in relation to complex correction processes that often include counter parties in addition to the taxpayer and HMRC; all of whom have competing interests.

How can we help?

Our Tax Team has a wealth of experience providing commercial and insightful advice to national international banks, building societies, other funders and institutions in the financial services sector.

We offer a tax structuring and advisory service to clients as part of our national reach, as well as tax transactional support on business and real estate transactions.

If you are interested in discussing any of the topics covered in this article, get in touch with our Tax specialists below. 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2025.  Specific advice should be sought for specific cases.  For more information see our terms & conditions.