HMRC’s New “Sanctionable Conduct” Powers Over Tax Advisers

HMRC can now determine that a tax adviser has engaged in “sanctionable conduct”, serve a conduct notice and assess a penalty of at least £7,500, subject only to a special reduction, with the tribunal involved only if HMRC chooses to seek approval for a file access notice or the adviser appeals. Schedule 22 to the Finance Act 2026 replaced the old dishonesty test with a test of intention: a person engages in sanctionable conduct if, in the course of acting as a tax adviser, they do something with the intention of bringing about a loss of tax revenue, and omitting to act counts as acting. The rules apply to acts and omissions on or after 1 April 2026.

The people asking are accountants and bookkeepers who have read that their files can now be demanded, and clients who wonder whether an adviser’s problems become their own. The surprise is that the word “dishonest” has gone from the statute, and the separate appeal against HMRC’s determination with it. What remains is a test of intention, above carelessness but needing no proof of dishonesty.

What Changed on 1 April 2026

Schedule 22 amends Schedule 38 to the Finance Act 2012, which used to be headed “Tax agents: dishonest conduct” and is now headed “Tax advisers: sanctionable conduct” (paragraph 2 of Schedule 22). Section 250(2) of the Finance Act 2026 provides that “Schedule 22 comes into force on 1 April 2026 and has effect in relation to acts or omissions on or after that date”. On those words, earlier conduct stays with the old text, subject to any regulations under section 250(3). Our page on HMRC tax investigations covers the enquiry process.

Part 2 of the old Schedule, headed “Establishing dishonest conduct”, held the conduct notice and the appeal against the determination. Paragraph 6 of Schedule 22 omits Part 2 in full. HMRC now acts under new paragraph 25B: where “HMRC determine that a person is engaging in or has engaged in sanctionable conduct”, an authorised officer “may notify the person of the determination”, and the notice “must state the grounds on which the determination was made”. A Part 4 penalty can then be assessed only if a conduct notice “has been given to the person and not withdrawn” (paragraph 29(2)). Our page on HMRC penalties covers the penalty regimes behind Part 4.

Who Counts as a Tax Adviser

Paragraph 2(1) of the amended Schedule defines a tax adviser as an organisation that, “in the course of a business carried on by it, assists other persons with their tax affairs”, or an individual who does the same in the course of a business. Paragraph 2(2) lists four ways of assisting from giving tax advice and acting as agent to helping with documents HMRC is likely to rely on. A firm that does any of these things should speak to tax solicitors at the first sign of an enquiry.

Paragraph 2(3) adds that a person can be a tax adviser even if they, or the organisation they work for, are “appointed indirectly (for example, at the request of someone other than their client)”. The definition names no profession, so a bookkeeper, payroll bureau or law firm doing those things falls within its words. An organisation can itself engage in sanctionable conduct, because paragraph 3(1) speaks of a “person”. We deal with these disputes within our tax litigation practice.

The Test: Intention to Bring About a Loss of Tax Revenue

The operative words are in paragraph 3(1): a person “engages in sanctionable conduct” if, “in the course of acting as a tax adviser, the person does something with the intention of bringing about a loss of tax revenue”. Paragraph 3(7) provides that “doing something includes omitting to do something”. Paragraph 3(2) says “It does not matter whether a loss is actually brought about”, and paragraph 3(3) adds: “Nor does it matter whether the person is acting on the instruction of clients.” Nothing in the paragraph mentions carelessness or recklessness. Our guide to HMRC behaviour assessments shows how HMRC separates careless from deliberate behaviour in ordinary taxpayer cases.

Paragraph 3(4) defines a loss of tax revenue as clients accounting for less tax than the law requires, obtaining excessive relief, accounting for tax later than required, or obtaining relief earlier than they should. Timing alone is enough, and a loss counts “despite the fact that the loss can be recovered or properly accounted for” (paragraph 40). Our voluntary disclosure guide covers correction after the event.

What HMRC Can Demand Under a File Access Notice

A file access notice requires the document-holder to provide “relevant documents”. Paragraph 9(1) defines these as the adviser’s working papers “(whenever acting as a tax adviser) and any other documents received, created, prepared or used by the tax adviser for the purposes of or in the course of assisting clients with their tax affairs”. Ownership is irrelevant (paragraph 9(2)) and former clients count (paragraph 9(3)(a)). HMRC’s general information powers are covered in our note on Schedule 36 notices.

The trigger is “case A”: an authorised officer “has reasonable grounds to suspect that a person is engaging in, or has engaged in, sanctionable conduct” (paragraph 7(2)). A case A notice can require only documents relating to clients about whom the officer has those grounds, and it “must identify the clients”, which may be done “by reference to a class or description of clients” (paragraph 10(1A) and (1B)). Old documents with no bearing on later tax periods fall outside a notice after 20 years (paragraph 16). Our guide to HMRC information requests explains how far disclosure should go.

Tribunal Approval Is Now Optional for Advisers

For anyone other than a tax adviser, paragraph 7(1) still makes the power exercisable “only with the approval of the tribunal”. For a tax adviser, paragraph 7(1A) says only that an officer “may ask for the approval of the tribunal”. If HMRC does apply, paragraph 13(1) requires the tribunal to be satisfied that the case falls within case A or case B and that the officer is justified and that those affected have been “given a reasonable opportunity to make representations”. The decision is final (paragraph 13(3)). An adviser gets a hearing before the notice only if HMRC seeks one, and our tax appeals practice deals with what follows.

If approval was not obtained, paragraph 20(1A) allows the adviser to “appeal against the file access notice or any requirement in it”, within 30 days beginning with the day the notice was given (paragraph 20(2)). The tribunal “may confirm, vary or set aside” the notice or a requirement, and its decision is final (paragraph 20(4) and (6)). Our First-tier Tax Tribunal solicitors appear in the usual forum.

Privilege and the Limits on a Notice

Paragraph 17(1) provides that a file access notice “does not require the document-holder to provide any part of a document that is privileged”, and paragraph 17(2) treats a document as privileged where “a claim to legal professional privilege” could be maintained in legal proceedings. Our page on what the law treats as privileged in disclosure sets out the recognised categories.

The practical limit is the scope of the privilege itself. Legal advice privilege does not extend to communications with an accountant, and litigation privilege protects an accountant’s reports only if prepared for the sole or dominant purpose of litigation, as our note on accountants’ reports and litigation privilege explains. An adviser’s own working papers will usually fall within a notice, while legally privileged advice from our tax litigators about the notice itself is protected.

How Is the Penalty Worked Out?

Under paragraph 26(2), where potential lost revenue is attributable to the conduct, the penalty is the appropriate percentage of it or, “if higher, £7,500”; otherwise it is £7,500. The appropriate percentage is 70% (paragraph 26(4)(a)), and the amount is capped at £1,000,000 (paragraph 26(3)), before the repeat-penalty rules apply. Our page on HMRC penalties covers the ordinary regimes.

Potential lost revenue is attributable only where a client does one of the things listed in paragraph 26C(2) and the adviser did it for, or advised or assisted, the client. Those are an inaccuracy of the kind covered by Schedule 24 to the Finance Act 2007, a failure to notify under Schedule 41 to the Finance Act 2008, a return more than 12 months late under Schedule 55 to the Finance Act 2009, and a failure within Schedule 25 to the Finance Act 2021. The amount follows those Schedules (paragraph 26C(5)), and our tax investigation solicitors handle the underlying investigation.

Disclosure, Repeat Penalties and Special Reduction

Paragraph 26A(1) requires telling HMRC about the conduct, giving “reasonable help in identifying the client or clients concerned and in quantifying the loss”, and allowing access to records. HMRC “must reduce” the 70% to reflect the quality of the disclosure, but never below 35% for a prompted disclosure or 20% for an unprompted one (paragraph 26(5) and (6)). A disclosure is unprompted only if the person “has no reason to believe that HMRC have discovered or are about to discover” the conduct (paragraph 26A(2)). On the wording of paragraph 26(2), a lower percentage does not displace the £7,500 minimum. Our voluntary disclosure guide covers disclosure in ordinary cases.

Repeat penalties rise sharply. Where a person has been assessed to a penalty under paragraph 26 “on more than 1, but fewer than 6, occasions” in the 20 years ending with the day the new liability arose, paragraph 26B(2) lifts the 70% to 85% and the £1,000,000 cap to £5,000,000. On six or more occasions the figure becomes 100% with no cap (paragraph 26B(3) and (4)). HMRC may also reduce, stay or compromise a penalty because of “special circumstances”, which cannot include ability to pay (paragraph 27(3)(a)), and the tribunal can rely on that power on appeal (paragraph 31(6)). We run those arguments in our HMRC tax penalty appeals.

Penalties for Ignoring a Notice, and Publication

Failing to comply with a file access notice carries a penalty of £300 (paragraph 22(1)), and concealing or destroying a required document counts as a failure (paragraph 22(2)). A further penalty of up to £60 a day follows (paragraph 23). A document with a deliberate or careless inaccuracy attracts up to £3,000 for each inaccuracy (paragraph 25A), and concealing or destroying a required document is an offence carrying up to two years’ imprisonment on indictment (paragraph 21(5)). Our guide to challenging a Schedule 36 penalty covers ordinary information notices, and our page on HMRC interviews explains interviews under the Police and Criminal Evidence Act 1984.

Paragraph 28(1) provides: “The Commissioners must publish information about a person if the person incurs a penalty under paragraph 26 of more than £7,500.” A penalty of exactly £7,500 is therefore outside the duty. Paragraph 28(2) lists what may be published, including name, postcode and penalty amount. HMRC may publish about an organisation too, but must first give it a reasonable opportunity to make representations (paragraph 28(5) and (6)). A final paragraph 26 penalty is also a threshold condition under paragraph 4 of Schedule 34 to the Finance Act 2014 (promoters of tax avoidance schemes), as substituted by paragraph 37 of Schedule 22. Our tax solicitors advise on how publication and that threshold interact with an appeal.

Is Negligent Advice Sanctionable Conduct?

Many people searching for HMRC’s powers are really asking whether bad advice has consequences. Sanctionable conduct needs an intention to bring about a loss of tax revenue (paragraph 3(1)), and advice that was careless, even seriously so, does not meet those words. Careless advice that costs a client money belongs to professional negligence, as our pages on negligent tax advisers and negligent accountants explain.

The two regimes run separately: a conduct notice does not itself decide whether a client has a negligence claim, and a client can have one where none has been served. A client whose adviser failed to warn about a liability can read accountants who fail to warn about a tax liability and, on time limits, our page on limitation in professional negligence claims explains. If the firm cannot pay, our article on claims against an insolvent professional’s insurer explains when that insurance can be reached.

The 30-Day Deadlines That Govern an Adviser’s Position

Three 30-day periods matter. An appeal against a file access notice that the tribunal did not approve must be given in writing to the officer within 30 days beginning with the day the notice was given (paragraph 20(2)). An appeal against a penalty must be given in writing to HMRC within 30 days beginning with the day notification was issued (paragraph 31(2)). A penalty is payable within 30 days of notification, or of an appeal being withdrawn or determined (paragraph 32(1)). Our guide to appealing a Schedule 36 penalty shows how a 30-day appeal is put together.

HMRC is on a clock too. A conduct notice is treated as withdrawn if HMRC has not assessed a Part 4 penalty by the applicable deadline (paragraph 25C(3)), which is 12 months from the later of the first day HMRC may assess and “day X” (paragraph 30(3)). A penalty “may be enforced as if it were income tax charged in an assessment and due and payable” (paragraph 32(2)), so for a corporate adviser an unpaid penalty points towards statutory demands and winding-up petitions. Our pages on setting aside a statutory demand, opposing a winding-up petition and the step-by-step guide for directors responding to an HMRC petition deal with those steps.

How LEXLAW Can Help

We advise tax advisers and their clients on conduct notices, file access notices, penalty appeals and the civil and criminal investigations that can run alongside them. We do not prepare returns or accounts, which remain accountants’ work, and we do not offer free legal advice or legal aid. We generally take on substantial matters only, on the terms on our funding page.

We are dual-qualified solicitors and barristers with chambers in Middle Temple next to the Royal Courts of Justice. We offer a fixed fee advice conference with both a solicitor and a barrister, and you can start by completing our case assessment form.