Tax governance & HMRC scrutiny: how to navigate the tax trap

These challenges aren’t theoretical. They appear in real situations every day. The four casefiles below bring these to life, covering common gaps between what happens in practice and what HMRC will be looking for; the underlying assumptions; and what good evidence really looks like.

Casefile 1: Tax as an afterthought

The decision: “We made the decision first. We factored in tax later.”

Your business enters a new market, restructures a supply chain, acquires an entity, or launches a new operating model in response to an external shift. Commercially, it seems sound. The business case is strong.

What was assumed:

“Tax will sort it later.” Or more precisely: “Tax won’t change the decision.” The choice of branch vs subsidiary, the location of functions, or the flow of transactions feels like a legal or operational decision. Input from the tax team or external tax adviser is important, but not decision‑critical.

What HMRC needs:

When scrutiny from HMRC arrives 12–24 months later, the question won't be “did it work?" or "did you grow?”. It will be: "how did you arrive at the taxable position for that decision, and was it reasonable based on what you knew at the time?".

And that’s where the trap springs. HMRC reviews often occur after people have moved roles, documentation has been lost, and the informal conversations that provided the context have faded from memory. 

What no‑regrets evidence looks like:

Instead of perfection, you need a defensible chain of decisions. A minimum viable evidence pack (MVEP) in this scenario could include:

• A one-page decision note capturing: the commercial driver, options considered, and chosen route (and why)
• Tax “in the room” record: who was consulted, when, and what was flagged
• Assumption log: what you assumed would be true (e.g., workforce location, functions performed, pricing model)
• Advice trail: external advice (if taken), or a short “why not” rationale if not
• Storage location: a single, known place the business can point to later for the appropriate files 

The CFO's next move:

Make sure the tax team is included in any meetings where the business locks in choices that HMRC will later treat as “reasonably required” to explain. HMRC will often ask as part of a Business Risk Review Plus (BRR+) meeting, how tax has been involved in the decision-making process.

Casefile 2: The transparency gap 

The decision: “Our auditors didn’t raise anything, so we’re in the clear.”

In many businesses, the focus is firmly on getting the numbers out efficiently and meeting reporting deadlines.

The misconception is that as long as systems produce reliable outputs that auditors are comfortable with, there is no push to redesign processes around traceability, documentation or evidencing controls. Manual steps, spreadsheets and offline reconciliations persist... not because they are ideal, but because they work "well enough".

What was assumed:

If the accounts are audited and nothing major comes up, there must not be any tax concerns.

Clean audit outcomes were taken as confirmation that there are no challenges... and by extension, that each of the tax processes, controls and judgements behind them were adequate too.

What HMRC needs:

There isn’t a “materiality” comfort blanket in tax the way there is in audit. HMRC’s lens is different and increasingly data-driven. 

Your systems might produce broadly the right totals, but can they produce the story?

• Can you trace a number to source data?
• Can you show the control that governs it?
• Can you evidence the process operated effectively, not just that the output exists?

Remember the Finance Leaders Barometer numbers: 81% say systems aren’t equipped for HMRC’s transparency expectations. This is a traceability problem. 

What no‑regrets evidence looks like:

A shift from “we can produce the return” to “we can reproduce the reasoning.”

A minimum viable evidence pack (MVEP) to avoid transparency gaps could include:

• Process map for key tax regimes: who does what, when
• Risk and Control Matrix (RACM): what controls exist, who owns them, and how often they’re performed
• Evidence of testing: not a big internal audit programme, but proof the controls operated (samples, sign-offs, exception logs)
• Data lineage: a simple “source → transformation → output” trace for high-risk numbers
• Single source of truth for policies (transfer pricing policy, VAT positions, payroll tax controls) 

The CFO move:

Build a process with trackability at its core. Done well, this also improves operational efficiency, which 87% of CFOs agree stronger tax controls would deliver for their business.

Casefile 3: The evidence problem

The decision: “The decision was defensible. The documentation wasn’t.”

A tax position is taken in good faith based on information available at the time.

What was assumed:

That the organisation will be able to easily “recreate” the rationale behind a decision later if it needs to.

But scrutiny rewards contemporaneous evidence: emails, notes, papers, and governance artefacts created when decisions were made. If the only proof is “we had a conversation over a cup of coffee,” how will you evidence that? 

What HMRC needs:

A credible explanation of:

• Purpose (what the business was trying to achieve commercially)
• Reasonableness (why the position made sense given facts at the time)
• Care (what steps you took to get comfortable, including governance and advice)

And note the risk escalation dynamic here: without evidence, HMRC may interpret gaps as a failure of “reasonable care”. That can change the tone, the time limits, and the dispute path.

What no‑regrets evidence looks like:

Think of it less as a “defence file”, and more as a decision file. Make this into a repeatable habit your future self, or the next CFO, will thank you for.

A minimum viable evidence pack (MVEP) to avoid evidence problems could include:

• Decision memo: facts, uncertainty, judgement calls, conclusion
• Governance proof: minutes/notes showing the decision was reviewed at the right level
• Advice and challenge: what was challenged, what changed, what stayed the same
• Supporting artefacts: contracts, pricing policies, calculations, assumptions, data extracts
• Retention discipline: a named owner and retention period aligned to inquiry realities

The CFO move:

There is no CFO who never gets it wrong. There are CFOs who can always say: “Here’s how we made the call, based on what we knew then.”  

Casefile 4: The technology misconception 

The decision: "We bought tools. We didn’t fix the data or governance."

You invest in tax technology, automation, and (increasingly) AI tools, but not the framework around it.

What was assumed:

That technology can replace or minimise the need for tax expertise, controls ownership, or disciplined processes. Overlaying new tech and tools over poor processes and poor data doesn’t change the outcome.

What HMRC needs:

The same thing as always: traceability, governance, and evidence. Tools can help to create it, but they absolutely can’t substitute for it.

What no‑regrets evidence looks like:

A practical, CFO-friendly way to separate “tech value” from “tech theatre”:

• Use technology to replace time-intensive manual controls and reduce human error
• Focus on incremental improvements around known pain points rather than full-scale reinvention (often unrealistic under cost pressure)
• Keep tax expertise close to finance transformation so controls and data requirements aren’t bolted on later 

The CFO move:

Treat tax technology as an accelerator of an already good operating model, rather than a replacement for one. 

Next steps

Can you answer yes to both of these questions?

• “Do we have a documented tax governance framework?”
• “Have we tested it?”

If your answer isn't a confident "yes" to both, these three steps can help you get started.

1. Build your “minimum viable evidence pack” habit

Pick one category of material decisions (e.g., market entry, restructuring, significant transactions). Standardise a one‑page decision note and storage rule. 

2. Clarify ownership across the business (especially the tax you don’t directly control).

23% of respondents in the Finance Leaders Barometer stated that a lack of clear ownership of tax governance was a key blocker to strengthening their tax position. Employment taxes are the classic example: HR/payroll may own the process, but the Senior Accounting Officer (SAO)/CFO is still accountable for the overall control environment. Make owners explicit, and make evidence capture non-negotiable. 

When speaking to colleagues in other teams eg HR, make it clear that the finance team aren’t “auditing HR.” You’re capturing evidence; they’re already doing it right.

3. Test one control end-to-end

Pick a high-risk control and test whether you can prove it operated effectively. If you can’t, you’ve found your priority. 

Don’t aim for perfect decisions. Aim for defensible ones.

Real resilience is a decision process that holds up even when the questions arrive months later, employees have moved on, and the scrutiny is forensic. That’s what closes the confidence-readiness gap.

You don’t need to know every possible answer. You do need to be able to evidence how you reached the one you chose.

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