Tax update April 2026

The Government is proposing that more transactions between close companies and their participators should be reported to HMRC.

The Government is concerned that HMRC does not see the full picture of close company-participator interaction. Given that the small business tax gap makes up 60% of the overall tax gap, HMRC is seeking a greater understanding of close companies. The proposals are that companies would have to provide detailed information of transactions between the company and its participators including cash, sales and purchases of assets from the company, dividends and any other transfers of value from the company.

The consultation is expected to assess understanding of the current requirements, look at what data close companies currently record about participators and canvas views on collecting data and reporting it to HMRC.

The consultation will close on 10 June. 

www.gov.uk/government/consultations/reporting-company-payments-to-participators/reporting-company-payments-to-participators-modernising-the-reporting-framework  

The FTT has found for a taxpayer that his cash deposits came from gambling, rather than undeclared trade receipts.

HMRC investigated the finances of a company with a sole director. The only issue outstanding at the hearing was the source of cash used to purchase some vehicles, and large cash deposits. HMRC’s view was that the source of the funds was undeclared trade receipts, but the director maintained that they were from gambling.

The director provided a statement about his problems with gambling at the time of the cash receipts. He had no documentary evidence but explained his circumstances, and it was noted that had he earned the cash from his trade then the hourly rate or time spend was unachievable. The FTT found that the director was a credible witness, and accepted his statements, finding that the cash was not taxable income as it came from gambling.

J & F Wilson Plumbing & Heating Ltd & Anor v HMRC [2026] UKFTT 403 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/403.html  

HMRC has confirmed that taxpayers who completed the SA109 pages in their 2024/25 return will be automatically temporarily exempt from MTD until April 2027.

Taxpayers not in this category, but who expect to complete the SA109 in 2025/26 or 2026/27, can apply for the same temporary exemption.

www.tax.org.uk/hmrc-confirm-all-sa109-taxpayers-exempt-from-making-tax-digital-until-april-2027  

The Government is looking at the tax treatment of this type of cryptoasset.’Stablecoins’ are cryptoassets that try to keep their value the same relative to the value of another asset, such as a particular currency or a commodity.

These are generally currently taxed in the same way as all other cryptoassets. The Government is looking at whether or not particular rules might be needed if they become more widely used for making payments.

The call for evidence closes on 7 May.

www.gov.uk/government/calls-for-evidence/cryptoasset-taxation-stablecoins/taxation-of-stablecoins  

The FTT found that share loss relief was not allowable, as one of the main purposes of the arrangements was to secure a tax advantage.

The taxpayer invested in a marine salvage company, which became essentially worthless following its failure to find a particular shipwreck. The share subscription was partly financed by a loan, which the taxpayer was able to novate to a person unlikely to enforce it. HMRC disallowed the taxpayer’s claim to relieve the loss on the shares against income tax.

There were several issues in dispute. Ultimately the FTT found that the company was carrying on a commercial trade with a view to profit, despite it being a high risk and speculative trade. However, the relief was disallowed as what the taxpayer had actually paid for was not just shares, but a composite package designed for tax avoidance, with one of the main purposes of the arrangements being to secure a tax advantage. The taxpayer’s appeal was dismissed.

Wilders v HMRC [2026] UKFTT 517 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/517.html  

The FTT found that loan notes were not situated outside the UK, as they were not registered in the non-UK company register when the notes were redeemed.

The non-UK domiciled taxpayers planned to pass a successful business down to the next generation. The transaction was structured so that the taxpayers sold their shares to a new company in exchange for cash and loan notes, the latter making up the majority of the consideration.

The loan notes were structured so that they were not qualifying corporate bonds. Before redemption, the loan notes were transferred to a non-UK company with the intention of making these non-UK assets, and as such not subject to CGT on redemption provided the proceeds were not remitted. Loan notes are non-UK assets only if there are registered in a register kept outside the UK. HMRC denied relief on the grounds that this was not met. The FTT examined the records of the Jersey company, and found that it did not keep a register of loan notes at the time of the transaction, though it had retrospectively created one. The FTT therefore found for HMRC.

The appeals against penalties were however allowed, as the taxpayers had not acted negligently. They had engaged taken advice from and relied on professional advisers, and this amounted to taking reasonable care.

Sehgal v HMRC [2026] UKFTT 516 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/516.html  

The FTT has found that payments to campaigning and other organisations were chargeable to IHT, as they were neither political donations nor regular expenditure out of surplus income.

A taxpayer with a high surplus income used some of it to support “what he considered to be good causes”. The amounts varied significantly, with regard to the organisations’ needs and his available cash, rather than his surplus income. He kept no contemporaneous records of the reasons for his decisions.

HMRC sought to charge IHT on the transfers. The taxpayer contended that these were exempt transfers as they were either a) normal expenditure out of income or b) political donations.

The payments went to some campaigning organisations, and some non-political organisations which the taxpayer considered protected British culture, such as railway heritage, a football club and a magazine.  None of the organisations met the definition of a political party under the IHT exemption.

The FTT accepted that the gifts were not out of character nor abnormal, but found that the definition of ‘normal expenditure’ in the IHT legislation was narrower than that. The taxpayer had not made a firm resolution over the expenditure and there was no discernible pattern.

His allegation of discrimination against his political views was not upheld.

Hosking v HMRC [2026] UKFTT 406 (TC) 

www.bailii.org/uk/cases/UKFTT/TC/2026/406.html  

The FTT found that the taxpayer’s returns had not contained enough information to prevent a later discovery being made, so the discovery assessments were in time.

The taxpayer entered into a contractor loan scheme, which he believed at the time was legal and effective. He worked for an end user but his employment contract was with an Isle of Man company, which was paid by the end user for the taxpayer’s services. The IoM company paid him a modest salary but the majority of his compensation was given to him as interest free loans.

The taxpayer accepted at tribunal that this scheme was ineffective, but contended that the discovery assessments were out of time, so invalid. He had filed returns, two of which contained DOTAS information, so his position was that no later discovery was valid. The FTT found for HMRC that the discoveries were valid, as the information provided did not make it clear that large amounts of the taxpayer’s income were being diverted in this way.

King v HMRC [2026] UKFTT 394 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/394.html  

The FTT has upheld a personal liability notice (PLN) on a director as it found his conduct had met the definition of ‘neglect’.

A company claimed CJRS payments, part of which were paid specifically for the NIC on furloughed employees’ salaries. The company failed to pay the NIC due, so HMRC issued the sole director with a PLN. He appealed on the grounds that the failure to pay the NICs was not attributable to neglect by him, as he had delegated the financial management of the company to a more qualified individual. HMRC stated that directors cannot delegate statutory obligations.

The FTT considered the financial records of the company, and found for HMRC. ‘Neglect’ is not defined in the legislation, so takes its ordinary meaning of acting in an imprudent or unreasonable manner. The taxpayer’s conduct met this threshold.

Jenkins-Yates v HMRC [2026] UKFTT 480 (TC)  

www.bailii.org/uk/cases/UKFTT/TC/2026/480.html  

The FTT found for the taxpayer and allowed the company to claim a deduction for disputed charitable donations on the basis they were not part of an arrangement or associated with the acquisition of shares.

The taxpayer was a UK property investment company who over many years donated its profits to a registered charity and claimed corporation tax relief on the qualifying charitable donations.  The registered charity subsequently acquired the shares in the donor’s parent company and used cash from donations to pay part of the consideration.

HMRC argued that some donations did not qualify for relief as they were “made as part of an arrangement involving the acquisition of property” and were conditional.

The Tribunal’s view was that HMRC had not properly understood the legal and commercial reality of the transactions which occurred. HMRC erroneously formed the view that transactions designed to only benefit the charity were also designed to benefit other companies within the group, prior to the share acquisition.

The FTT also described donating profits to a charity as perfectly legitimate and appropriate tax planning using a relief for which the legislation expressly provides.

The FTT upheld the appeal and allowed the company to claim a deduction for the disputed charitable donations.

Anston Investments Limited v HMRC [2026] UKFTT 483 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/483.html 

The FTT dismissed the taxpayer’s appeal that they took reasonable care to comply with the CIS regulations and should be relieved of the obligation to pay. This was on the basis the tribunal agreed with HMRC that more could have been done when reviewing HMRC’s guidance and the CIS manual.

The taxpayer purchased a property consisting of a large office building that was later converted into residential flats and incurred subcontractor costs in the region of £1.45m.

The taxpayer argued that because the company was a ‘property investment company’ it was outside the scope of CIS and not required to account for deductions from the subcontractor costs.  Their accountant had directed them to the CIS manual where the taxpayer concluded CIS did not apply.  Their accountant was not qualified to provide any further specialist advice or verify this conclusion.

During the hearing, the taxpayer agreed that as it had sold the properties developed, rather than held them for long term investment, it did not qualify as a property investment company.  As a result, CIS deductions should have been accounted for on the construction payments.

HMRC argued that more could have been done by the taxpayer, contending that reasonable care was not taken to ‘read the relevant publicly available HMRC guidance’ and that the taxpayer should have sought ‘professional advice’ as to whether CIS applied.  

The FTT found for HMRC that reasonable care was not taken by the taxpayer when determining if the CIS rules applied.

Kalinga Holdings Ltd v HMRC [2026] UKFTT 368 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/368.html 

The SC unanimously allowed HMRC’s appeal and held that no capital allowances were available on the basis costs incurred in developing offshore wind farms were not expenditure ‘on the provision of plant’ for capital allowances purposes.

The taxpayers owned and operated offshore wind farms in UK waters. In planning and designing those wind farms, they incurred substantial pre-development expenditure on surveys and studies examining seabed conditions, wind resources, environmental impacts and other site specific factors relevant to the projects’ design and construction. The expenditure was capitalised and capital allowances were claimed.

HMRC accepted that the wind farms themselves constituted ‘plant’ and that the survey costs were capital in nature. The sole issue before the SC was whether or not the survey costs were incurred ‘on the provision of plant’, as required by the statute. The Court held that this required a ‘close and direct’ connection between the expenditure and the plant provided. 

As capital allowances are intended to reflect asset depreciation, and the surveys and studies bore only a remote connection to the wind farms’ diminishing value, the Court concluded that the survey costs failed to qualify.

For more detail on this case, including key implications and actions for businesses, please read our article here.

The UT overturned the FTT’s decision that wetsuits were made from ‘vulcanised rubber’ on the basis the neoprene wetsuits were instead found to be made from ‘rubberised textile fabric’, therefore attracting a higher duty rate of 8%.

HMRC appealed against the decision of the FTT, that the wetsuits were classified as ‘apparel’ made from ‘vulcanised rubber’ that attracted a lower duty rate of 4%.

The FTT found that the neoprene provided insultation and found for the taxpayer that the textile covering the outer surface of the wetsuits were for ‘reinforcement purposes’ only as the neoprene has the tendency to tear.

HMRC argued that this went beyond reinforcement, on the basis the rubber is covered on both sides by textile. Had the rubber been covered by textile on one side only, it would have been merely for reinforcement and hence classified as rubber. 

The UT ruled in favour of HMRC and overturned the earlier decision of the FTT on the tariff classification of neoprene wetsuits.

HMRC v O’Neill Wetsuits Limited [2026] UKUT 134 (TCC)

www.bailii.org/uk/cases/UKUT/TCC/2026/134.html 

The FTT found oversized marshmallows to be zero-rated for VAT purposes on the basis they are generally roasted after purchase and not commonly eaten with fingers.

The taxpayer produced a food product called ‘Mega Marshmallows’ that were oversized marshmallows.
The issue in this appeal was whether or not the oversized marshmallows were ‘normally eaten with the fingers’ which would determine whether the product was standard-rated or zero-rated for VAT purposes.

HMRC had argued that the product was confectionary and should be standard rated. The CA confirmed the product was not confectionery for VAT purposes and for HMRC’s arguments to succeed that the product was standard-rated confectionery, it must successfully argue that the product was normally eaten with fingers. This was remitted to the FTT to decide.

Both parties had accepted there were different ways of eating the product, including on a skewer and as a s’more. The FTT considered the evidence and found that eating the product from a skewer was more frequent than eating the oversized marshmallows with fingers.

The FTT therefore allowed the taxpayer’s appeal, concluding that marshmallows were not commonly eaten with fingers and were therefore zero-rated for VAT purposes.

Innovation Bites Limited v HMRC [2026] UKFTT 500 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/500.html 

The following Tax publications have been published.

• Capital allowances and the Gunfleet Sands ruling
• Make more of your employment reporting

The following client webinars are coming up soon.

• 21 April - Coming to the UK: Navigating tax, residency and wealth planning
• 22 April - Navigating Tax: Managing employer costs with smart reward, equity and compliance planning
• 23 April - Pre-sale exit planning setting up for a successful exit
• 7 May - Executing your business exit: Managing the sale process to completion

AI is encroaching into ever more areas of life, but the latest suggestion, that taxes on AI resources, like data centres, could mean income tax becomes unnecessary, comes as a surprise.

Income tax may be a temporary measure (since 1799), but we doubt that this will be the end of it. On that note: Happy New Tax Year!

AI will make ‘income tax redundant within five years’

Monzo founder: AI will kill income tax - Pocket Casts

Income tax will be dead within five years as AI jobs crisis grows, says Monzo founder | LBC