Tax Update February 2026

This policy paper explains the key features of the new loan charge settlement opportunity, and how it will treat affected taxpayers. 

ost of the loan charge review recommendations have been accepted. The settlements will be calculated by the rates applying to years in which the loans were made, and will be reduced for promoter fees up to a cap. Late payment interest will not be charged, and penalties will not be charged as standard.

www.icaew.com/insights/tax-news/2026/feb-2026/hmrc-contacts-taxpayers-about-the-loan-charge-review  

HMRC has stated that 2026/27 coding notices will be issued with employment expenses and gift aid higher rate relief having been removed from some taxpayers’ codes.

Employment expenses over £120 will be removed if the taxpayer meets one of these criteria:

• No current PAYE income.
• An employment gap of a full tax year since the employment expense was claimed.
• No self-assessment record since 2021/22 if the expense seems of a type that should be resubmitted through SA.
• Employment expenses in the code are greater than their 2022/23 SA return.

Or if HMRC has data that indicates that the taxpayer’s circumstances have changed.

Higher rate gift aid relief will be removed if the same amount of gift aid has been coded for three or more years, and there has been no SA record for at least three years. 

Taxpayers or agents can submit claims to HMRC if they believe they are still entitled to expenses or relief.

www.tax.org.uk/2026-27-annual-coding-notices-removal-of-employment-expenses-gift-aid-higher-rate-relief  

HMRC is writing to taxpayers who claimed BADR in 2024/25, and in doing so either exceeded the £1 million lifetime limit in that year, or who had already done so prior to 2024/25.

Recipients are asked to remove or amend the claim, or to contact HMRC to explain why no action is required.

www.tax.org.uk/hmrc-one-to-many-letter-badr-claims  

HMRC is writing to taxpayers who made 2024/25 investors’ relief (IR) claims.

Those who did not include a CGT computation are asked to add this, and other taxpayers are asked to check if they meet the listed qualifying conditions.

www.tax.org.uk/hmrc-one-to-many-letter-investors-relief-claims  

The UT has found that the FTT was correct to regard compensation paid for mis-sold interest rate hedging products as taxable. 

A pair of brothers purchased interest rate hedging products (IRHPs) from a bank, to protect themselves against potential interest rate fluctuations on loans that they had taken out. These were deducted against their property business profits. Ultimately, it turned out that they had been mis-sold these IRHPs. They were given redress payments consisting of a basic sum, the difference between the cost of the product and the cost of a more appropriate product, plus interest.

The brothers included the basic redress in their returns. They failed to declare the interest. HMRC raised closure notices on the basis that the interest was taxable. The brothers argued that the payments were made for the “opportunity cost in losing the ability to invest in different hedging products” rather than as compensation, they were not taxable.

The FTT dismissed the appeals and found that income tax applied to the whole of the payments and interest.

The taxpayers appealed to the UT, arguing that the FTT had erred in law as its decision was not logically valid, as the conclusions drawn did not follow from the findings made. The UT considered the judgement as a whole, but did not agree with the taxpayers. The financial loss arose from this arrangement, the compensation did not relate to a theoretical opportunity cost for profits made if they entered into an alternative arrangement. As there was no error of law the appeal was dismissed.  

The taxpayers had also complained about HMRC’s conduct. The UT found that HMRC had acted in an entirely professional manner, and the language used by the taxpayers was indecorous.

Hackett & Anor v HMRC [2026] UKUT 36 (TCC)

www.bailii.org/uk/cases/UKUT/TCC/2026/36.html  

The FTT considered the different rules applying to share and trade losses, and how they should be claimed.

The taxpayer entered into avoidance schemes and attempted to carry back share and trade losses against his income. At tribunal it was agreed that the losses were not allowable for tax purposes, but the procedural validity of HMRC's attempts to deny them was challenged.

The FTT found that the carry back claims relating to trade losses were not part of the tax returns for the tax years they were set against income, but stand alone claims contained on the face of the tax returns. They therefore did not need to be dealt with by an enquiry under s9A. The Sch1A enquiry was effective to deny them. One carry-back claim was allowed, as it related to share losses, so should have been addressed in the initial enquiry and closure notice.

Henley v HMRC [2026] UKFTT 95 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/95.html  

With Making Tax Digital for Income Tax coming in for some taxpayers from April this year, HMRC is contacting affected taxpayers.

HMRC is writing to taxpayers who will fall within MTD for IT from April 2026. Some may not receive these letters until the end of March or early April, and agents will not be copied in.

The letters explain the new requirements, and what action they should take.

Please do get in touch if you require support with these filings.

www.icaew.com/insights/tax-news/2026/feb-2026/hmrc-to-send-final-batches-of-mtd-mandation-letters  

The FTT considered the rules used to determine residence before the statutory residence test (SRT) came in in 2013, and found that the taxpayer had been UK resident throughout.

HMRC assessed the taxpayer as UK resident in tax years before the introduction of the SRT. He disputed this. The pre-2013 test was case law based, so the FTT considered case law and the facts of the taxpayer’s life in the relevant periods. He had been living in a home in Gibraltar, and commuting to work in Spain. He took care not to spend over 90 days a year in the UK, which he understood was required for him to remain non-resident. He moved back to the UK in 2014.

The FTT found that the ties he had retained with NI and the UK, such as running businesses in the UK, keeping accommodation there and visiting, meant that his ties with the UK resulted in him being UK resident. Evidence included a statement he had given to the NI Parliament about business, his returns, and articles about him in the press.

In addition, discovery assessments were found to be valid, and the taxpayer was found to be careless.

Kearney v HMRC [2026] UKFTT 125 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/125.html  

The taxpayer was paid through PAYE, and wanted to claim employment expenses in excess of what could be included in his PAYE code. He signed up with an online agent who was due to arrange the tax refund for him. He initially received a refund, a large percentage of which was kept by the agent, but HMRC disallowed his claims on enquiry, due to lack of evidence that they met the criteria for allowable employment expenses, rather than just commuting.

At appeal, the taxpayer stated that he had explained the expenses to the agent, who had not said that they might not be claimable. He never saw the tax returns before submission. He stated that the agent had advised him to inflate the claims to get a larger tax refund, and that he had done so as he was not aware that this was not in line with UK tax regulations.

Given his admission that the claims were inflated, the FTT disallowed his appeal against the discovery assessments. It criticised the agent, but found that there was a legitimate discovery, and that a reasonable taxpayer would not have wholly relied on the agent’s advice.

Uzoh v HMRC [2026] UKFTT 231 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/231.html  

This case was remitted from the UT to the FTT for a determination on taxpayer behaviour. If the taxpayers had made a deliberate inaccuracy, then the extended time limit for investigation would have applied.

The taxpayers had taken part in a Montpelier scheme which was intended to create trading losses from contracts for difference.

The FTT considered that the taxpayers had relied on professional advice that was appropriately sought, and there was no evidence of any knowledge at the time that these arrangements were deliberate tax avoidance. It therefore found that HMRC did not discharge its burden of proof that the taxpayers made deliberate inaccuracies.

Outram v HMRC [2026] UKFTT 248 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/248.html  

The UT overturned the FTT decision that a hair replacement system was standard-rated. This was on the basis that the FTT failed to provide sufficient reasoning as to why the taxpayer’s evidence did not demonstrate that significant hair loss in women was an impairment.

The taxpayer offered a hair replacement system to women who suffered from severe and patchy hair loss and treated these supplies as zero-rated.  HMRC, however, did not accept that the supplies qualified under the zero-rating provisions for disabled persons and therefore the supplies were standard-rated.

The FTT found for HMRC on the basis the supplies did not represent services of adapting goods to a disabled person. The FTT also did not find that significant hair loss or balding in women had a long-term and substantially adverse effect on women carrying out day-to-day activities.  

The taxpayer appealed the FTT decision on the basis the Tribunal’s reasoning was inadequate and flawed in various aspects. The FTT failed to provide any supporting evidence on how this conclusion was reached.

The decision was overturned by the UT, who concluded that ‘severe hair loss in women constitutes an impairment that adversely affects the ability to carry out everyday activities.’ HMRC’s ‘physically based’ approach was found to be too narrow when considering the impact of a condition or disability on the basis any social context was ignored.  Women treated by the taxpayer for balding and hair thinning were found to be ‘disabled’ within the meaning of the legislation.

Mark Glenn Ltd v HMRC [2026] UKUT 34 (TCC) 

www.bailii.org/uk/cases/UKUT/TCC/2026/34.html 

The CA upheld the FTT and UT’s decision that insufficient evidence of input tax and payment of consideration were provided to HMRC.  

HMRC requested additional information from the taxpayer to prove the input tax credit, which the taxpayer had failed to provide on a number of occasions.  

In the absence of any invoices being provided, HMRC refused the deduction of input tax and issued assessments for the VAT owed, which the taxpayer appealed against.

The FTT could only consider the information that had been provided to HMRC and therefore material presented to the FTT at a later date could not be considered, despite valid invoices being provided. The appeal was therefore unsuccessful.  

FS Commercial Limited v HMRC [2026] EWCA Civ29

www.bailii.org/ew/cases/EWCA/Civ/2026/29.html  

HMRC has noted that businesses may now be required to provide their VAT registration application reference number when enrolling VAT into the Business Tax account, which is accessible via their government gateway log in.

The reference number can either be found on registration approval letters, or by an email sent to the email address used during the registration.

www.icaew.com/insights/tax-news/2026/feb-2026/tax-news-in-brief-3-february-2026 

The following Tax publications have been published.

• What now for Trump's tariffs after the Supreme Court ruling
• Growing pains: How the government can really help entrepreneurs
• The business tax burden
• Transfer pricing risks and updates to GfC7
• FRS 102 amendments: What does this mean for tax?
• Business rates support, and why the glass is still half empty
• After Greenland: Tariffs and trade deals moving forward
• Inheritance tax update for December 2025 and year end

The following client webinars are coming up soon.

• 4 March - Navigating business rates and capital allowances - Commercial property tax savings opportunities
• 18 March - Future proofing the family firm: Valuation methods, tax reliefs and smart succession planning
• 24 March - Fintech funding landscape: What investors want and how to stand out
• 23 April - Pre-sale exit planning setting up for a successful exit

HMRC has recently announced the numbers who missed the 31 January filing deadline. There will be a story behind each, and not all will pay the £100 penalty. (For example those who had forgotten to remove themselves from self-assessment earlier, but didn’t meet the filing requirements can sometimes have the return cancelled.)

Regardless of the reasons, this is a huge number of taxpayers still working on 2024/25 returns. We wish them all luck, but it does raise a bit of concern as to what will happen as making tax digital comes in, which will happen from April 2026 for the first tranche of taxpayers for which it is compulsory. There are plenty of exemptions, and plenty of support available, but this new administrative challenge is likely to be tough for some. We wish them, and HMRC, all the best with this significant change to the tax system that has been so long in coming.

www.gov.uk/guidance/find-out-if-you-can-get-an-exemption-from-making-tax-digital-for-income-tax