Tax update January 2026

Chancellor Rachel Reeves has asked the Office for Budget Responsibility to prepare forecasts for Tuesday 3 March.

The government will respond to the March forecast through a statement to Parliament. The Government has committed to only having one major fiscal event a year, the Budget, so we do not expect significant tax announcements in the Spring.

www.gov.uk/government/news/chancellor-announces-date-of-spring-forecast 

The Cryptoasset Reporting Framework (CARF) came into force in the UK on 1 January.

This new set of rules require UK reporting cryptoasset service providers to collect and report details of their users, including their activities and tax residency, to HMRC annually. Data will be exchanged with other jurisdictions who have also implemented the CARF. HMRC will use this data to tackle tax evasion and avoidance and to help individuals meet their tax obligations. Separately, there is also a new section in the capital gains pages of the 2024/25 self-assessment tax return specifically for cryptoasset disposals. 
You can read more on the new CARF rules in our article.

Digital asset and crypto reporting with CARF and CRS 2.0

FTT finds for HMRC in case on mass-marketed tax avoidance scheme on contractor loans.

Over 700 taxpayers participated in a scheme known as Rathowen. The basis was that companies for which individuals based in the UK were working as contractors did not pay them directly, but put money into a network of companies. The individuals received a small payment from an Isle of Man (IoM) company, and a larger interest free loan, from another IoM company. The individuals declared that they were self-employed, and included a note on their returns about the loan explaining their view that the loan was not subject to UK tax.

HMRC issued closure notices, and contended before the FTT that the loans formed part of income arising from self-employment. Ten of the individuals were the lead appeals for the group at this hearing.

The FTT found for HMRC. This was a tax avoidance scheme designed to avoid some consequences of the IR35 rules. All participants had joined a scheme related to the UK-IoM double tax treaty through partnerships, then been migrated to the Rathowen arrangements. The end clients for whom the individuals were working were not informed of the scheme. The individuals’ arguments that the amounts received by way of loan were not taxable as trading income, or should be reduced for expenses (the scheme fees), were not upheld.

The FTT, as in other similar cases involving disguised remuneration, gave the taxpayers’ arguments relatively short shrift. Assuming there is no further appeal, it does not seem as though the appellants can avail themselves of the new loan charge settlement opportunity announced in the November Budget, as that explicitly excludes cases which are in the Tax Tribunal process.

Benson & Ors v HMRC [2025] UKFTT 1442 (TC) 

www.bailii.org/uk/cases/UKFTT/TC/2025/TC09699.html  

The FTT has upheld penalties for non-compliance with a follower notice, as although the taxpayer had paid the tax due he had not amended his return.

The taxpayer participated in a marketed tax avoidance scheme. When this scheme was found not to work in an appeal involving another participant, HMRC issued him with a follower notice and an advance payment notice (APN). The follower notice required him to amend his tax return to remove the tax advantage.

The taxpayer disputed these with HMRC, but eventually paid the amounts required by the APN. HMRC agreed to withdraw surcharges for this. He did not however amend his tax return, so penalties were charged for non-compliance with the follower notice. He appealed the penalties, arguing that his compliance with the APN showed that he accepted the scheme had failed, and had no tax advantage left.

The FTT dismissed the taxpayer’s appeal. The APN and follower notice are two separate regimes. The taxpayer had failed to take the corrective action defined in the follower notice legislation, and had no reasonable excuse for this. The penalties were upheld.

This case reaffirms the principle from earlier cases that ‘reasonable in the circumstances’ is a broader subjective test than ‘reasonable excuse’. On the facts of this case, the FTT decided that the taxpayer’s decision not to take corrective action was not a properly informed choice, by reference to his correspondence with HMRC and the tax scheme promoter, Montpelier.

Kamperis v HMRC [2025] UKFTT 1441 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2025/TC09698.html  

The UT has found that HMRC’s decision to refuse to suspend penalties for carelessness was not flawed. The taxpayers should have taken appropriate advice.

The taxpayers, a married couple, claimed entrepreneurs’ relief (now known as business asset disposal relief) on a sale of shares, despite their holdings being less than the minimum 5% required to qualify. HMRC issued penalties for careless inaccuracy.

Each taxpayer had held 6.4% of the shares when their exit from the business was agreed. The structure of the disposals was then settled as a gift of some of their shares to other shareholders, followed by a disposal, and then dispose of the remaining shares almost a month later. The share percentage in the second transaction was therefore under 5%. 

The taxpayers had initially asked HMRC to suspend the penalties. Their fellow shareholders had asked a partner at the solicitors firm advising them on the transaction if they foresaw any problems with the transaction structure. He had said not at first glance, but that as he was not a tax expert he would need their authorisation to refer the matter to a tax specialist colleague for proper sign-off at extra cost. No further sign-off was requested by the taxpayers or their fellow shareholders. 

The FTT upheld the penalties, noting that the taxpayers had not sought appropriate advice after the structure of the transaction was agreed to be changed to the two disposal plan.. Advice had only been sought on behalf of the company, not them as individuals. Both taxpayers were company directors, and one a financial adviser, so their behaviour was not reasonable. 

The UT agreed. 

The tribunal considered which conditions might have been suitable if the penalty were suspended, but concluded that HMRC’s decision not to suspend the penalties was not flawed, which would be the threshold for the tribunals to intervene. However, the UT did make an important correction to the FTT’s decision-making on this, that in general principle a penalty for failure to take reasonable care can be suspended even if it relates to a ‘one-off’ tax error. As long as there are suitable conditions that can be put in place to improve certain processes and mitigate future errors occurring, then a suspension may be available even if it does not relate to the same error that occurred previously.

This case shows the importance of all parties to a transaction seeking their own advice. Pre-sale gifting of shares is quite common, either as between existing shareholders or perhaps to senior employees who previously had no equity, so the basic structure was not unusual. However, the taxpayers didn’t follow the recommendation to take further advice so and that was significant in terms of being able to show that they had taken reasonable care. The other key factor was that the lawyers advising on the transaction specifically excluded from their retainer any advice on the gifting of the shares. Unfortunately, the discussion with the other shareholders’ accountants focussed around the CGT and IHT consequences of the pre-sale gift, not the ultimate sale itself. In hindsight, the reduction below 5% was an obvious consequence of the gifts but as no professional was specifically requested to consider the position, it fell through the cracks.

Cox v HMRC [2026] UKUT 7 (TCC) 

www.bailii.org/uk/cases/UKFTT/TC/2026/7.html  

The UT has remitted a point around the use of an offshore credit card back to the FTT for further findings of fact.

HMRC enquired into the tax return of a UK tax resident but non-UK domiciled taxpayer who had claimed to be taxed on the remittance basis. It considered taxable remittances were made, which had not been reported on his tax return.

Some were transfers from his overseas bank direct to a UK recipient, others were purchases made using his offshore credit card. The overseas accounts were mixed funds containing foreign income and gains, so HMRC argued that these were remittances of those amounts.  

The FTT found in favour of HMRC.

At the UT, the taxpayer argued that the FTT had erred in law in finding that the following were remittances:

1. transfers from a non-UK bank account into the UK bank account of a non-relevant person; 
2. payments with a non-UK credit card for goods and services in the UK for the benefit of a non-relevant person;
3. jewellery purchases with a non-UK credit card. 

The UT dismissed the taxpayer’s appeal on the bank transfers. The appeals on the credit card points were remitted to the FTT to rehear. The UT noted that the seller of these goods and services might not have had a UK bank account and further facts were needed to make a final decision.

Alimahomed v HMRC [2025] UKUT 428 (TCC)

www.bailii.org/uk/cases/UKUT/TCC/2025/428.html  

HMRC yearly interest rates on overdue tax will decrease by 0.25%, following the Bank of England base rate cut from 4% to 3.75%.  

The rate applied to the main taxes will become 7.75%. The rate of interest on repayments from HMRC will become 2.75%.  

This change generally applies from 9 January, but for quarterly interest payments it applies from 29 December 2025 and the rates also differ.

www.gov.uk/government/news/hmrc-revises-interest-rates-for-late-payments  

The taxpayer’s employment was terminated due to his long term sick leave. His employer offered two options: he could take a settlement agreement or follow the company absence process. He chose the settlement, which offered a PILON, a termination payment and other benefits.  

PAYE was deducted from the PILON, which the taxpayer disputed, but this point was overtaken by procedural issues. HMRC succeeded in its application to strike out the appeal, as the FTT had no jurisdiction. HMRC had not opened an enquiry into a return or standalone claim. The taxpayer had just written seeking a refund, and HMRC’s refusal was not an appealable decision.

The PILON issue was also considered by the FTT to  accelerate a final resolution of the matter. The taxpayer argued that it fell within the exemption from tax for payments made due to employee disability. HMRC argued that it was taxable as earnings, as it was not made due to the disability, as this was not specifically stated in the settlement agreement. The FTT considered that it was not earnings, but a termination payment. However, the payment was made in lieu of notice rather than due to disability, so the exemption did not apply in the FTT’s view, although this was not a formal decision.

Rawlinson v HMRC [2026] UKFTT 45 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/45.html  

HMRC’s latest campaign on cryptoasset compliance is addressed to agents.

As part of an awareness campaign on cryptoassets, HMRC is writing to agents who have submitted IHT returns to point out that cryptoassets are subject to IHT. The letters explain that IHT returns incorrectly omitting cryptoassets should be corrected, and ask agents to check with clients about potential holdings of cryptoassets.

HMRC has indicated that corrections made in response to this campaign will not incur penalties. If corrections are not made then penalties can apply.

www.icaew.com/insights/tax-news/2025/dec-2025/agents-may-be-overlooking-iht-on-cryptoassets  

The Government has announced that the cap on full IHT relief for agricultural and business property will be increased from £1m to £2.5m per person. These changes are coming into force from 6 April 2026.

Plans to limit the 100% IHT relief were announced at Autumn Budget 2024. 100% relief will given up to the limit of the cap, and 50% relief on qualifying assets over that value. This change means that a married couple will have a joint allowance of £5m.

www.gov.uk/government/news/inheritance-tax-reliefs-threshold-to-rise-to-25m-for-farmers-and-businesses 

HMRC is writing to companies and their agents, if applicable, where HMRC believes their calculated corporation tax liability is lower than expected compared to similar companies.

The letter warns companies that HMRC may open a compliance check within the next 12 months where it is believed corporation tax may have been calculated incorrectly.  A compliance check will not be opened before the date given in the letter to allow the company time to check, and if necessary, amend their tax return.

Appropriate action must be taken as soon as possible otherwise HMRC will use the information available to determine whether or not to open a compliance check. If no errors are found, HMRC should still be informed using the contact details provided in the letter.

HMRC asks companies and agents to check tax returns | ICAEW

HMRC have issued ‘one to many’ letters to businesses in the advertising agencies sector who may have had R&D agents attempt to misrepresent tax relief schemes.

The letters issued clarify the eligibility for businesses to claim R&D tax relief, including outlining some of the common activities frequently claimed that do not meet the qualifying criteria.

If you have any questions of concerns, please reach out to one of our R&D specialists.

R&D tax relief made simple

HMRC One to many letter – R&D sectors - Advertising | Chartered Institute of Taxation

The taxpayer and her late husband bought a substantial property with one main dwelling, two smaller dwellings, equestrian facilities and 150 acres of land. Part of the land was arable, some for a deer farm, some for a stud farm, and some other grazing, as well as gardens. The taxpayers purchased the deer under a separate contract two days before purchasing the property, which was under nine separate titles. HMRC opened an enquiry into the SDLT return, challenging the taxpayers’ view that this was a mixed use property.

HMRC argued that the property was wholly residential. The land surrounded the main dwelling, and was as expected for a large country estate, with facilities for an active lifestyle. The land contributed to the rural character of the property, and the views. There was no quantitative limit on the amount of land that could count as residential. The fact that an occupier could do without the land did not mean that it was not residential property. The marketing materials indicated that the grounds came with the residential property. The agreements for grazing and farming did not seem to have been in place at the time of completion, as it was sold with vacant possession.

The taxpayer gave evidence as to the use of the property. It was submitted that the property was advertised as mixed-use. The vendor conducted business activities such as horse breeding and deer farming from the premises, and leased land for grazing. There was also a commercial agreement with an energy provider about cables running through the land. The land had always been farmed, though the taxpayer formalised the grazing agreements.

The FTT found for the taxpayer. The land had been used as a working farm for many years, and met the requirements of the Rural Payments Agency. The main house and gardens, with some amenities, were agreed to be residential property. However, the 150 acres did not fall within the category of ‘garden or grounds’ use. The taxpayer gave clear, credible evidence about the use of land, and provided documentary evidence. Significant parcels of the land were used for non-residential purposes such as grazing, growing maize and breeding horses and these were commercial activities of long standing.

Executor of the Estate of Paul Goudman-Peachey v HMRC [2025] UKFTT 1402 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2025/TC09691.html 

The FTT has found on the facts that a house with an annex qualified as two separate dwellings. Multiple dwellings relief (MDR) therefore applied.

The taxpayers purchased a house with an annex. He sought to class this as two separate dwellings, so that the SDLT on purchase would be reduced by MDR. Both house and annex had their own doors to the outside, water supplied, heating and fuse boards. There were two internal connecting doors. The annex had both cooking and washing facilities.

HMRC argued that the annex was not a separate dwelling, as although it had been used as such previously when let by the previous owner to students, it was not in a condition to be a separate dwelling. The only washing facilities (shower) were in the kitchen, with a separate room for the lavatory. The house and annex had one title and one council tax registration.

The FTT found for the taxpayer. It could consider the past history of the dwelling. The position of the shower would be suitable if there was one occupier, and a dwelling was not just a dwelling if suitable for multiple occupiers to have privacy from one another. Considering all the factors, the annex had a sufficient degree of privacy, self-sufficiency, and security to be a dwelling on its own, so with the history this was enough to allow the taxpayer’s appeal.

Rowe v HMRC [2025] UKFTT 1443 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2025/TC09700.html 

The taxpayer’s error correction notification (ECN) was rejected by the FTT on the basis that it was submitted outside the statutory four-year time limit for claims.

The taxpayer had been registered for VAT since 2009 but was only advised in 2019 that they were required to register for VAT in Germany to account for sales made there.   In 2023, the taxpayer notified HMRC of error corrections for the relevant periods arising in 2014, 2015, 2016 and 2019 respectively.

The taxpayer sought repayment of VAT from HMRC for the UK VAT paid in error on German sales as the taxpayer had effectively paid VAT twice on these sales.  

HMRC confirmed that it would not pay claims made more than four years after the ‘relevant date’ being the end of each individual prescribed accounting period.  In this case, all claims were out of time.  HMRC also raised the point that the taxpayer was aware of the time limit prior to submitting their claims.

The taxpayer argued that the relevant legislation was restrictive for any legitimate errors and that HMRC had discretion which it could use to extend the limitation period accordingly.  

The FTT rejected the taxpayer’s appeal on the basis that the Tribunal had no jurisdiction or power to circumvent the limitation period set out in the primary legislation and as a result the taxpayer was required to pay VAT in both the UK and Germany on the same sales.  

Express Brands Ltd v HMRC [2025] UKFTT 1400 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2025/TC09689.html  

The FTT dismissed the taxpayer’s appeal that property maintenance services were exempt from VAT on the basis they were made to the lessor, not the lessee, and did not form part of exempt supplies of land.

The taxpayer had various subsidiaries consisting of management trust companies (MTCs) and a management company (MC).  The taxpayer, the MTCs and MC all form part of the same VAT group.  The lessors of the flats are various entities, none of which are members of the VAT group.  

The taxpayer argued that the services MTCs supplied were to the residential lessees and therefore the maintenance services provided could be treated as part of a single exempt supply of land with the lease.  It was argued that supplies made by the MTCs were ancillary to the principal supply of land made by the lessor under the lease and therefore took the VAT status of the principal supply, being the exempt supply of land.  Additionally, the taxpayer argued that the cost for the MTCs employing their own staff constituted ‘disbursements’ and was therefore outside the scope of VAT.  

HMRC maintained that the supplies could not be fused with the exempt supply of land made by the lessors.  Supplies from different suppliers could not be treated as a single composite supply for VAT purposes.  HMRC further stated that the services supplied were made to the lessors on the basis the contractual relationship was between the MTCs and lessors.  The MTCs were making taxable supplies being the maintenance services.  The fact that the lessees benefited from the services supplied by the MTCs did not mean those services were supplied to them by MTCs for VAT purposes.  

The FTT found against the taxpayer on both issues and concluded that MTCs providing maintenance services could not benefit from exemption and so were subject to VAT. Also the costs incurred by MTCs in employing their own staff were not disbursements for VAT purposes.

This case serves as a reminder of the care needed to ensure that the correct VAT position is applied in respect of property management services.  Please speak to a member of S&W if you believe this decision may impact your VAT position.    

Places for People Homes Limited v HMRC [2025] UKFTT 1417 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2025/TC09695.html  

The SC upheld the CA decision that input tax on professional fees incurred as part of the sale of shares in a subsidiary were not deductible for VAT.

The taxpayer was a holding company providing management services to its subsidiary, which was the lessee of a luxury hotel in Birmingham.  The taxpayer sold its shareholding in its subsidiary to fund the development of a new hotel in Milton Keynes, incurring VAT on legal fees in the region of £76,000.

The taxpayer argued that professional fees associated with the share disposal were linked to the overall business making taxable supplies, rather than to the exempt share sale, on the basis the disposal took place to fund the development of the new hotel.

HMRC disputed this and argued that the fees were incurred as part of a supply that was exempt from VAT, being the sale of the shares.

Despite the FTT and UT allowing the taxpayer’s appeal on the basis the share sale was a fundraising exercise linked to the overall hotel business, this decision was overturned by the CA. It found that the supplies were directly linked to an exempt share sale, not the taxable hotel business.  The SC upheld this decision and confirmed the input tax was irrecoverable.  

HMRC v Hotel La Tour [UKSC] 46

www.bailii.org/uk/cases/UKSC/2025/46.html 

The FTT dismissed the taxpayer’s appeal that cool-down rotisserie chickens (CDRCs) were standard rated and not zero-rated for VAT, resulting in an additional VAT assessment in the region of £17m.

The taxpayer appealed the assessments raised by HMRC on the following grounds:

1. The supply of CDRCs were zero rated as ‘food of a kind used for human consumption’ that is not excluded from zero-rating as a ‘supply in the course of catering’; and 
2. HMRC gave clear and unambiguous rulings in 2012-2014 that CDRCs were zero-rated. 

The taxpayer also argued that the food was sold hot for the appearance to customers and to comply with health and safety regulations.  

HMRC argued that steps were taken to ensure the CDRCs remained hot or slowed down the natural cooling process to an ambient room temperature through the use of chicken paper bags which had heat-retention properties.    

The appeal was dismissed by the FTT on the basis the CDRCs were well above the ambient temperature and were not ‘incidentally hot’ when sold.  The Tribunal also found that HMRC did not give clear and unambiguous rulings that CDRCs were zero-rated which the taxpayer could have relied on.

The outcome of this case could see an increase in the price of CDRCs for customers with VAT now being reflected in the sale price.  

WM Morrison Supermarkets Limited v HMRC [2025] UKFTT 1542 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2025/TC09722.html  

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• 28 January | 2pm: Introducing the Fair Work Agency - what you need to know

The 23rd of December is not a usual time for tax announcements (see 3.2). Given that the Budget was less than a month beforehand, readers could be forgiven for assuming that tax policy was settled then. Still, we are not complaining about the change! In Denmark, some celebrations take place on the 23rd (Little Christmas Eve), so it is not impossibly early for presents.

Perhaps the Government was feeling the hygge.

https://skandibaking.com/danish-christmas-traditions-explained/