Tax update July 2026

John Healey MP has been appointed to replace Rachel Reeves as Chancellor of the Exchequer.

John Healey MP has been appointed as Chancellor of the Exchequer. He takes overall responsibility for the work of the Treasury, including presenting the Budget. His previous posts include Financial Secretary to the Treasury from May 2005 to June 2007, and Economic Secretary to the Treasury from May 2002 to May 2005.
We wish him well in his new role.

It has been confirmed that Daniel Tomlinson MP will remain in his post as Exchequer Secretary to the Treasury, which comes with responsibility for the UK tax system.

www.gov.uk/government/people/john-healey

www.gov.uk/government/people/daniel-tomlinson 

The Government has released a number of announcements under the heading of “’ax Update 2026’. Some of the key announcements are summarised below.

• A new consultation on self-assessment tax payments is looking at options to accelerate the payment of these tax liabilities from April 2029. This follows an earlier call for evidence.
• A call for evidence on voluntary NICs has been released, as the Government is looking at possible changes/improvements to this system. This will run until 15 September.
• A consultation on requiring businesses to pay VAT and PAYE liabilities by direct debit, subject to defined exceptions, will run until 16 August. It was previously announced that the Government would look at improving the timeliness of payment of these liabilities.
• A call for evidence on PAYE settlement agreements has been published, looking at how these work in practice, and areas which give rise to problems. This could be a precursor to reform of the system.
• The Government has confirmed the ISA reforms announced at Budget 2025 which introduce measures including a 22% interest charge on cash holdings in stocks and shares ISAs.
• An NIC easement for non-UK resident directors who perform a small amount of work in the UK will be formalised.
• The Government is consulting on modernising the distributions framework, and considers distributions made by companies to shareholders who are individuals or trusts.
• The Government will simplify IHT reporting requirements for certain non-taxpaying trust transfers and trust events. Draft legislation on modernising CGT holdover relief for business assets has been published, which will update the rules that restrict relief on assets held by a company that are not used within its trade.

www.gov.uk/government/publications/summary-of-tax-update-2026-simplification-modernisation-and-fairness/tax-update-2026-simplification-modernisation-and-fairness-summary 

Guidance has been updated announcing that under HMRC’s ‘transitional approach’, no late filing penalties will be charged if the submission is made before 1 August 2026.

The deadline for the first UK tax return for the period ended 31 December 2024 is 30 June 2026 – 18 months after the end of the first accounting period.

HMRC has updated its guidance on the late submission of Pillar 2 Top-up Taxes, announcing no late filing penalties will be charged provided the submission is made before 1 August 2026.

How to report Pillar 2 Top-up Taxes - GOV.UK

HMRC has published the annual tax gap figures for 2024/25. This is the estimated difference between the tax that is due to HMRC and the tax collected.

The tax gap fluctuates, but was 6% last year. The 6.4% in 2024/25 represents almost £60bn.

The estimated statistics are split out between different types of tax and different types of taxpayer. HMRC assesses that CT accounts for 35%, as do IT, NIC, and CGT combined. VAT accounts for 20%. Small businesses accounted for 62%, and individuals a mere 4%.

www.gov.uk/government/statistics/measuring-tax-gaps/1-tax-gaps-summary 

HMRC has warned on a new arrangement advertised by promoters which does not work.

HMRC has warned that promoters are advertising a new arrangement under which they claim that a “Bill of Exchange” can wipe out a tax debt. HMRC does not accept these, and is under no obligation to do so.

The SC has released its long-awaited judgment in HMRC v BlueCrest Capital Management (UK) LLP, dismissing BlueCrest’s appeal.

The SC dismissed BlueCrest’s appeal in a long-running case concerning whether certain individual members of an LLP should be treated as salaried members.

The salaried member rules were introduced in 2014 to prevent individuals who are, in substance, employees from obtaining partnership tax treatment simply because they are members of an LLP.

An individual will be treated as an employee for tax purposes if Conditions A, B and C are all met:

• Condition A considers whether remuneration constitutes “disguised salary”
• Condition B considers whether the individual has “significant influence” over the affairs of the LLP
• Condition C considers whether the individual’s capital contribution is at least 25% of their disguised salary

The BlueCrest case focused on Conditions A and B. Condition C was not in dispute and was not considered by the SC. You can read more in our articles below.

HMRC v BlueCrest Capital Management (UK) LLP [2026] UKSC 18

www.bailii.org/uk/cases/UKSC/2026/18.html

Salaried member rules and the Supreme Court BlueCrest decision

Supreme Court decision in BlueCrest dispute 

HMRC is writing to a number of self-assessment taxpayers who became self-employed between 2015 and early 2024.

In 2015, taxpayers who became self-employed had to register that status with HMRC by completing form CWF1. If they have not done so, they may not have been paying Class 2 NIC, and their state pension could be at risk. HMRC is writing to taxpayers potentially affected to offer the opportunity to make top-up NI payments. It is not actively chasing underpaid NIC from this otherwise.

www.tax.org.uk/class-2-national-insurance-contributions-failure-to-register-as-self-employed-for-ni-purposes 

The FTT allowed a late appeal from a taxpayer who had striven to comply with his tax obligations, but had had some difficulties in communication with HMRC.

The taxpayer appealed late filing penalties for his 2019/20 SATR. He initially filed on paper on 20 October 2020, but HMRC refused to accept it as he had not given enough information about his DTA (double tax agreement) partial relief claim on the residence pages. He was asked to resubmit with proof of residence and an HS304 form. The taxpayer sent this in March 2021. HMRC misplaced this, so he submitted it again in September 2021. He sent further correspondence, but HMRC did not match it to his record as it did not contain his UTR or NINO.

The FTT permitted the appeal to be brought late, and allowed it, largely as HMRC could not prove that it had sent the s8 penalty notice. It found that the taxpayer had striven to comply with his tax obligations, and had understood from phone calls that penalties would be cancelled.

Monaghan v HMRC [2026] UKFTT 1029 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1029.html 

The FTT found that the taxpayer had not proved that he had a reasonable excuse for the late payment of CGT.

HMRC issued a penalty of over £12,000 for late payment of CGT. The taxpayer argued that he had a reasonable excuse, as the delay was due to a lack of funds which was outside his control. Properties were transferred to him from a company in specie. He did not realise that the gain was taxable in the tax year of effective transfer, rather than a year later when legal title was transferred. When this became apparent he sought to raise funds on the properties, but this took some time. He did not provide evidence of his lack of other funds, and said that he had not considered raising a quicker mortgage on his own home. The FTT dismissed his appeal, as he had not proved a reasonable excuse.

Kothari v HMRC [2026] UKFTT 1035 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1035.html 

The CA has agreed with the UT in finding that exit charges were due on migrating trusts. The remedy found by HMRC to the clash with EU law on freedom of establishment was sufficient.

Four trusts were created by the settlor in 1992 and the trustees were at the time all UK resident. In 2004, three new trustees were appointed, all resident in Cyprus. Only one original UK trustee remained, and at this point the trust ceased to be UK resident. The trustees were therefore deemed to have disposed of all their assets, namely shares, and CGT became payable accordingly. While this disposal was noted on the relevant tax return, the liability was not reported, and no tax was paid as the trustees claimed that the UK provisions imposing the liability are in breach of EU law.

The case was considered by the CJEU, who found that an exit charge on a migrating trust was incompatible with the principle of freedom of establishment, but only to the extent that immediate payment was required. This was the case even though the shares in question had in fact been sold before the due date for payment of the exit charge.

The case was referred back to the FTT, which in 2019 found that the breach of EU law was capable of remedy by a conforming interpretation. Payment by installments was chosen as the most compatible with UK legislation.

The UT agreed with the FTT. It was not the exit tax in and of itself that did not comply with EU law, but the lack of a provision in UK law to defer payment of the tax. This could be remedied by the deferment suggested by the FTT, despite the lack of a provision for it in the legislation.

In the latest appeal at the CA, the trustees lost again. The CA agreed that the conforming interpretation was allowable and rejected the appeals.

Trustees of the Panico Panayi Accumulation and Maintenance Settlements Nos. 1 to 4 v Revenue and  Customs [2026] EWCA Civ 744

www.bailii.org/ew/cases/EWCA/Civ/2026/744.html

www.bailii.org/uk/cases/UKFTT/TC/2026/1029.htmlhttps://www.bailii.org/uk/cases/UKFTT/TC/2026/1035.html 

The FTT has found that the 10 year charge for IHT applied to funds held within an employee benefit trust (EBT), but the taxpayer was only liable for the IHT relating to the funds in his sub-trust.

A company created an EBT in 2008 with two sub-trusts, one for the taxpayer’s family. This was intended to be an EBT, but the company later went into liquidation. At a previous hearing, the FTT had limited the ground to whether or not the money in the EBT was relevant property for IHT. The taxpayer tried to broaden the scope of his appeal, but did not succeed.

The FTT commented on the weakness of the evidence provided by the taxpayer, and found that the company had contributed £8m to the EBT. It looked at the statutory requirements for this to be exempt from IHT, and found that none applied. The decennial charge was due, but the quantum was reduced on appeal, as the taxpayer was liable for tax only on the amount contributed to his sub-fund, not the other.

McIlhone v HMRC [2026] UKFTT 995 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/995.html 

A taxpayer has lost her appeal on loans from an EBT being taxed as income. Despite her lack of intent to evade tax, the correct way to tax these still applied.

The taxpayer’s employer made payments to an EBT, which loaned the money on to the taxpayer. HMRC contended that this should be taxed as earnings from employment. The taxpayer agreed that she participated in a scheme, but stated that she had received the interest-free loans in good faith, relying on professional advice that these were non-taxable. The tribunal accepted this, and that HMRC had not criticised her conduct, but found nonetheless that these payments were legally employment income, as per previous cases on these schemes.

Dada v HMRC [2026] UKFTT 993 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/993.html 

The FTT has dismissed an appeal from a taxpayer who viewed a termination payment as arising from events during his employment.

The taxpayer was made redundant by his employer. He brought employment tribunal proceedings, which were settled by his former employer making a payment to him for his existing claims and any other claims arising from his work with them, with no admission of liability. HMRC treated the settlement payment as a termination payment, so mostly taxable, with only a portion classed as a non-taxable compensation payment for injury to feelings.

The taxpayer argued that all of the payment should be non-taxable compensation. He contended that the payment was not made in connection with the termination of his employment, but arose from discrimination by his employer during his employment. The payment was much greater than the maximum redundancy payment he would have been entitled to under the terms of his contract, which had been paid and taxed separately.

On analysis of the legislation, the FTT found for HMRC. The sum arose from the termination of the employment, and the underlying reasons for the payment were irrelevant.

Everson v HMRC [2026] UKFTT 978 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/978.html 

The FTT has found that a taxpayer who lived in one city and worked in another could only claim travel expenses around the second city, not between the two.

The taxpayer, an employee, had to attend multiple construction sites and meetings around London. She lived in Colchester and travelled by car. She was paid a car allowance by her employer through PAYE, but also claimed mileage expenses in her tax returns. These were substantial, and she did not keep contemporaneous logs. Following an enquiry, HMRC amended her returns to reduce the claims. She had claimed for her journeys starting from home, but HMRC only allowed travel within London, not including home to London travel.

The FTT found that this approach was correct, and rejected the taxpayer’s appeals.

Kwai v HMRC [2026] UKFTT 1033 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1033.html 

HMRC has published guidance on the previously announced settlement opportunity for taxpayers with an outstanding loan charge liability.

Taxpayers who have an outstanding liability are being given settlement offers. These come with reductions for taxpayers, such as for promoter fees and late payment interest.

HMRC will write to taxpayers it believes are eligible, with a settlement offer that specifies the amount it has calculated as due, and the information it used to calculate this. It is possible to discuss these with HMRC before making a decision, and payment plans may be agreed over a period of up to five years, depending on an individual’s financial circumstances.

www.gov.uk/guidance/find-out-about-the-loan-charge-settlement-scheme 

Contributions to employee benefit trusts pre-2010 can still be taxed by HMRC, despite the loan charge review providing some relief for pre-2010 loans in some cases.

The taxpayer received loans from an EBT based in the Isle of Man. He accepted that in principle following previous cases these should be taxed other than as he had declared, but appealed on some grounds. First, he noted that some loans were made before the date used as the date before which some loans were removed from the charge, as a result of the loan charge review. The FTT did not accept that this meant his loans should also be exempt, as the charge here was on the amounts contributed to the EBT, not the amounts loaned to him. He also failed in his argument that as HMRC had erroneously told him there was no enquiry into one year it should be stopped from assessing it.

Anderson v HMRC [2026] UKFTT 1007 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1007.html 

The SC has ruled in HMRC’s favour finding ‘special capital’ reallocated to members from a corporate member should be taxed as miscellaneous income.

In October 2010 an investment management firm restructured by transferring the business of its foreign currency trading team to an LLP. As part of this restructuring a Capital Allocation Plan (CAP) was set up under which a proportion of the profits were allocated to a corporate partner, which invested them in funds managed by the group. Over several years those funds were sold, and the net proceeds reallocated to individual members as special capital.

Considering previous cases, the CA found against the HMRC ruling that the allocation of profits to the corporate partner should be taxed on the individual partners. It also found that to be taxed as miscellaneous income an amount must be income and from a source.  There was no debate that there was income, so the Courts focused on the issue of whether there was a source. It ruled that the discretion exercised by the corporate partner was the source of the income and so the reallocations were taxable as miscellaneous income.

At the SC, the court agreed that the corporate member’s profit share was not taxable on the individual members. The court disagreed with the members’ contention that the income they received had no source, so was not taxable. Their rights under the deed of partnership and decisions made did constitute a source. The income was therefore taxable.

MRC v HFFX LLP [2026] UKSC 17

www.bailii.org/uk/cases/UKSC/2026/17.html 

The new Government has announced a 20% cut for business rates which will apply from April 2027 for pubs, social clubs, and some live music venues.

In conjunction with this and to fund the cut, the Government plans to review tax reliefs on some other businesses, which it defines as those “that do not make a positive contribution to local communities, such as vape shops”. In addition, there will be a crack down on businesses which fail to comply with their tax obligations when selling through online marketplaces, which will follow on from the currently published consultation on VAT in this area.

www.gov.uk/government/news/burnham-means-business-pm-slashes-business-rates-bills-for-pubs-clubs-and-live-music-venues

www.gov.uk/government/consultations/extending-online-marketplace-liability-to-combat-non-compliance/extending-vat-online-marketplace-liability-to-combat-non-compliance 

It has been announced that VAT on household electricity will be cut from 5% to 0% from 1 October 2026 to 31 March 2027.  

These cuts should save a typical household £45 a year as part of the new Prime Minister’s pledge to tackle the cost of living crisis. Any changes beyond March 2027 will be announced in the next Budget.  

New PM cuts tax on household electricity bills to give breathing space on cost of living - GOV.UK

The FTT found that the taxpayer did not supply a right of admission eligible for the temporary reduced rate of VAT that was introduced during the Covid-19 pandemic.  

During the coronavirus pandemic, certain supplies were subject to VAT at a temporary reduced rate of 5% for the right of admission to certain shows, theatres, circuses, fairs and amusement parks, to name a few.

The taxpayer had argued that this temporary reduced rate of VAT applied to private karaoke venues, however, the FTT found that the supply was simply a hire of room with audio-visual equipment being provided, rather than admission to the premises.

The FTT therefore dismissed the taxpayer’s appeal and concluded that this was not a right of admission.

Lucky Voice Group Limited v HMRC [2026] UKFTT 903 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/903.html 

HMRC published the International Controlled Transactions Schedule (ICTS) consultation on 16 June 2026. It could have significant implications for businesses within scope of the UK transfer pricing or permanent establishment legislation.

The ICTS is a new annual filing requirement to report intercompany cross-border transactions. It is designed to fill gaps in existing transfer pricing (TP) documentation, complementing existing requirements.  

The consultation includes draft legislation, a draft HMRC notice and the revised ICTS template. The changes would enable HMRC to use automated, data driven risk assessments to better identify transfer pricing risks, improve efficiency by encouraging earlier compliance and benefit taxpayers with more focused and shorter investigations, concentrated on cases where transfer pricing adjustments are needed.

For more information on this, including key aspects of the legislation, please read our article here. 

The CA overturned the FTT and UT decisions that the taxpayer’s supplies fell within the Tour Operator’s Margin Scheme (TOMS) on the basis the private service hire vehicle was not a travel package.

The taxpayer argued that their services fell within TOMS and accordingly were only required to pay standard-rated VAT on their margins, rather than standard-rated VAT on the entire fare charged.  The FTT and UT found in the taxpayer’s favour and HMRC appealed against the decision.

HMRC appealed against the tribunals’ ‘high level approach’ on the basis the taxpayer was not a travel agent or tour operator and did not fall within the scheme.  The trips provided were stand alone and not ancillary to a wider travel package.

The CA overturned the FTT and UT decision and found the taxpayer’s services were not comparable to those of travel agents or tour operators, ruling in HMRC’s favour.  

HMRC v Bolt Services UK Limited [2026] EWCA Civ 720

www.bailii.org/ew/cases/EWCA/Civ/2026/720.html 

The UT allowed HMRC’s appeal that teeth aligners were standard rated for VAT on the basis they did not fall within the definition of ‘dental prosthesis’.  

The taxpayer supplied Invisalign clear aligners that were treated as ‘exempt supplies of dental prostheses’ however HMRC argued that these supplies were standard rated for VAT. The taxpayer appealed HMRC’s decision and the FTT found in their favour. 

The UT found that the aligners did not fall within the ‘prosthesis’ definition on the basis the aligners were not an ‘artificial item replacing part of the body’, in other words used to replace missing or damaged teeth.  The definition did not extend to any appliance used for straightening teeth and therefore the FTT’s decision was overturned in HMRC’s favour.

HMRC v Align Technology Switzerland GmbH & Anor [2026] UKUT 256 (TCC)

www.bailii.org/uk/cases/UKUT/TCC/2026/256.html 

The FTT allowed the taxpayer’s appeal against the ‘deliberate’ behaviour penalties raised by HMRC on the basis the taxpayer’s plight was significant.

The taxpayer was a lorry driver who transported crates of beer across the border at Dover Eastern Docks, but was not aware that the appropriate excise duties had not been paid.  

As the taxpayer was an experience lorry driver, HMRC considered the taxpayer liable for the unpaid duty on the crates and imposed wrongdoing penalties that were calculated based on ‘deliberate’ behaviour.  The Romanian tax authorities issued an order to the taxpayer’s bank, where all funds were transferred to the Romanian authorities then to HMRC, resulting in an ‘emptied’ bank account for the taxpayer.  All future payments were ordered to the Romanian authorities too.

The hardship caused by the penalties imposed resulted in the taxpayer losing all his money, his home and his job.

The taxpayer appealed against the excise duty assessments and penalties. The FTT dismissed the excise assessment appeal but allowed the penalty appeal reducing penalties to zero.

Vasile Cerchez v HMRC [2026] UKFTT 1006 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1006.html 

The FTT allowed the taxpayer’s appeal against the penalty charged for unpaid excise duty on the basis the Tribunal established that the taxpayer had a reasonable excuse.

HMRC seized a number of supplies on the basis they were unable to establish whether UK excise duty had been paid.  HMRC argued that the taxpayer was an ‘experienced national retailer’ that would have been aware of the risks in the supply chain, but still accepted goods with duty outstanding on them.

The taxpayer argued that they ‘took all reasonable steps that could have been taken in the circumstances to satisfy itself that duty had been paid on the goods’. They also argued that they had carried out due diligence in accordance with HMRC’s published guidance.

The Tribunal was unable to conclusively determine whether excise duty had been paid on the relevant supplies as there appeared to be breaks in the supply chain, often known as a ‘missing trader’.  The FTT found that the taxpayer was not involved with this nor had knowledge of the irregularity and so the appeal was allowed and the penalties imposed were removed.

B&M Retail Limited v HMRC [2026] UKFTT 1062 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1062.html 

The following Tax publications have been published.

• The use and conundrum of ESG performance conditions in executive remuneration
• Draft legislation confirms mandatory foreign branch exemption
• What a Burnham government could do for employers
• Why private equity investors should treat international tax as an operational diligence issue
• Salaried member rules: Supreme Court decision in BlueCrest case
• Planning for the introduction of the 2029 pension salary sacrifice cap
• Payroll benefits have changed again: What this means for employees and employers
• Anti-hybrid rules: Broad reach, ongoing scrutiny
• HMRC v BlueCrest Capital Management (UK) LLP – The Supreme Court decides
• ICTS legislation: A step change in transfer pricing compliance requirements
• Key tax considerations for landowners in 2026 and beyond
• What is the point of market practice in executive remuneration?
• Inside the OECD’s chapter VII update: Implications for transfer pricing

The following client webinars are coming up soon.

• 9 September - Helping you prepare for the mandatory payrolling of benefits

The latest warning from HMRC demonstrates that old maxim that there is nothing new under the sun. Readers of Anthony Trollope are likely to have come across young heroes who get into deep waters due to schemes involving bills of exchange. While this formal sort of IOU can seem handy, HMRC (or your other creditors) are not actually obliged to accept it.

So, regardless of how enticing that 1882 act may seem: we advise readers to be careful about who they trust, whether your new friend is promoting a tax scheme or the great South Central Pacific and Mexican Railroad*.

www.gov.uk/government/publications/hmrc-issue-briefing-tax-fraud-warning-about-bills-of-exchange-schemes/tax-fraud-warning-attempts-to-use-bills-of-exchange-to-pay-hmrc

*entirely fictional, see this novel: https://trollopesociety.org/book/way-we-live-now/