Tax update June 2026

The Government has published a consultation on the tax treatment of UK resident individuals who are members of reverse hybrid entities. A common example of these is a US LLC (Limited Liability Company).

Many of these entities, like US LLCs, are opaque for UK tax purposes, but transparent for US tax purposes. This can lead to a high effective tax rate for UK-resident members, with no relief available under the UK-US double tax convention.

The consultation will close on 31 July 2026.

You can read more on the impact for fund structures and investor groups in our article.

How HMRC reverse hybrid changes could impact fund structures and investor groups 

www.gov.uk/government/consultations/uk-residentindividualmembers-of-llcs-and-otherreversehybrids/consultation-on-reform-to-taxation-of-uk-resident-members-of-us-llcs 

The FTT has found on the facts that the goodwill of a business was transferred on incorporation.

A financial adviser working as a sole trader incorporated his business in 2008, after two years as a sole trader. He became the sole director and an employee of the company. In 2014, he and the company entered into an LLP. There was very limited paperwork, but the taxpayer contended that he had, as owner of the goodwill, transferred it to the LLP as a contribution to his capital account. His view was that it had not been contributed by the company.

The FTT concluded that the goodwill had transferred to the company on incorporation, so had been brought to the LLP by the company, not the taxpayer.

WWM (Harrogate) LLP v HMRC [2026] UKFTT 832 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/832.html 

The UT has dismissed the appeal and cross appeal, confirming the FTT decision that an LLP was carrying on a business.

A family group planned to sell shares in a PLC (T) as part of a takeover. This was a complicated transaction but the ultimate result was that loan notes contributed by LLP members did not trigger a CGT charge if the LLP was trading or carrying on a business with a view to profit. However, as the base cost was taken into account on liquidation of the LLP when computing tax liabilities then the capital gain on the original disposal of T shares was wiped out. The arrangements were notified under DOTAS.

HMRC challenged the arrangements on the basis that the LLP was not trading. The FTT found that that was correct, but that as it was carrying on a business then the arrangements were effective and the assessments were reduced to nil. The tribunal examined decisions in other areas of tax to reach this conclusion, as there is little case law on when an LLP is carrying on a business. In this case, other shares purchased when the LLP was set up were sold for a profit, so although activities were limited the business of dealing in shares had been carried out.

HMRC appealed the finding that a business was being carried on, and the LLP appealed the finding that the LLP was not trading. The UT scrutinised the decision making process of the FTT, but concluded that there was no good reason for it to disturb the FTT findings. Both appeals were dismissed.

HMRC v GCH Corporation Limited & Ors [2026] UKUT 219 (TCC)

www.bailii.org/uk/cases/UKFTT/TC/2026/219.html 

Draft regulations which will impact whether or not some trusts must register under the TRS have now become law.

Changes to the trusts registration service (TRS) regime include a de minimis exemption. Trusts that meet this will be permitted to deregister when these regulations come into effect, expected to be 30 June 2026.

Non-UK trusts that own UK land which they acquired before 6 October 2020 must now register on the TRS, but they have until 1 September 2027 to register.

The Register of Overseas Entities (Protection and Trusts) and Limited Liability Partnerships (Application of Company Law) (Amendment) Regulations 2026

The Register of Overseas Entities (Protection and Trusts) and Limited Liability Partnerships (Application of Company Law) (Amendment) Regulations 2026 - Draft Explanatory Memorandum

Umbrella company loses appeal on travel expenses.

The company employed a number of workers who it contracted out to end-users on short term contracts through recruitment agencies. It took a percentage of the payments from the recruitment agency.

The company reimbursed the workers for travel expenses. It did not deduct tax, holding that the workers had no permanent workplace, so these were not normal commuting costs but allowable travel expenses. The FTT looked at whether the workers were engaged under a single employment by the agency, with a series of temporary workplaces, or a series of short contracts each with a permanent workplace for that contract. It found for the latter, as advocated by HMRC, so the payments should have been made with deduction of tax.

Mypay Ltd v HMRC [2026] UKFTT 807 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/807.html 

HMRC has recently announced a phased implementation of mandatory payrolling of benefits in kind (BiKs) with phase 1 commencing 6 April 2027 and phase 2 commencing 6 April 2028.  This change has been introduced to support a smoother transition for businesses.

As part of phase one, from 6 April 2027 it will be mandatory to payroll the followings BIKs: company cars, car fuel, vans, van fuel and employer-provided medical benefits.  Most other benefits, excluding loans and accommodation which will remain voluntary, will become mandatory from 6 April 2028.

Further guidance on these changes and regarding the removal of real time information (RTI) data fields for BiKs will be provided by HMRC in the coming weeks. 

Mandatory payrolling of benefits in kind and expenses – interim guidance and legislation - The phased introduction of mandatory payrolling for benefits in kind - Guidance - GOV.UK

Profits and losses attributable to overseas permanent establishments (PEs”) will soon be automatically exempt from corporation tax, with consequences for both corporation tax and R&D relief.

For accounting periods beginning on or after 1 January 2027, the foreign branch exemption (FBE) will become mandatory. For certain companies conducting oil and gas exploration and extraction activities, an earlier commencement date of 1 September 2026 applies. The mandatory application of the FBE will mean that the overseas losses and tax attributes will not be able to be offset against UK taxable profits.

For more information, you can read our article here.

Foreign Permanent Establishment Exemption — policy paper - GOV.UK

The Government has announced an increase in the approved mileage rate from 45p per mile to 55p per mile for the first 10,000 business miles. This change will take effect retrospectively from 6 April 2026.

For the first time in 15 years the approved mileage allowance payments have been increased offering an additional £1,000 of relief to taxpayers on their first 10,000 business miles. Business milage in excess of 10,000 miles remain at 25p per mile

Approved mileage rate increased for first time in 15 years | ICAEW

The UT overturned the FTT’s decision and accepted the taxpayer’s appeal that takeaway dip pots are a separate zero-rated supply for VAT purposes.

The taxpayer operated KFC outlets and the point of issue was whether the dip pots that were supplied as part of a meal deal were standard-rated (composite hot food) or zero-rated (cold takeaway food) for VAT purposes.

The taxpayer submitted two error correction notices (ECNs) to reclaim VAT they considered had been wrongly accounted for on their meal deals. The first notice was accepted and HMRC agreed to repay the VAT.  The second notice was reviewed by a different officer who disagreed with the initial acceptance and subsequently raised an assessment.

The taxpayer argued that the supply of the dip pots was a separate zero-rated supply and would be the correct treatment had the pots been supplied on their own. HMRC argued that supply formed part of the single supply of the meal deal and were ‘ancillary to the supply of hot food’ meaning they should have been standard-rated.

The UT found in the taxpayer’s favour that every element in a mixed supply should be analysed when determining the VAT treatment and concluded that the dip pots were zero-rated.

Queenscourt Ltd v HMRC [2026] UKUT 195 (TCC)

www.bailii.org/uk/cases/UKUT/TCC/2026/195.html 

The government has announced a temporary reduced rate of VAT on children’s menu meals in restaurants and family leisure activities over the summer period.

This summer’s temporary VAT reduction will be welcome by businesses operating in the hospitality and leisure sectors, creating a valuable commercial opportunity. But businesses will need to ensure the measures are correctly applied to maximise the benefits and avoid errors, which could result in VAT becoming due, along with penalties and possibly reputational damage.  

For more information, including how we can help, please read our article here.

The following Tax publications have been published.

• HMRC reverse hybrid consultation: The impact on fund structures and investor groups
• Payback: An unexpected upside to Trump’s IEEPA tariffs
• Corporation tax deductions for share schemes

The following client webinars are coming up soon.

• 25 June @ 12pm: UK economic stress signals in 2026: What CFOs, lenders and advisers should be looking out for now
• 30 June @ 12pm: UK based, globally connected: Managing your international assets and tax position

Lots of rate cuts (or, one or two...)

What could be nicer than a reduced tax summer? We hope those enjoying the reduced rates (see 6.2 above) have a lovely summer. And finally is excited about the possibilities inherent in future seasonal rate cuts – pumpkins in October? Satsumas at Christmas? Or maybe just emergency tax advice in deadline months.

www.youtube.com/watch?v=75o2ApQzzfk

VAT holiday