UK
Ireland
The latest tax update and VAT round up for the month.
Tax Update provides you with a round-up of the latest tax developments. Covering matters relevant to individuals, trusts, estates and businesses, it keeps you up-to-date with tax issues that may impact you or your business. If you would like to discuss any aspect in more detail, please speak to your usual S&W contact. Alternatively, Liz Hudson can introduce you to relevant specialist tax advisors within our firm.
1. General
1.1 Appeal refused on deemed dividend payment
The FTT has found that HMRC was correct to apply a s415 charge when the debtor was substituted in a director’s loan.
The taxpayer was director and sole shareholder of a close company (T). In 2020, a share for share exchange was carried out, through which a holding company (P) was inserted. The taxpayer was a director of P as well. The taxpayer had a director’s loan account with T at the time of the exchange. By the end of the year, the amount was in excess of half a million pounds. The taxpayer at this point entered into an agreement with P and T to ‘novate’ this, such that the taxpayer owed the sum to P, not T, and P owed T the money as an intra-group loan.
HMRC argued that a charge arose under s415, as a debt had been written off. The taxpayer argued that the release was for valuable consideration (P taking over the debt), so no charge arose.
The FTT found for HMRC, noting that the purpose of s415 was to tax distributions from close companies made by the release of obligations. While a previous case had established that it does not apply if a debt was repaid, this was not the case here. T had not recovered its money either from the director or a third party so the debt could not be considered repaid. The transfer of a bundle of rights and obligations to P was not satisfaction of the debt, so s415 applied and the taxpayer was liable for income tax.
Powell v HMRC [2025] UKFTT 528 (TC)
2. Private client
2.1 HMRC spotlight on LLP liquidation to avoid CGT
HMRC’s latest “spotlight” notice highlights a tax avoidance scheme being marketed to landlords.
The claim of the scheme is that transferring a property business to an LLP that is then liquidated will save CGT on sale of the properties. HMRC takes the view that the scheme does not work, and advises taxpayers not to get involved, or, if they are already involved in the scheme, to withdraw from it.
2.2 CA agrees Jersey company distributions are taxable to IT
The CT has upheld a decision that payments from a Jersey company were taxable income distributions.
The taxpayer held shares in a company incorporated in Jersey and tax resident in Switzerland. For five successive tax years, the company made payments to him from the share premium account.. The share premium account was funded by a restructuring.
At the FTT, the taxpayer argued that the payments were capital receipts, or alternatively dividends of a capital nature. The FTT considered the history of the law on dividends in both Jersey and the UK, and the current position in both legal systems. Ultimately, it determined that although the payments were made out of the share premium account, they were income dividends. The FTT noted that the form in which the payment is made must be taken to determine its character. The mechanism chosen in this case represented an income distribution for Jersey law and therefore it was taxable in the UK as a dividend.
At the UT, the taxpayer appealed against the findings that these were dividends, and of a capital nature. The UT dismissed his appeal on all the grounds, finding that the FTT had analysed the case in the correct way.
At the CA, he maintained that that the dividends were of a capital nature, but it concluded that as there was no material error in the FTT’s decision, the appeal should be dismissed.
Beard v HMRC [2025] EWCA Civ 385
2.3 Appeals allowed on PRR
The FTT has found that a property sale was subject to CGT and eligible for PRR (private residence relief).
A married couple bought an additional property. This property was demolished, a new house built on the site, and it was then sold. HMRC assessed this purchase, redevelopment and sale as a trade, which would mean that the gain was taxable as income. HMRC also alternatively argued that PRR should be denied if the gain were found to be subject to CGT.
The FTT found for the couple on the basis of factual evidence, on both points. On PRR for CGT they had lived in the property for the time they claimed, as a home, and nominated it as their main residence. They brought evidence to show their occupation.
On the trading point, there was not evidence to support that this sale, purchase, and redevelopment was a trading venture. This was despite HMRC highlighting the involvement of a property developer at the purchase stage, which could have indicated otherwise.
Eyre & Anor v HMRC [2025] UKFTT 461 (TC)
2.4 FTT finds that trade existed but was not with a view to profit
The FTT has found that a shoot run on a country estate was a commercial trade, but as it was not run with a view to profit, no sideways loss relief was available.
The taxpayer ran a shoot on her estate. The shoot was loss making, and she claimed sideways loss relief from it against her general income. HMRC disallowed the claims, and she appealed.
The FTT heard evidence on the operation of the shoot, one of three activities on the estate, and the income levels from it. It concluded that the taxpayer was operating the shoot as a trade, separate from the other activities of the estate. The trade was commercial, but was not carried on with a view to the realisation of profits, so sideways loss relief was not available.
McDonald v HMRC [2025] UKFTT 495 (TC)
3. Trusts, estates and IHT
3.1 FTT finds for taxpayer on excluded property
The FTT has found that property added to an offshore trust after a taxpayer acquired a UK domicile was still excluded property.
The taxpayer settled an offshore trust while non-UK domiciled, then later, after becoming UK domiciled, added further property to it. He initially paid a 10-year charge on the additional property on the basis that it was not excluded property, but at tribunal he both argued that this was excluded property and requested a refund of the charge.
The FTT considered the July 2020 changes in the rules around excluded property, but found that this additional property was still excluded. On the repayment point, HMRC argued that the trustees had paid it under a generally received view of the law which was adopted in practice at the time. The FTT found that this was not the case, after receiving evidence from leading tax practitioners, as although it was HMRC’s view at the time, this view was generally found doubtful by practitioners. The FTT found that the ten-year charge payment should therefore be repaid to the trust.
Accuro Trust (Switzerland) SA v HMRC [2025] UKFTT 464 (TC)
3.2 Appeal on reservation of benefit dismissed
The FTT found that the gift with reservation of benefit rules applied to two trusts settled by the taxpayer over seven years before his death.
The taxpayer died over seven years after settling two trusts One contained a bank account and the other a property, and he was specifically excluded from benefitting from the trust funds.
The FTT agreed with HMRC that these should be included in his estate for IHT purposes. He had reserved benefit by treating the bank account as his own, using it for living expenses, and lived in the property without paying market value rent, as well as running a business from the premises.
Chugtai v HMRC [2025] UKFTT 458 (TC)
4. PAYE and employment
4.1 Mandatory payrolling of benefits delayed until 2027
HMRC has announced that the payrolling of benefits in kind will now become mandatory from 6 April 2027, a year later than originally planned.
Part of the Government’s plan to modernise tax administration and make better use of real-time information, the mandatory payrolling of benefits was originally set to come in to force on 6 April 2026 but has now been delayed until 6 April 2027. This will give employers, payroll professionals, software providers and tax agents more time to prepare for the changes.
It is still possible to payroll benefits in kind on a voluntary basis, and employers may wish to consider doing this to enable them to test their systems and processes.
4.2 Updates to HMRC’s Check Employment Status for Tax (CEST)
The CEST tool allows users to get HMRC’s view of a worker’s employment status. According to HMRC the updates, which were released on 30 April, will make the tool easier to use and receive an accurate outcome.
Alongside the updated tool, HMRC has also published revised guidance that offers additional support to answer questions accurately. Although wording of some questions has been improved, and the additional guidance provided, the underlying logic employed by the tool has not changed and only one additional question regarding mutuality of obligation and contracts has been added.
5. Business tax
5.1 FTT rules that HMRC discovery assessment valid due to taxpayer carelessness
The FTT has ruled that an HMRC discovery assessment was valid due to the taxpayer acting carelessly. The discovery assessment concerned revenue and corresponding debts that had not been correctly recorded in the company’s financial statements.
The taxpayer issued invoices totalling £369,000 to a third-party, which remained unpaid. HMRC raised a discovery assessment, following an unrelated VAT visit, that revealed discrepancies in the taxpayer’s financial statements, specifically missing income and debt. HMRC's assessment increased the revenue recognised and allowed trading loss relief for the outstanding third-party payments in the period ended 31 March 2019. The key issues in the case were the validity of the discovery assessment, the accounting basis, and the relief for bad debt.
Regarding the discovery assessment, HMRC argued that it had discovered an insufficiency in the tax assessment and that as the tax loss had been brought about by carelessness by the taxpayer the time-limit for making the assessment was six years, rather than the normal four years. The FTT agreed with HMRC that there was carelessness on the taxpayer’s part as they had failed to record over 90% of revenue generated during the relevant period, did not seek advice on the correct accounting treatment and did not keep adequate records.
On the matter of accounting basis, the tribunal emphasised that accounts must comply with generally accepted accounting practice (GAAP) and be prepared on an accruals basis, not the cash basis that had been used. On that basis HMRC's inclusion of the third-party invoices in revenue was deemed correct.
For the relief for bad debt, the taxpayer argued relief should have been available for the period ended 30 September 2016 or 30 September 2017, but the tribunal found no evidence to support this claim. Bad debt relief should be claimed in the accounting period when the debt is impaired on the balance sheet.
Accelerate Corporation Ltd v HM Revenue & Customs [2025] UKFTT 419 (TC)
5.2 R&D relief, intragroup transfers and going concern
The CIOT has had clarification from HMRC on the application of the going concern rules where there is an intra-group transfer of trade, but that transfer does not happen in the accounting period for which the R&D claim is being made.
The HMRC manual says that a company can still be a going concern for R&D purposes if the only reason its latest accounts are not prepared on a going concern basis is because of an intra-group transfer of trade. But this only applies for the period the trade is actually transferred. Under GAAP a transfer of trade would be considered a post-balance sheet event and would need to be taken into account when assessing the going concern status. This could mean accounts not being prepared on a going-concern basis for a period before the transfer takes place. In those circumstances the relieving provision noted above would not apply.
Although HMRC has confirmed that there is no policy reason why relief is not available in this situation there are no legislative changes expected in the near future.
https://www.tax.org.uk/rd-relief-going-concern-rules-and-intra-group-transfers
5.3 Delay to consultation on tax treatment of predevelopment costs
A planned consultation on the tax treatment of predevelopment costs has been delayed following a key ruling in the CA that may have a significant impact on how capital allowances rules are applied to pre-construction expenditure.
At the Autumn Budget 2024, plans were announced to consult on the tax treatment of predevelopment costs. This consultation was initially scheduled to take place in Spring 2025 but the Government has now announced that this consultation has been postponed following the recent CA ruling in the Orsted West case (Orsted West of Duddon Sands (UK) Ltd v HMRC [2025] EWCA Civ 279).
In its ruling, the CA introduced a new test to determine if expenditure qualifies for capital allowances and in doing so significantly broadened the scope for businesses to claim capital allowances on early-stage development costs.
https://www.gov.uk/government/news/tax-treatment-of-predevelopment-costs-update-on-consultation
5.4 Clarification of HMRCs approach to the appointment of a reporting company for CIR
HMRC has outlined its approach on appointing a reporting company for Corporate Interest Restriction reporting.
For periods ending between 31 March 2021 and 31 March 2024, HMRC will not challenge the validity of Interest Restriction Returns due to the failure to appoint a reporting company. However, for periods ending before 31 March 2021, HMRC is still reviewing cases where no reporting company was appointed. For periods ending after 31 March 2024, groups must ensure they have a valid reporting company appointed before submitting an Interest Restriction Return.
www.gov.uk/government/publications/agent-update-issue-130/issue-130-of-agent-update#corporate
5.5 HMRC’s decision not to extend claim deadline upheld
The UT has upheld HMRC’s decision not to extend the time limit for making a non-trade loan relationship deficit claim, confirming that the taxpayer’s circumstances did not meet the criteria necessary for an extension.
In 2002, the taxpayer received dividends from an Irish subsidiary, which it treated as non-taxable. Following the various cases considering the compatibility of the UK’s treatment of foreign dividends with EU law the taxpayer later accepted the dividends were taxable, and subject to a foreign tax credit, which did not fully cover the UK liability. In 2021, the company made a new claim to set part of a non-trade loan relationship deficit against the dividends, and reduce a group relief surrender accordingly.
HMRC refused to extend the time limit for the claim, relying on Statement of Practice 5/01. The taxpayer argued that the delay was due to unresolved litigation and the need for HMRC to bring the profits into charge, and called for a judicial review of HMRC’s decision.
The UT dismissed the judicial review claim. It held that HMRC had not made any errors of law in interpreting SP 5/01 and that its decision was not irrational.
Rettig Heating Group UK Ltd (in liquidation) v HM Revenue & Customs [2025] UKUT 143 (TCC)
5.6 HMRC lodges application to appeal capital allowances decision at SC
Separately, HMRC has lodged an application with the SC to appeal the decision in the Gunfleet Sands (Orsted West of Duddon Sands UK Ltd v HM Revenue & Customs [2025] EWCA Civ 279) capital allowances case.
As noted in 5.3, the case considered the capital allowances treatment of pre-development costs, and the CA decision significantly broadened the scope for business to claim allowances on such costs.
6. VAT and indirect taxes
6.1 Capital Goods Scheme to be simplified
The Capital Goods Scheme is set to be simplified by removing computers from the list of assets covered by the scheme and by increasing the capital expenditure value of land and buildings.
The Capital Goods Scheme ensures VAT is only recovered on capital items to the extent they are used for taxable supplies over a 10-year period. The Government has announced plans to simplify the scheme by removing computers from the scheme and increasing the value of land and buildings within the scope of the scheme from £250,000 to £600,000. By reducing the number of assets within the scheme the administrative burden on small businesses will also be reduced.
The Government has said that these changes will come into effect in this Parliament but no further details about timing have been released.
6.2 Consultation on VAT treatment for business donations
The Treasury has launched a consultation on the introduction and design of a VAT relief on goods donated to charities to give away free of charge or use in the delivery of their charitable activities.
The current VAT rules provide VAT relief (zero rating) for goods donated to charity for sale (such as in a charity shop) but not for onward donation or use by the charity. The rules were initially designed to protect against VAT fraud, but the Government wants to explore options for aligning the rules.
The consultation that closes on 21 July aims to gather views on the scope of the relief, eligible goods and administration of the scheme.
6.3 HMRC considers use of VAT groups in the regulated care sector to be tax avoidance
HMRC has identified the growing use of VAT group structures by state-regulated care providers to recover VAT on costs that would otherwise be exempt. HMRC has stated that they consider these structures to be a form of tax avoidance.
The group structure identified involves both a state-regulated care provider and a non-state regulated care provider that are part of the same VAT group. By adding a non-state regulated care provider into the supply chain, it is possible for the group to recover VAT on costs that relate to the supply of welfare services that would otherwise be blocked from recovery. As the insertion of the non-regulated provider serves no real commercial purpose HMRC considers this arrangement to be a form of tax avoidance.
HMRC is launching a programme immediately to review and investigate all instances where this VAT group arrangement is in operation, and care providers should review their VAT positions urgently.
Revenue and Customs Brief 2 (2025): the use of VAT grouping within the care industry - GOV.UK
6.4 Cider is an alcoholic beverage despite drafting error in legislation
The FTT ruled in HMRC’s favour dismissing the taxpayer’s argument that cider was not excluded from the temporary reduced VAT introduced during the Covid-19 pandemic. Alcoholic beverages were excluded from the reduced rating but due to a drafting error cider was not included as part of the definition of an alcoholic beverage for this purpose.
In 2020 a reduced rate of VAT for restaurant and catering services was introduced as a result of the Covid-19 pandemic, but alcoholic beverages were excluded from the reduced rate. An alcoholic beverage was defined as beverages which were subject to excise duty as spirits, beer or wine but did not specifically refer to cider. The taxpayer sought repayment of VAT on all supplies of cider on the basis they should have been subject to the reduced rate.
The FTT held that cider was not subject to the reduced rate as it was clear this was a drafting error, and it would have been the legislator’s intention to include cider as an alcoholic beverage. The FTT considered the principles set out in Inco Europe Ltd (Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586) for correcting legislative errors, concluding it was appropriate for the legislation to be retrospectively corrected to specifically exclude cider from the temporary reduced rate.
JD Wetherspoon PLC v HM Revenue & Customs
6.5 Appeal allowed on SDLT overpayment relief claim
The FTT has allowed a taxpayer’s appeal on an SDLT claim of almost £2million, following the failure of his efforts to appeal it in another way at the CA.
Though an FTT case, this is not the first appearance of this SDLT issue in court. The taxpayer paid SDLT on the basis that a contract was substantially performed. On recission of the contract, he sought repayment by way of amending the return. The CA has since upheld HMRC’s view that the time limit for amendment had been missed, though had he made the amendment in time it would have been valid.
At the FTT, he attempted to claim relief under a difference section with a longer time limit, which he had submitted a claim within. HMRC submitted that under this section SDLT must have been overpaid originally, whereas here it was only found to be overpaid later, on rescission of the contract, and that the section under which his previous claim had failed was the only means by which he could have claimed relief. Only the latter point was taken at the hearing.
The FTT found for the taxpayer. On review of the legislation, technical note, and explanatory notes, it concluded that this section could act as a backstop, a final statutory remedy. The taxpayer’s appeal was allowed.
Candy v HMRC [2025] UKFTT 416 (TC)
6.6 Taxpayer wins appeal on multiple dwellings relief
Following a string of HMRC wins on multiple dwellings relief (MDR) claims, a taxpayer has won an appeal at the FTT that a house and annexe were separate dwellings.
The taxpayer bought a property with annexe, and initially paid SDLT as though this were one dwelling. The taxpayer was unaware of the existence of MDR at the time of purchase. HMRC enquired into her later amendment on which she claimed MDR.
There was a door linking annexe and main house, but this was lockable from both sides, fireproof and soundproof. The annexe had its own external door with path leading to it, a kitchen and fully equipped shower room. The heating was independently controlled, though the boiler was shared, and the annexe had its own means to shut off water, and its own fusebox. There was no separate address, council tax registration, or utility meters.
On the balance of probabilities the FTT found that the annexe and main house were separate dwellings. It had the necessary amenities for independent habitation, and it was not unusual for utilities to be included in the rent for a separate property, so the joint utilities were not a barrier to renting it out.
Behenna-Renton v HMRC [2025] UKFTT 403 (TC)
7. Tax publications and webinars
7.1 Tax publications
The following Tax publications have been published.
7.2 Webinars
The following client webinars are coming up soon.
8. And finally
8.1 Syniad penigamp
Finally, a tip that really works to skip HMRC hold times: learn Welsh. And finally is reliably informed that the hold time on the HMRC line for Welsh speakers is considerably less than on the general help lines for self-assessment etc. There is even an email address! Just one of the many benefits of studying this wonderful language, we recommend it to all readers.
Of course, many take the more pragmatic solution of hiring a tax adviser to handle their communications with HMRC: an excellent choice as well.
Approval code: NTEH7042515
Glossary
| Organisations | Courts | Taxes etc | ||
| ATT – Association of Tax Technicians | ICAEW - The Institute of Chartered Accountants in England and Wales | CA – Court of Appeal | ATED – Annual Tax on Enveloped Dwellings | NIC – National Insurance Contribution |
| CIOT – Chartered Institute of Taxation | ICAS - The Institute of Chartered Accountants of Scotland | CJEU - Court of Justice of the European Union | CGT – Capital Gains Tax | PAYE – Pay As You Earn |
| EU – European Union | OECD - Organisation for Economic Co-operation and Development | FTT – First-tier Tribunal | CT – Corporation Tax | R&D – Research & Development |
| EC – European Commission | OTS – Office of Tax Simplification | HC – High Court | IHT – Inheritance Tax | SDLT – Stamp Duty Land Tax |
| HMRC – HM Revenue & Customs | RS – Revenue Scotland | SC – Supreme Court | IT – Income Tax | VAT – Value Added Tax |
| HMT – HM Treasury | UT – Upper Tribunal |