Tax update May 2026

As confirmed during the Autumn Budget 2025, HMRC has now published guidance on the Advance Tax Certainty Service (ATCS), which will formally launch on 1 July 2026.

The ATCS will provide businesses with a binding clearance on how the tax rules will apply to a major investment project from before the final investment decision is taken up until the relevant tax return is made. A project must have at least £1 billion of qualifying expenditure in the UK over its lifetime to qualify for the service.

HMRC has confirmed that it will accept expressions of interest from 1 June 2026, ahead of the official launch.

Advance Tax Certainty Service - GOV.UK

The FTT found that a taxpayer who entered into a scheme which he did not understand had acted neither carelessly nor deliberately. It cancelled penalties and urged HMRC not to pursue costs.

The taxpayer was a dentist, and not entirely fluent in English. He was told on emigrating to the UK by his colleagues that one particular firm of accountants was used, run by an ex-employee of HMRC. After several years, the firm asked him if he wanted to reduce his tax in a legitimate fashion by signing some documents, as his colleagues had. The documents were in fact to put into place a complex tax avoidance scheme, involving trusts, which the taxpayer was not familiar with.

On hearing the taxpayer’s level of knowledge, and what assurances he had been given, the FTT found that the taxpayer had acted neither deliberately nor carelessly, so cancelled the penalties in full. It has no jurisdiction over costs, but invited HMRC to review its decision to seek anything from the taxpayer. The taxpayer had made major life changes to repay the underpaid tax, and when he found out that it was not a legitimate scheme he had engaged with HMRC.

Krason v HMRC [2026] UKFTT 675 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/675.html 

The FTT found that the transit exemption applied to some days, and that a storm resulting in a flight cancellation met the exceptional circumstances threshold.

The taxpayer’s circumstances in 2019/20 were such that he would be non-UK resident if midnights spent in the UK were less than 90. He was in fact in the UK for 100 midnights in that tax year. HMRC accepted that 7 were due to exceptional circumstances (the pandemic), so this case was over four nights. Three were transit days, and one due to a cancelled flight.

The FTT heard that a storm had led to mass flight cancellations, and the taxpayer had left the UK the next day. These were circumstances beyond his control, so the flight cancellation day was discounted due to exceptional circumstances. HMRC’s suggestion that he could have found another way to leave the UK was found to be  unrealistic.

HMRC also argued that the transit exemption did not apply to the three travel days, as the taxpayer was travelling on separate tickets to and from the UK. One provided by his employer, and one personal for a family holiday. The FTT found that the distinction between combined and separate tickets was arbitrary. The facts were that he was merely passing through the UK, so these transit days were discounted.

The FTT therefore found for the taxpayer.

Parker v HMRC [2026] UKFTT 652 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/652.html 

A barrister who was unaware of Class 2 NIC for decades has been found not to have failed to exercise due care. The contributions will be treated as paid.

The taxpayer, a barrister, commenced self-employment in 1981. He engaged accountants who filed self-assessment returns yearly, and he paid income tax and Class 4 NIC. However, he never paid any Class 2 NIC until it began to be automatically added to his tax returns from 2015/16 onwards. HMRC then refunded several years’ worth, as the taxpayer was not registered for NIC. This was the first point at which the taxpayer was aware of the deficiency. The taxpayer explained that he had been unaware of this separate NIC class, or that he was liable to pay it, and sought to have late payments accepted to allow him to claim a full state pension. HMRC argued that the taxpayer had failed to exercise due care and diligence.

The FTT found that this was not so. He had reasonably believed that his advisers were dealing with all compliance obligations, and took steps to correct the position when the issue came to light. The historic separation of administration of the NIC classes was confusing. The NIC was to be treated as paid.

Gadsden v HMRC [2026] UKFTT 720 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/720.html 

The FTT found that the partnerships were trading, but bank debts were incurred for tax relief not for the trade.

A film partnership claimed losses on the basis that it was trading, and expenditure was incurred wholly and exclusively for the benefit of the trade. The business was funded partly by equity and partly by bank loans.

The FTT examined the nature of the business, and found that it was trading. Films had been made. The partners’ primary reason for investing in the scheme was tax relief, but there was a secondary commercial motive.

Looking at what the funding had been used for, the FTT determined that some of it had been used for the trade, but only the cash contributions of the partners. The bank loans had been incurred for tax reasons, so were not deductible expenditure. The appeals were partially allowed.

Take 3.9 TV Partnership & Ors v HMRC [2026] UKFTT 696 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/696.html 

The FTT found that payments to various political campaigns were not exempt for IHT.

A taxpayer made donations to a number of causes. Those to political parties or charities were not relevant for IHT, but HMRC investigated six payments to campaigns which were neither. It assessed them as chargeable transfers for IHT.

The taxpayer argued that these were exempt as either normal expenditure out of income or because they were not intended to confer a gratuitous benefit.

The FTT dismissed his appeal on both grounds. Arm’s length payments which benefitted the recipient with nothing for the taxpayer were intrinsically objectively gratuitous, despite his subjective view that if the campaigning organisation met its goal it would benefit him financially in general.

When looking at the pattern of payments there was no regularity nor predictability, so these were also not normal expenditure out of income.

Wood v HMRC [2026] UKFTT 589 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/589.html 

The FTT has found for the taxpayer on the employment status of referees. It determined that the contracts between them and the taxpayer were not ones of employment. Over half a million of tax was in dispute.

This case, on the correct tax treatment of payments to referees, has previously reached the SC. That found that there was mutuality of obligation and a sufficient framework of control in the relationship to meet the employment treatment criteria, but remitted the case to the FTT to make a decision based on these principles, but taking account of all the circumstances of the engagement.

The FTT looked at the various aspects of the relationship that could indicate for or against employment, and ultimately found that it was not employment. There was no ongoing mutual commitment, nor integration of the referees into the taxpayer organisation. The referees were skilled, and working within a tight framework, but they undertook discrete engagements and were not employees.

Professional Game Match Officials Ltd & Anor v HMRC [2026] UKFTT 654 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/654.html 

The UT upheld the FTT’s decision that secondary Class 1 NICs were due on earnings for employees provided by an offshore subsidiary to a UK company, on the basis the workers were ‘made available’ with little to no direction.

The taxpayer was a company based in Scotland that provided services to Marathon Oil UK Ltd (Marathon) in the North Sea. The taxpayer provided its own employees to carry out the services and accounted for secondary Class 1 NICs on their earnings.  

Marathon proposed a contract where they would bear the ‘economic costs’ and had expressed its desire to implement a structure that did not incur secondary Class 1 NIC liabilities.  As a result, an offshore employment model was designed and implemented.  

The assessments raised by HMRC were in respect of secondary Class 1 NICs that were deemed due on the employees ‘made available’ by the host employer, being the offshore subsidiary.

The taxpayer argued that ‘some degree of direction or control must be intended to lie with the host employer’. HMRC argued that the host employer providing control or direction over the activities of the employees was not relevant. The fact that the employees were ‘made available’ was enough to be caught by the legislation.

The UT therefore upheld the FTT’s decision and dismissed the taxpayer’s appeal.

Bilfinger Salamis UK Limited v HMRC [2026] UKUT 124 (TCC)

www.bailii.org/uk/cases/UKUT/TCC/2026/143.html 

HMRC has lost its appeal at the CA on the classification of payments from an employee benefit trust.

The taxpayer (a company) paid £800,000 to the trustee of an employee benefit trust (EBT), which made a loan of the same amount to a director of the taxpayer. HMRC classed the payment to the EBT as earnings of the director, and the taxpayer appealed.

The taxpayer argued that this was a genuine loan, which as the documents showed was repayable on demand after five years. It argued that the EBT’s purpose was to reward and incentivise employees in the short term, like with this short-term loan. The director was using shares in the taxpayer company as security for the loan, which he had purchased from his wife. Under the legislation, receipt of capital of a loan used to purchase shares in a close company is not taxable.

The FTT rejected this and found for HMRC. The payment to the EBT was paid by the company as a reward for the services the director supplied to the company. It was therefore earnings. There was no evidence that the £800,000 would have been paid to him if the loan arrangement was not used, but the trustees made the payment to him because he was considered to have been under-rewarded. The fact that this ruling created double taxation did not affect the ruling, as it was simply a consequence of the arrangements put in place by the taxpayer.

The UT reversed the decision. The FTT had made an error in law in concluding that a loan confers a taxable benefit in most cases, and that it was so in this case. The UT remade the decision such that neither the payment to the EBT nor the principal of the loan paid to the director were earnings.

At the CA this decision was upheld. The payment to the EBT was not a diversion of earnings, but a genuine loan.

HMRC v MR Currell Ltd [2026] EWCA Civ 445  

www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWCA/Civ/2026/445.html 

HMRC has published guidance on advance assurance for businesses making their first R&D claim.

This service provides eligible small and medium enterprises (SMEs) with clarity as to whether or not their R&D activities are qualifying when claiming R&D tax relief for the first time.

The application process involves providing detailed information regarding the company’s R&D activities.  When applying for advance assurance, a named main contact is required and should have direct knowledge of the R&D activities and claims being made.

Apply for full claim advance assurance on your first Research and Development (R&D) tax relief claim - GOV.UK

The FTT upheld the taxpayer’s appeal that lidded baskets are not considered a separate supply for VAT purposes and were ancillary to the items within it.  

The taxpayer was an online retailer that sold food and gift hampers.  Items within the hampers were a mixture of standard-rated and zero-rated items for VAT.  The taxpayer calculated an aggregate VAT rate for each hamper based on the value of standard-rated and zero-rated items within each hamper.

The taxpayer argued that the lidded baskets were “part of the overall single supply of the food”, however HMRC disagreed and contended that the lidded baskets constituted a separate standard-rated supply and were not dependent on the items within it.

The FTT found for the taxpayer that hamper does not constitute a separate supply on the basis a customer purchasing a hamper would not consider the lidded basket to be a separate supply.

Clearwater Hampers Limited v HMRC [2026] UKFTT 567 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/567.html 

Concerns had previously been raised that the new Renters Rights Bill could result in more tenancies with a net present value over the SDLT threshold. The new legislation will be such that no assured tenancy will be charged on the rent element.

The legislation will apply retrospectively from 1 May 2026, the same date as the legislation anticipated to cause the problem applies from.

Written statements - Written questions, answers and statements - UK Parliament

The FTT has confirmed that a taxpayer must repay overclaimed employment expenses, but not penalties.

A nurse was employed by the NHS as a bank worker. She engaged a company to submit claims to HMRC for her legitimate employment expenses such as laundering of uniforms. Later, a colleague told her she could claim more expenses, and asked her for all her HMRC login details and personal information, which she gave. The colleague claimed home to work commuting expenses by submitting tax returns, and took a cut.

The FTT upheld the discovery assessments disallowing these, as normal commuting is not allowable. It did however cancel the penalties, as the taxpayer had been the victim of a colleague’s fraud.

The case was anonymised as the nurse concerned was a vulnerable individual who had been tricked.

A Nurse v HMRC [2026] UKFTT 722 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/722.html 

The following Tax publications have been published.

• Pillar Two side-by-side package released by OECD and what this means
• Tax technology benchmarking: the gap between perception and reality
• Behind the growth ep 2: Darcy Laceby, Absolute Collagen
• Capturing R&D in the engineering consultancy and construction
• Are your systems ready for FRS 102?

The following client webinars are coming up soon.

• 3 June - Navigating tax: Smarter R&D - Transform your approach to innovation spend
• 10 June - Business post-sale support: Thriving after the transaction
• 11 June - Navigating compliance: Accounting, tax and regulatory updates for finance leaders
  

It’s been a good month for fans of the PGMOL case (4.1) above. Devotees watched with pride as it reached the heights of the SC, but unlike a championship final the highest court was not the end of the matter. No, it was kicked into touch. The FTT was called back to the bench for a bit more hard thinking, and the referees have reason to cheer.

Well done to the FTT for its careful refereeing of the latest iteration – but we are not confident that the final whistle has blown yet.