Tax update November 2025

The draft Welsh Budget for 2026/27 was published on 14 October.

Key tax points include: 

• Income tax is partially devolved to Wales, which means that the Welsh Government is only able to vary the three income tax rates (basic, higher and additional). The rates for income tax have been proposed at the same level as the rest of the UK (excluding Scotland).
• No changes to Land Transaction Tax (LTT) rates and thresholds (Welsh equivalent of SDLT).
• Multiple Dwellings Relief for LTT will be altered such that multiple and single dwelling transactions are liable to the same rates per dwelling if the higher residential rate applies. The minimum tax rule rate will increase from 1% to 3%.
• Landfill disposals tax will rise in line with the retail price index, such that landfill taxes rates continue to match rates in the rest of the UK.
• These rates must now be agreed and put into law. The final Welsh Budget is expected in January.

www.gov.wales/written-statement-draft-budget-2026-27-welsh-taxes  

This HMRC campaign focusses on encouraging taxpayers to check if they could be liable for the high income child benefit charge (HICBC), and to pay it if so.

HMRC is writing to taxpayers on PAYE who had income of over £60,000 in 2024/25 or 2025/26 to let them know they may be liable for the HICBC. There is a flowchart in the letter for them to work out if they could be liable, and instructions for how to pay the charge. It is now possible to apply to pay it through a PAYE code rather than self-assessment.  

www.tax.org.uk/hmrc-one-to-many-letter-high-income-child-benefit-charge-digital-paye-coding-solution  

HMRC is writing to taxpayers this month that it believes may need to comply with MTD for income tax.

One batch of letters is going to those who filed their 2024/25 return by 31 August 2025, and based on the data in that will need to comply with MTD for income tax from April 2026. The letters explain that it will apply, and how to prepare. Taxpayers in this category who have not yet filed will be sent similar letters after the filing deadline.

Awareness letters will be sent to unrepresented taxpayers who did not file by 31 August, but whose 2023/24 return suggests that they may have to comply with MTD.

Tax agents will not be sent copies of the letters. 

MTD is HMRC’s initiative to modernise tax reporting. In addition to annual returns, sole traders and landlords with qualifying income must keep digital records and submit quarterly updates via compatible software. We are providing tailored support to our clients to help them navigate these new processes. Do get in touch if you require support.

www.att.org.uk/technical/news/making-tax-digital-hmrc-letters-taxpayers  

The FTT has found that it was not reasonable for a taxpayer not to open post, as although it was addressed to an entity as well it did have his name on it.

As part of its investigation into a possible SDLT avoidance scheme, HMRC sent an information notice to the taxpayer. It was addressed to the taxpayer, two other individuals, and an entity, ‘Mayfair Tax Consultants’, of which the status was unclear. The FTT found on the balance of probabilities that it was a partnership of which the taxpayer was one of the partners. The taxpayer returned the information notice as ‘addressee not known’, as he had retired from the entity. He appealed the penalty for non-compliance on the grounds that the notice was not properly addressed to him, but to three people trading as the entity. That entity had never traded from his own address, and he was not authorised to open its post. He had been reasonable in not opening the envelope so should not have to pay a fine.

The FTT dismissed his appeal. The letter had his name on and had arrived at his home. It was the last known address for the entity, which was adequate to meet the requirements for a valid notice. The penalty was upheld as it was not reasonable for him to treat the letter as not associated with him.

Marshall v HMRC [2025] UKFTT 1256 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2025/TC09669.html 

The FTT found that a company had failed to notify HMRC about notifiable arrangements which it was promoting, and had no reasonable excuse.

HMRC applied to the FTT for penalties to be imposed on the taxpayer for:

• Failure to notify notifiable arrangements
• Failure to respond to an enquiry notice

In order for these penalties to be imposed, the FTT needed to consider whether or not the company was a promoter of notifiable arrangements, had failed to comply with the obligations, if so if there was a reasonable excuse, and if not how much the penalties should be.

The company had declared that it was dormant and insolvent, and agreed to a hearing on paper if the application were not struck out.

The FTT considered the information available about the company’s operations and what it was selling, such as the standardised documentation for employment contracts involving an annuity. It found that these were notifiable arrangements promoted by the company with no reasonable excuse for the failure to comply with its obligations.

The penalty was set at a level that the FTT felt would deter others from this behaviour.

HMRC v Moir Management Services Ltd [2025] UKFTT 1333 (TC) 

www.bailii.org/uk/cases/UKFTT/TC/2025/TC09681.html  

The FTT found that while the taxpayer had initially taken sufficient steps to file his tax returns, he should have made more enquiries when penalty notices began to arrive.

HMRC issued penalties for the late filing of four tax returns. No tax was due for any of the years. 
When the taxpayer moved to the UK he registered for self-assessment and instructed an accountant. He submitted his tax return information to his accountant in good time, and signed each tax return produced on the assumption that his accountant would then submit it. His accountant did not, and has since died so no evidence was given as to the circumstances. There were questions as to how aware the taxpayer was of the penalties, which began to be issued in 2012. He was given permission to appeal late.

The FTT upheld all but one of the penalties. The returns were very late, and the taxpayer should have checked that they had been submitted. It was reasonable for him to rely on his accountant, but only until penalty notices started to be sent to him. Therefore the first penalty was cancelled, but subsequent ones upheld.

Wals v HMRC [2025] UKFTT 1331 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2025/TC09679.html  

The CA dismissed the taxpayer’s appeal on the basis subsistence expenses were wrongly treated as tax-free for temporary workers with no permanent workplace.  

The taxpayer operated an umbrella company for temporary workers mainly in the education, health and social care sectors.  The taxpayer argued that the workers were employed under a single overarching employment contract and that the workplace a temporary worker attended for each assignment was a ‘temporary workplace’. This meant that they were entitled to the reimbursement of their travel and subsistence expenses.

The FTT concluded mutuality of obligation did not exist between assignments which negated the existence of a single employment. 

The CA dismissed the three grounds for appeal made by the taxpayer and upheld the decision of the UT and FTT. It concluded that a continuous umbrella contract cannot constitute a ‘single employment’. As a result, the second ground was also dismissed on the basis there was no entitlement to make the reimbursement.  The CA also concluded the assignments were each separate employments and that the loss of tax was ‘brought about carelessly’.

Mainpay Ltd v HMRC [2025] EWCA Civ 1290

www.bailii.org/ew/cases/EWCA/Civ/2025/1290.html  

The UT has found that an amount paid to a taxpayer after ceasing employment was taxable as employment income. It was earned while the taxpayer was a UK tax resident despite the payment being physically made whilst non-UK resident.  

A taxpayer received a payment from his former employer under a stock appreciation rights (SARs) plan following a corporate exit, and after his employment had ceased. He claimed split year treatment for the tax year in which the payment was received and treated the income on his tax return as foreign earnings not taxable in the UK. This resulted in a tax repayment. HMRC issued a closure notice on the basis the payment was taxable in the UK.  

The taxpayer argued that the SARs were valuable contractual or property rights and the payment came as a result of this ownership, not as a reward for the performance of his employment duties. The payment was received in the overseas part of the split year and therefore he contended that the payment should be excluded income.  

HMRC maintained that the payment fell within the meaning of general earnings, it was earned when the taxpayer was UK resident and therefore the payment is taxable in the tax year in which it was received.   
The FTT agreed with HMRC, finding that the payment was earnings as the SARs had been granted in connection with his employment and was done so to incentivise employees.  The conditions of the SARs contained a clause in relation to good and bad leavers where bad leavers forfeited all SARs upon the termination of their employment.

As the income was earned when the taxpayer was UK resident, it was taxable in the UK.

At the UT, the taxpayer appealed both the finding that the payment arose from his employment, and that it was for the part of the year in which he was UK resident. The UT found for the FTT on both issues, after consideration of the case law. On a realistic appraisal of the facts, having regard to the substance of the position, the taxpayer’s earnings were the value of the payment received, not the value of the share options at date of grant. The payment was ‘for’ UK duties and not excluded under split-year rules.

Saunders v HMRC [2025] UKUT 374 (TCC)

www.bailii.org/uk/cases/UKUT/TCC/2025/374.html  

The FTT allowed the taxpayer’s appeal that the ‘termination fee’ was non-taxable on the basis it did not constitute a disposal under TCGA 1992 s.22(1)(c).  

The taxpayer operated a microchip company that produced mixed signal, connectivity and power management products for devices.  A merger agreement was entered into between the taxpayer and an American company, for a consideration of both cash and shares.  

The dispute was whether or not the ‘termination fee’ that arose as a result of a failed merger constituted a disposal of an asset chargeable to corporation tax.  

The taxpayer argued that the ‘termination fee’ was not received in return for forfeiting, surrendering or refraining from exercising rights under the merger agreement.  Instead, this was a compulsory payment due on the termination and breach of contractual obligations.

HMRC contended that this payment did fall within the relevant legislation and compensated the forfeiture or surrender of assets for chargeable gains purposes.

The FTT concluded that the payment had an important compensatory function for the loss of opportunity and to compensate for out-of-pocket expenses.  The appeal was allowed on the basis the FTT found that there was no ‘forfeiture, surrender or refraining from exercising rights’ when the taxpayer became entitled to the ‘termination fee’.

Consequently, the closure notice was withdrawn and no additional tax was due by the taxpayer.  

Dialog Semiconductor Limited v HMRC [2025] UKFTT 1188 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2025/TC09654.html  

HMRC is writing to non-resident companies subject to UK corporation tax it believes may have applied the incorrect rate of corporation tax to their profits.

HMRC has written to non-resident companies with rental income confirming that the main rate of corporation tax (25% from 1 April 2023) applies and no small profits rate or marginal relief is available for these companies.

Where HMRC has identified that a non-resident company has claimed small profits rate or marginal relief, a CT620 ‘Notice of Correction’ has been sent setting out the additional tax that HMRC considers is payable.  If this letter is received it should not be ignored and appropriate action should be taken as soon as possible.

Going forwards, for periods from 1 April 2025, a new code is available to enter in Box 4 (type of company) on the CT600.  Entering type 11 in Box 4 will ensure the correct rate of corporation tax applies for a non-resident company.

www.tax.org.uk/small-profits-rate-and-non-resident-companies 

The FTT has found that a summerhouse with a lavatory was not a separate dwelling. Although it was used by the family, it was not suitable for use as a dwelling on its own due to the lack of a shower or bath. Multiple dwellings relief (MDR) was refused.

The taxpayer purchased property consisting of a main house, a cottage, and a ‘summerhouse’. He claimed MDR on the basis that these were three separate dwellings. HMRC accepted that the house and cottage were individual dwellings, so just the nature of the summerhouse was disputed.

This building was an independent structure in the property’s garden, which is one living/kitchen area with an ensuite lavatory. It was not particularly private as three of the four walls were French windows looking out over the garden. It was registered for council tax four months after the sale, but did not have separate utility bills nor postal address. The taxpayer explained that it was primarily used by his severely disabled daughter, aged 12, and was suitable as a dwelling for her. No shower or bath were present, but she had no need of them as she would wash using the basin. He argued that it would be discriminatory not to take account of the fact that the needs of a disabled person in terms of hygiene might be different from those of a non-disabled person. Alternatively a portable bath could be used. He also argued that as the summerhouse had been accepted as a separate dwelling for council tax purposes, it would be inconsistent for HMRC to treat it differently.

The FTT found for HMRC. The key element in dismissing the appeal was the washing facilities, and its small size was also a factor. For most people, a permanent bath or shower would be needed to meet hygiene needs with the amount of settled permanence to class a building as a dwelling. The fact that the taxpayer’s daughter might not need them was not sufficient to displace this, first as she lived between the house and summerhouse, so did not use it as a single dwelling meeting all her needs. Also, the objective test is wider than the needs of one individual.

Town v HMRC [2025] UKFTT 1210 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2025/TC09658.html  

The FTT allowed the taxpayer’s appeal on the basis the court found that the taxpayer did not know, or ought to know, that its transactions with a third-party were connected with the fraudulent evasion of VAT, thus allowing the input tax deduction.

The taxpayer was a wholesaler of metal and metal ores but was not aware of the risks of fraud in the metal industry.  HMRC had denied input tax on the transactions relating to the purchases of scrap metal on the basis HMRC believed that the taxpayer was aware that the third-party supplying metals was committing fraud.

HMRC argued that the taxpayer should have known that its transactions with B Trade Limited (BTL) were connected with fraudulent VAT evasion.  HMRC stated that more extensive due diligence should have been carried out as the taxpayer only demonstrated that the supplier existed, was located at the address declared and was VAT registered.  This was therefore inadequate in confirming BTL was not connected to fraud.

A reference was also made to the Kittel principle when determining input tax denials and penalties. The Kittel principle allows HMRC to deny input tax recovery if it can be proven that a taxpayer knew, or should have known that their transactions were connected to VAT fraud. 

The taxpayer’s appeal was allowed on the basis the FTT found that the taxpayer neither knew, nor ought to have known, that its transactions with BTL were connected with the fraudulent evasion of VAT and therefore the input tax denials should not have been made.  It followed that the penalty should not have been charged and that HMRC was wrong to make the director personally liable for the entire penalty issued.  

SK Metals Ltd v HMRC [2025] UKFTT 1211

www.bailii.org/uk/cases/UKFTT/TC/2025/TC09659.html 

The SC overturned the CA decision and concluded that VAT was payable on car parking charges. This was on the basis car parking services were not supplied under a ‘special legal regime’ and would lead to significant distortion of competition.  

The supply of the ‘pay and display’ car parking services are normally standard rated for VAT purposes. However Northumbria Healthcare Trust (the Trust) argued that it was entitled to an exemption under the ‘special legal regime’ that applied to those operating as a public authority and not a private car park operator.  

The FTT rejected the Trust's case that car parking was supplied under a ‘special legal regime’ and decided that although the Trust would be providing car parking as a public authority it would still be a taxable person, otherwise there would be a significant distortion of competition compared to private operators.  This decision was upheld by the UT.

The CA overturned the FTT and UT decision and decided that the Trust was acting as a public authority and therefore qualified for the exemption.  The CA also found that HMRC had failed to prove that treating the Trust as a non-taxable person would lead to significant distortions of competition and that the Trust was providing parking as part of its requirement.  

HMRC appealed the CA decision which was unanimously overturned by the SC.  The SC agreed with the FTT’s ruling and concluded that the Trust acted under guidance (issued by the Department of Health), which it could choose to ignore, rather than under a special legal regime.  The SC concluded that by the Trust treating its parking differently for VAT purposes there would be a significant distortion of competition to those commercial enterprises subject to VAT as the car park could be used by anyone and nearby parking was provided by private operators.

HMRC v Northumbria Healthcare NHS Foundation Trust [2025] UKSC 37

www.bailii.org/uk/cases/UKSC/2025/37.html  

The taxpayer appealed VAT assessments amounting to £1.446bn and submitted a claim to seek repayment of the deposited funds. The FTT did not order HMRC to repay the sums deposited on the basis the taxpayer did not argue hardship when initially paying the tax. 

HMRC applied to stay the taxpayer’s appeal on the basis the outcome of the Bolt Appeal would be of material assistance to the FTT in resolving the issues in the taxpayer’s appeal.  The taxpayer and Bolt raise two very similar questions of law.

The taxpayer submitted a claim seeking repayment of deposited funds, referencing the relevant HMRC guidance which states that a repayment should ordinarily follow an adverse UT decision unless there is a genuine risk of non-recovery.

HMRC rejected the claim on the basis there was a genuine risk of non-recovery and stated it would be prejudicial to their responsibility to protect the revenue to pay claims while the litigation continues.

The taxpayer referred to the severe financial hardship caused by the continued retention of the funds, including the significant opportunity costs, financing burdens and commercial disadvantages it faced, and argued that statutory interest would not adequately compensate for the loss.  

Additionally, the taxpayer paid the sums on the basis there was an expectation that the appeal would be heard promptly. The taxpayer argued that the appeal had not been entertained on the basis the proceedings had been stayed and had never been listed for hearing.  The FTT stated that the appeal was proceeding and therefore was being ‘entertained’ regardless of whether it was subsequently stayed or listed for hearing.

The FTT accepted HMRC’s submission that the relevant sums were deposited without any hardship application being made and that there is no hardship provision pursuant to which the FTT can direct that those sums are now returned.

The FTT also directed that the appeals are stayed until 35 days after the appeal of HMRC v Bolt Services UK Limited is finally determined.

Uber London Limited v HMRC [2025] UKFTT 1282

www.bailii.org/uk/cases/UKFTT/TC/2025/TC09677.html 

The UT overturned the FTT’s decision on the basis a cosmetic procedure could be exempt from VAT where there is a therapeutic purpose to treat a health disorder.  

The taxpayer ran a private clinic offering a range of aesthetic, skincare and wellness treatments and had treated some of its supplies as exempt from VAT on the basis their treatments addressed genuine health concerns. 

The FTT found for HMRC on the basis cosmetic treatments did not fall within the definition of medical care for VAT purposes. This decision was overturned by the UT who agreed with the taxpayer that the FTT had adopted a too narrow interpretation and assessment of the medical care definition. The UT also concluded that the FTT’s expectation of how a diagnosis should be evidenced was too high and over-generalised.

For more detail, please read our article here.

Illuminate Skin Clinics Limited v HMRC [20225] UKUT 341 

www.bailii.org/uk/cases/UKUT/TCC/2025/341.html     

The following tax publications have been published.

• Why the supply of cosmetic procedures could be exempt from VAT
• Latest Budget predictions and speculation
• The Autumn Budget and financial services: The long and the short of it
• Extension to climate change levy reliefs
• The BOSS and Budget 2025
• AI versus the personal tax adviser
• Bridging the gap: Linking transfer pricing with corporate treasury
• Partnerships: A summary of the basics
• What will be in the Autumn Budget 2025?
• Digital asset and crypto reporting with CARF and CRS 2.0

The following client webinars are coming up soon.

• 27 November - The Autumn Budget 2025: What do the announcements mean for you and your business?

Given the lateness of this year’s Budget, the rumour mill, which started churning at the usual time, has possibly reached a production record this year. Although nothing is known or certain until the Chancellor has given the Budget (and we have the OOTLAR) Budget speculation is our annual hobby, and we can only assume that it has been going on since the first Budget.

If every rumour turned out to be true, then Rachel Reeves would break the record for the longest continuous Budget speech. Gladstone’s 1853 speech has had a good run.

OOTLAR: www.gov.uk/government/publications/autumn-budget-2024-overview-of-tax-legislation-and-rates-ootlar

https://www.parliament.uk/about/how/role/check-and-approve-government-spending-and-taxation/the-budget-and-parliament/