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 Scottish Budget date set as 13 January
The 2026/27 draft Scottish Budget will be presented in January.
Scottish Budgets are generally in December, but this one has been pushed back as the UK Budget will be later than usual, on 26 November, and the Scottish Government will need time to review the Chancellor’s tax and spending plans.
1.2 Late appeal not admitted
The FTT refused to admit a late appeal, as the taxpayer was attempting to appeal its own error rather than that of HMRC.
HMRC issued a closure notice to a company that it believed had not included a house sale in its tax return. The company had 30 days to appeal, but filed an appeal almost four years late, on the grounds that the house was owned by an individual rather than a company, and that private residence relief then brought the tax bill to zero. The trigger was new agents acting for the company identifying the error.
The application to bring a late appeal was refused. Appeals must be against amendments to a tax return resulting from an HMRC decision. What the taxpayer was attempting to appeal here was its own possible error as to ownership. The late appeal was therefore not admitted.
Kinross Estate Company v HMRC [2025] UKFTT 1146 (TC)
2. Private client
2.1 FTT orders HMRC to disclose documents
The FTT found that HMRC should provide most of the requested documents to the taxpayers, but not internal HMRC documents.
This procedural hearing related to eleven separate appeals. Each closure notice was for CGT planning arrangements using offshore trusts. Together they covered 1999 to 2003.
The taxpayers sought disclosure from HMRC of various documents and forms, including their full tax returns and correspondence between HMRC, the taxpayers, their representatives and trustees, and some internal HMRC documents. Their position was that they needed these to establish the facts their claims were based on, check for estoppel, and understand HMRC’s historical position.
HMRC’s case was that for some documents it had already made all reasonable efforts to locate and disclose them, that the correspondence sought was too broadly defined, and that some of its internal documents were confidential state-to-state communications. It had already disclosed 417 documents.
The FTT noted that the tax at state was £15m, and that the taxpayers had lost some of their early correspondence. It found that HMRC should disclose the documents in the most part, as it was responsible for them and should either produce them or state how they were lost. For one category, no disclosure was ordered; the internal HMRC documents. It was not clear that they would be relevant to the case, and HMRC’s concerns about publishing its communications with other states about tax treaty negotiations were legitimate.
Evans & Ors v HMRC [2025] UKFTT 1112 (TC)
2.2 Child benefit: new reporting method to take some individuals out of self-assessment
A new reporting method for child benefit overpayments has been introduced. Individuals who only needed to file a tax return because of this will be able to come out of self-assessment.
Taxpayers will have to deregister from self-assessment, then will be eligible to use the new online service the next day. They can report through this, and the charge can be collected through PAYE.
The plan for this measure was announced at Spring Statement 2025 but it is now live.
2.3 Permission granted for late judicial review in domicile case
The HC has allowed a taxpayer to make a late application for judicial review, as his case was arguable and some of the delay was due to exploring other options to appeal.
The underlying issue was the taxpayer’s domicile. A statutory review found him to be UK domiciled, but he argued that HMRC’s previous correspondence and actions had given him a “substantive legitimate expectation” that he would be treated as non-UK domiciled. His main evidence was a letter from HMRC in 2000, which stated that an enquiry into his non-domicile claim had been completed, and no amendment was required. He had relied on this position for all subsequent returns. Closure notices were issued in 2019 on the basis that he was domiciled in the UK, which led to the statutory review. He raised judicial review proceedings in 2024, which were out of time.
The HC allowed the late judicial review application. Some of the delay was down to him exploring other options to challenge the decision, throughout which he continued to asset his reliance on legitimate expectation. Also, the HC’s view was that he did have an arguable case.
Weis v HMRC [2025] EWHC 2479 (Admin)
2.4 HMRC nudge letter on undeclared dividend income
HMRC is writing to a group of taxpayers registered for self-assessment that HMRC suspects may have failed to declare some dividend income on their 2023/24 tax returns.
The letters ask recipients to check that their 2023/24 tax return has the correct amount of dividend income. No action is required if they believe that the return is correct. If any amendment is required this should be made by 31 January 2026.
www.icaew.com/insights/tax-news/2025/oct-2025/taxpayers-asked-to-check-dividend-income
3. PAYE and employment
3.1 Appeals dismissed on PAYE and employer NICs
The FTT has found that money did not have to be at an employee’s absolute disposal to be classed as earnings for IT and NIC purposes under the definitions in the legislation.
Two companies used a marketed tax avoidance scheme which claimed that monies could be transferred to employees free from IT and NICs, but a CT deduction would be obtained. The monies were amounts credited to the loan accounts of employees and directors. HMRC argued that IT and NICs should be charged, as these payments were ‘earnings’ under the legislation.
The FTT found for HMRC. The taxpayer argued that these were not earnings, as the recipients were required to return the payments. HMRC stated that this was not so, rather the payments were made subject to an obligation to use 1% of the payments to subscribe for shares, and the FTT agreed. It also found that money did not have to be at an employee’s absolute disposal to be earnings. The payments were also of value, despite a contingent liability to repay uncalled amounts on shares (the shares themselves were found to have no commercial purpose or real value).
GW Martin & Co Ltd & Anor v HMRC [2025] UKFTT 1147 (TC)
3.2 FTT refuses taxpayer’s application to access HMRC EBT documents
The FTT has refused to direct HMRC to give a taxpayer documents about possible deals it made in employee benefit trust (EBT) cases. It would not “be in the interests of fairness and justice”.
The taxpayer applied to the FTT for a direction that HMRC should provide documents about their EBT cases. These were:
- “Provide all documents, including correspondence, meeting notes, in connection with the settlement with large companies where the companies settled for somewhere in the region of 15% in 2015 in connection with EBTs.
- HMRC may redact confidential information about taxpayers but must disclose the names of HMRC officers.
- HMRC's explanation as to why users of the remuneration trust were not offered the same discounted offer as the large companies.”
His grounds were based on the alleged public availability of letters and freedom of information (FOI) materials suggesting HMRC may have come to arrangements with large companies in that year whereby only 15% of the tax in dispute was paid.
He believed that this information would support his dispute with HMRC regarding a Self-Employed Remuneration Trust, which, although not formally classified as an EBT, is treated similarly by HMRC for tax avoidance purposes.
HMRC made no comment on the truth of the claims but argued that the documents were irrelevant to the legal issues in dispute, not intended to support taxpayers with negotiating a more favourable settlement and that the grounds of appeal were vague and incomplete.
The taxpayer’s ultimate appeal would be about HMRC’s decision on his own case, not settlement offers made to other taxpayers.The FTT found for HMRC. The information sought by the taxpayer was not relevant to the issues in his own case. It concluded that the application was premature and the requested disclosure not relevant or proportionate to the issues in dispute.
Crooks v HMRC [2025] UKFTT 1148 (TC)
4. Business tax
4.1 Tax overpayment claim on foreign income found to be within time limit by the HC
The CA upheld the decision of the HC that the trigger point for the overpayment claim was a later date than HMRC had argued. The taxpayer had therefore made their claim for the overpayment of corporation tax paid within the relevant time period.
The taxpayer sought to recover overpaid corporation tax on dividends received by a UK company from a non-UK company, which both the taxpayer and HMRC had believed to be payable at the time. It transpired that the domestic tax regime was not compatible with EU law exposing the taxpayer to a higher tax liability.
The recovery of the overpaid tax was time-barred six years after the mistaken payment was made, however there was an alternative trigger for the commencement of the limitation period within the Limitation Act 1980 – “the period of limitation shall not begin to run until the plaintiff has discovered the… mistake… or could with reasonable diligence have discovered it.”
HMRC and the taxpayer had conflicting dates for when they believed the taxpayer had sufficient knowledge of the mistake, with HMRC’s being much earlier.
The CA has upheld the HC decision and confirmed that the claims were made within the appropriate time limit on the basis the taxpayer’s later date was fully justified.
BAT Industries Plc and Ors v HMRC [2025] EWCA Civ 1271
5. VAT and Indirect taxes
5.1 FTT ruled that nitrous oxide is standard rated for VAT
The FTT ruled in HMRC’s favour that the supply of nitrous oxide should be standard rated for VAT purposes and not zero rated on the basis it was not found to be a supply of ‘food’.
HMRC raised assessments to recover underdeclared output VAT on the supply of nitrous oxide for culinary purposes.
For a period of little over a year, the taxpayer had treated the supply of nitrous oxide as zero rated within their VAT returns. They argued that nitrous oxide was ‘food’ on the basis it was used to ‘form an ingredient of all the food substances’ and changed the ‘state and nature of those foods’. The taxpayer also made a comparison to the Phoenix Foods case where the FTT found bicarbonate of soda to be zero rated.
HMRC argued that the taxpayer’s situation most resembled that of Gas & Chemicals Limited where carbon dioxide was not considered ‘food’ on the basis the use of the gas was for cosmetic purposes only.
The FTT ruled that nitrous oxide was not ‘food of a kind used for human consumption’ and is therefore incapable of being eaten or drunk indicating that it is not food. Additionally, the gas was colourless, odourless and tasteless. The FTT has also considered the broad interpretation of ‘nutritional value’ of nitrous oxide in the context of proteins, carbohydrates, fats and minerals when assessing whether that contributed to maintaining life or growth.
Consequently, the FTT dismissed the taxpayer’s appeal and standard rate VAT was due on the supply.
Telamara Limited v HMRC [2025] UKFTT 1123 (TC)
5.2 FTT directs HMRC to carry out a search as if the Civil Procedure Rules applied
The taxpayer applied to the FTT for a direction that HMRC must carry out a search as if the Civil Procedure Rules (CPR) applied and must disclose the results to the taxpayer.
The taxpayer operated a ‘cash and carry’ business in Glasgow. HMRC identified that the taxpayer had received supplies of alcohol, on which no duty had been paid.
The taxpayer appealed the excise duty assessments on the basis there had been an earlier duty point and it was therefore not liable to the duty. As stated in Regulation 5, ‘an excise duty point arises at the time when goods are released for consumption in the UK’.
HMRC held information relating to the earlier supply chain when determining that excise duty was due by the taxpayer and not another business earlier in the supply chain. The taxpayer listed a number of specific searches which HMRC were required to carry out and referenced CPR 31.7 stating HMRC should disclose documents within ‘standard disclosure’.
HMRC argued that the taxpayer failed to carry out pre-transaction commercial checks, however this was rejected by the FTT on the basis it would not be correct to refuse the application on the basis the taxpayer could have taken a different course of action.
The direction was granted and the FTT stated that HMRC have until 15 October 2025 to carry out a search as if the Civil Procedure Rules (CPR) applied and disclose the results to the taxpayer. This should include a list of documents in their possession or control which (a) adversely affects HMRC’s own case; or (b) support the taxpayer’s case.
United Wholesale Grocers Ltd v HMRC [2025] UKFTT 1066 (TC)
5.3 CA upheld UT decision for methodology used to recover residual input tax
The CA upheld the UT decision, agreeing with HMRC that the use of the standard turnover-based method was fair and reasonable when calculating residual input tax recovery.
The taxpayer operated a casino in London where gambling was the principal activity, but also operated restaurants, bars and a theatre from the same premises. The dispute was regarding the calculation of the input tax deduction on ‘residual’ costs incurred which could not be specifically attributed to a single activity.
The taxpayer had submitted a partial exemption special method (PESM) proposal to HMRC based on ‘floorspace’. This assessed the floorspace of the hospitality/entertaining areas (taxable supplies) against the gambling areas (exempt supplies) to determine how much VAT should be recovered on these costs. Their central argument was that whilst most people attended the Hippodrome for gambling, there are also a number of individuals who enter the bars, restaurant and theatre, opting to avoid the casino.
HMRC rejected this, arguing that the use of the ‘standard turnover method’ based on the taxpayer’s total income turnover levels across both taxable and exempt supplies was the default, and the taxpayer had failed to demonstrate that their floorspace method gave rise to a more fair and reasonable result.
The FTT found for the taxpayer based on the ‘floorspace method’ but this was overturned by the UT on appeal and this was upheld by the CA. The FTT had failed to take into account the ‘dual use’ of the floorspace as the economic reality was that it was used for making both taxable and exempt supplies. Unfortunately for the taxpayer there was no compelling evidence that the new method was more fair and reasonable than the standard method.
This case highlights the difficulty with trying to get a PESM agreed and that a taxpayer must demonstrate and provide compelling evidence for alternative methods to be more precise.
Hippodrome Casino Ltd v HMRC [2025] EWCA Civ 1259
5.4 UT finds for taxpayer on ATED and HMRC on SDLT
The UT has allowed a company’s appeal on ATED, as a property was held for the purposes of a development trade, but denied its appeal on SDLT as there were other motives for the acquisition of the property.
The taxpayer company was a subsidiary of W. 99% of shares were owned by W, and 1% by an individual, V, who was also the majority shareholder of W. At the time V had a substantial overdrawn loan account from W. V entered into an option with W in 2014 so W could buy the property once planning permission had been obtained. The option was exercised in 2019. W paid V for the option, she continued to live there, by virtue of owing the freehold, then five years later in 2019 W exercised the option to purchase the property. The plan was for the company to develop the property before sale, but changes in the property market since the grant of the option made this unviable, and the property was sold as was. The taxpayer considered that it had carried on a property development trade between purchase and sale, due to the intention. Plans had been made and planning permission obtained.
On purchase of the option, it filed an SDLT return stating that it had acquired an interest in residential property. HMRC later enquired, and issued an assessment and higher rate SDLT, as the SDLT return had not taken into account that this was a higher value transaction. ATED returns were filed during the enquiry, and HMRC then denied the claims to ATED relief, on the basis that while V was living there the property was not held "exclusively for the purposes of [the taxpayer’s] property development trade”.
The FTT held that the chargeable interest was not acquired nor held exclusively for the trade, with other motives being preventing V from selling to a third party, V’s pressing need for funds, and allowing time for the taxpayer to raise funds to develop the property. Therefore, it denied ATED relief and upheld the higher rate SDLT assessment.
Before the UT, the taxpayer argued that the FTT had erred in how it determined the purpose for which the option was acquired. Its view was that the correct question was the purpose of the acquisition for SDLT/holding for ATED, rather than the purpose of the payment made for that acquisition/holding.
The UT decided that the option was held, post acquisition, exclusively for the purpose of development and resale, so ATED relief should be granted. The other motives did however apply to the acquisition of the property, so the SDLT appeal was refused.
Investment and Securities Trust Ltd v HMRC [2025] UKUT 331 (TCC)
6. Tax publications and webinars
6.1 Tax publications
The following Tax publications have been published.
6.2 Webinars
The following client webinars are coming up soon.
7. And finally
7.1 If you don’t ask...
The approach to every Budget is full of suggestions for the Chancellor, helpful or otherwise. We are well into the flurry of thinktank reports, ideas from party conferences, and even from the Treasury, but once upon a time a petition worked.
For a minor detail? No. The repeal of income tax in its entirety.
Introduced in 1799 to raise funds for the Napoleonic Wars, income tax was wildly unpopular, so after Waterloo there was a strong movement to repeal it. Many groups sent a total of 379 petitions, including one from the City of London, presented in person.
The current economic situation makes a repeat abolition vanishingly unlikely, but the message for today’s commentators? Think big.
(But it was reintroduced in 1842.)
Approval code: NTEH7102550
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 |