Tax update October 2026

HMRC is writing to those it believes are persons of significant control (PSCs) to support correct completion of 2025/26 tax returns.

A PSC is someone who meets certain conditions indicating they have ownership or control over the company. The letters explain how being a PSC may affect their tax return and details the types of income and gains they may need to declare. The tax implications for a PSC can be complex and wide-reaching, depending on their financial relationship to the company. HMRC lists several examples in the letters, such as share transactions, loan relationships and use of company assets.

Recipients are asked to use it to ensure they complete a correct 2025/26 tax return, and check that earlier years are correct. Information on how to report any errors is provided, with a deadline of 31 January 2027 for doing so. HMRC notes that if it subsequently finds an error in relation to this, it will treat any disclosure as prompted resulting in higher penalties.

An email address at HMRC is provided, which will be active until 27 November 2026. Those in receipt of these letters may wish to seek advice before responding to HMRC.

www.icaew.com/insights/tax-news/2026/oct-2026/hmrc-contacts-taxpayers-who-have-significant-control-of-companies

Although the taxpayer was born with an Irish domicile, his father acquired an England and Wales domicile before the taxpayer turned 21, so he acquired that domicile as a domicile of dependency.

The taxpayer filed a number of returns on the basis that he was domiciled in the Republic of Ireland. HMRC challenged this, believing him to hold an England and Wales domicile. The tax at stake was over £20 million.

The FTT considered the family history. The taxpayer was born in England to married parents, so his domicile at birth was that of his father. At the time he was born it was agreed that his domicile was Irish. The taxpayer and his mother went to Ireland when he was an infant, and lived there while his father worked in England. They moved back when he was nine years old, and the taxpayer had been resident in England since then.

The taxpayer provided evidence of his and his family’s connections to Ireland, and contended that his father did not lose his Irish domicile in the taxpayer’s childhood, and that the taxpayer had remained Irish domiciled since. The evidence of the father’s intentions at the time was provided by family members who recalled discussions with him about his preference to be in Ireland, but having to remain in England to work. In the absence of contemporary documents, and the fact that the father remained in England all his life, this was hard to prove.

The FTT found that the taxpayer’s father acquired an England and Wales domicile before the taxpayer turned 21. The domicile of dependency therefore acquired by the taxpayer had not been displaced, so the FTT found for HMRC. It agreed with HMRC that abandonment of the domicile of origin is the consequence of acquiring a domicile of choice, not a separate requirement, and acknowledged that abandonment of a domicile of origin does not mean the person does not retain natural affection for / connections with that place.

Griffin v HMRC [2026] UKFTT 1319 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1319.html

The FTT has disallowed a claim for farming loss relief, as the farming trade in the LLP was not ancillary to the activities carried on by the company that held other business activities/.

The taxpayer ran a business which was a farm, shop and abattoir. He claimed to offset losses from the farming LLP, on the basis that the whole trade, consisting of the LLP and the company operating an abattoir and shop, was not one of farming.

The FTT agreed with HMRC’s denial of the claim, finding that the farming trade in the LLP was not ancillary to the main business, despite them operating as a larger commercial undertaking. When looking at the LLP farming trade, losses had also persisted for too many years for loss relief to be permitted.

Scheckter v HMRC [2026] UKFTT 1280 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1280.html

HMRC is writing to taxpayers affected by the foreign income and gains (FIG) regime. The messages are being sent by email and text.

From 28 September, HMRC is contacting individuals it believes are affected by the foreign income and gains regime. The emails are a basic overview, with links to a YouTube video explaining the regime, the HMRC guidance and the HMRC manual. The texts simply state that the recipient may be affected by the new regime, and advise them to watch the video on YouTube.

These methods of contact from HMRC are unusual for One to Many letters.

www.tax.org.uk/hmrc-one-to-many-emails-and-texts-foreign-income-and-gains

HMRC is writing to taxpayers that it believes have investments in offshore funds, or have recently sold them.

The letters include a basic overview of the taxation of these investments, and how to declare income. These letters are not compliance checks, but are part of an educational campaign.

www.icaew.com/insights/tax-news/2026/oct-2026/hmrc-contacts-uk-investors-in-offshore-funds

This case concerned an offshore catering group's attempt to avoid liability for secondary Class 1 National Insurance contributions (NICs) by transferring employees to a non-UK group company. The UT dismissed the taxpayer's appeal, holding that the UK company remained liable for approximately £6.8m of secondary Class 1 NICs under the ‘host employer’ provisions.

The UT held, following Bilfinger Salamis UK Ltd, that ‘made available’ bears its ordinary meaning and does not contain a separate requirement that the UK host exercise day-to-day control over the foreign employer’s employees. The personal service must nevertheless actually be rendered for the purposes of the host’s business.

The UT held that the FTT had erred in treating some degree of host control as legally necessary, but that the error was immaterial. The FTT was entitled to find that the taxpayer exercised substantive day-to-day control in any event, and that the arrangement was not a genuine commercial subcontract for a complete or composite service. The employees’ personal service was therefore made available to the taxpayer and rendered for the purposes of the taxpayer’s business. The UT therefore dismissed the appeal.

The decision strengthens HMRC’s position in the offshore workforce cases. It confirms that a foreign employment structure will not prevent a UK secondary NICs liability merely because the contractual employer is outside the UK. However, the outcome remains fact-sensitive.

Aramark Ltd v HM Revenue & Customs [2026] UKUT 348 (TCC)

www.bailii.org/uk/cases/UKUT/TCC/2026/348.html

Bilfinger Salamis UK Ltd v HMRC [2026] UKUT 00143 (TCC)

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

The UT has found against HMRC in an employee tax benefit case. Mandatory hotel accommodation provided to cabin crew between transatlantic flights was not a taxable benefit, but a legitimate expense for the employer. The tax at stake was almost £6m.

An airline paid for UK hotel rooms for its cabin crew who were resting between flights back and forth across the Atlantic. Legislation introduced in 2016 about managing staff fatigue allowed the airline to give a shorter minimum rest period if it provided the accommodation, so the airline had arrangements with a hotel and required staff to use this provided accommodation. Failure to comply was addressed with the staff.

Previously, the airline had agreed to treat accommodation as a benefit in kind, as it did not require the staff to use it. However, following the introduction of the 2016 legislation, it argued that this was no longer a taxable benefit, but a job requirement. All accommodation outside the UK was a travel expense, not a benefit, and it sought to treat the Heathrow rooms in the same way.

The FTT’s decision last year was not published, but it found for the airline “on the grounds that [the expense] was incurred wholly, exclusively and necessarily in the performance of the duties of employment of the cabin crew”.

The UT agreed with this decision. It was part of the role requirements for the cabin crew that they stayed in the accommodation and were subject to the control and direction of the airline during this rest period, so they were working throughout, though not travelling. It was a necessary expense.

HMRC v British Airways PLC [2026] UKUT 366 (TCC)

www.bailii.org/uk/cases/UKUT/TCC/2026/366.html

A recent tribunal decision serves as a timely reminder that business innovation and commercial problem-solving do not automatically qualify for R&D relief. Although HMRC ultimately succeeded, this was far from an obvious case and highlights just how nuanced the boundary can be between technological advancement and operational improvement.

The taxpayer operated in the industrial waste sector and undertook a range of projects to improve the efficiency of its waste handling and transportation operations. These included modifications to storage tanks, pumping and agitation systems, and specialist vehicles designed to handle increasingly complex waste streams and meet the demands of a major infrastructure contract. The company argued that the work involved experimentation and technological uncertainty and therefore qualified for R&D relief.

The FTT disagreed. While it accepted that the company had carried out genuine innovative work, faced real technical challenges and undertaken more than routine operational activity, it concluded that the projects were aimed at improving the company's own processes rather than achieving an advance in science or technology. The evidence did not demonstrate a technological uncertainty capable of advancing the wider field of waste management technology, and there were also weaknesses in the evidence supporting the expenditure claimed.

What makes this case particularly interesting is that it was not one of the increasingly common examples of a speculative or poorly-founded R&D claim. While HMRC contended that the company did not have a relevant competent professional nor a valid project for the purposes of the R&D legislation, the tribunal disagreed, finding that the taxpayer had credible witnesses, genuine innovation and tangible business improvements, but was unable to demonstrate an overall advance in science or technology. The decision is a useful illustration of the tribunal’s methodical approach to reviewing R&D claims, how finely balanced R&D cases can be and reinforces the importance of clearly identifying the technological advance being sought.

Environmental Services Ltd v HM Revenue & Customs [2026] UKFTT 1301 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1301.html

The FTT allowed appeals against eight ATED late-filing penalties because the taxpayer’s original returns had been filed on time. It also allowed appeals against three late-payment penalties already cancelled by HMRC, but refused permission for late appeals against three further penalties because they were brought several years out of time. The FTT also found that HMRC had not clearly communicated a formal decision refusing the taxpayer’s ATED relief claims.

The taxpayer owned a UK residential property and had filed ATED returns for 2013/14 to 2017/18 within the relevant deadlines. In 2021, it submitted further returns claiming relief on the basis that the property was held for rental or sale. HMRC issued late-filing penalties in respect of those further returns and the taxpayer also challenged historic late-payment penalties.

The FTT held that the original returns were valid timely filings, even if they were subsequently considered incorrect or incomplete. The late-filing penalties had therefore been issued on the wrong basis and the appeals were allowed. The FTT also accepted that three late-payment penalties had already been cancelled by HMRC, but refused permission for the remaining three 2014/15 appeals because the delays—of approximately seven to ten years—were not adequately explained.

An important aspect of the decision was the FTT’s criticism of HMRC’s communication. HMRC had referred to an internal rejection of the relief claims in complaint correspondence, but had not clearly communicated a formal appealable decision to the taxpayer. The case therefore highlights both the importance of complying with statutory appeal deadlines and the need for HMRC to communicate appealable decisions clearly.

Mountrail Company Holdings Ltd v HM Revenue & Customs [2026] UKFTT 1296 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1296.html

The OECD Inclusive Framework has released an update to the GloBE information return (GIR). The updated GIR incorporates the simplifications included in the Side-by-Side package agreed by the Inclusive Framework in January 2026. These revisions will only apply to GIRs filed in respect of the Fiscal Years commencing on or after 31 December 2025.

Further administrative guidance has been released to address the treatment of Explicitly Conditional Taxes and the use of Local Financial Accounting Standards under a QDMTT.

Global Minimum Tax: Inclusive Framework releases a package to strengthen consistency and certainty for MNEs and jurisdictions

The FTT dismissed the taxpayer’s appeal against HMRC’s refusal of its SME R&D relief claim. The FTT found that the company had not demonstrated that its work to develop premium canned wine involved a qualifying project seeking an advance in science or technology, or that it addressed genuine technological uncertainty.

The taxpayer had worked with a South African wine producer to develop premium wine products for the UK market. It claimed that the project involved significant experimentation concerning can sizes, can linings, the use of inert gases and product shelf life. The company said that this work involved an iterative process to determine whether or not wine could be successfully stored and sold in cans without compromising its quality.

HMRC argued that the arrangements were essentially a commercial exercise to source canned wine rather than a programme of research and development. The FTT agreed, placing greater weight on the contemporaneous documents than on witness recollections and letters prepared several years after the events. Those documents did not support chronology described, nor the extent of the testing and development work later described by the taxpayer, and the company failed to provide persuasive evidence of an organised R&D project.

The FTT also found that the particular product specifications—including the use of 200ml cans filled with 187ml of wine and inert gas—arose from commercial and market requirements, including constraints in the South African market. They did not demonstrate an attempt to resolve technological uncertainty or achieve an advance in overall scientific or technological knowledge or capability, with similar techniques mentioned in an industry publication. The appeal was therefore dismissed.

RDM Wines Ltd v HM Revenue & Customs [2026] UKFTT 1348 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1348.html

The FTT found that the trading requirement was not satisfied for the necessary period.

The appellant company was incorporated in 2013, providing technology and web services. It received advance assurance for EIS in 2018, and issued several tranches of shares between then and 2020. HMRC agreed with the company that it was trading at the time the shares were issued, but contended that trading ceased in January 2021, which would mean that EIS relief was not available for any of the share issues as that fell before the relevant three year termination date.

The company’s bank account was closed by its bank at that time, with advance notice, which affected its operations significantly. Efforts were made by the company to find a new bank, but written evidence of these attempts was only given for the period up to March 2021, and then of one attempt in August 2023. No director gave evidence at the hearing.

The FTT found for HMRC and denied the relief, as March 2021 was the last date at which there was evidence of efforts being made to trade.

This case demonstrates the need to ensure companies do continue to meet the relevant EIS conditions throughout the respective period (3 years to termination date), and where issues do arise that interrupt operational activity, the importance of retaining substantive evidence that this is only a temporary gap in trade.

My Club Web Services Ltd v HMRC [2026] UKFTT 1417 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1417.html

The FTT dismissed the taxpayer’s appeal, holding that VAT charged on employees’ wages and employer National Insurance contributions was not recoverable. The arrangements constituted outsourced payroll administration, rather than a taxable supply of staff or labour. Input tax was therefore recoverable only on the payroll providers’ administration fees.

The taxpayer had outsourced its payroll function to two third-party companies. The providers issued invoices covering employees’ gross wages, employer National Insurance contributions and separate processing fees. The taxpayer claimed input tax on the full amounts, but HMRC argued that the taxpayer had remained the employees’ true employer and that the providers had merely administered payroll.

The Tribunal considered both the contractual arrangements and their economic and commercial reality. It found no evidence that the employees’ contracts had been transferred, novated or varied, nor that there had been a TUPE transfer. The taxpayer had recruited the employees, provided their training, supervised and controlled their work and continued to manage the employment relationship. The employees also continued to approach the taxpayer regarding workplace matters.

The contemporaneous documentation consistently described the arrangements as payroll outsourcing. The invoices separately identified wages, employer National Insurance contributions and an administration fee, rather than charging a single amount for the supply of labour. The fact that the payroll providers’ names and PAYE references appeared on the payslips did not establish that they had become the employees’ employers.

The Tribunal therefore concluded that the employees had remained employed by the taxpayer throughout the relevant period. The wages and employer National Insurance contributions were consequently the taxpayer’s own employment costs, rather than consideration for a taxable supply made by the payroll providers. VAT was recoverable only on the genuine payroll-processing services, and the appeal was dismissed.

ITS Plant-Tech Ltd v HM Revenue & Customs [2026] UKFTT 1299 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1299.html

The FTT has considered another case on the VAT treatment of collagen drinks, finding that a range of collagen-based beauty and wellness products were not ‘food’ for VAT purposes. Despite their nutritional value, the FTT concluded that the products were marketed and consumed as beauty and anti-ageing supplements rather than everyday foodstuffs, leaving them subject to VAT at the standard rate.

The taxpayer sold collagen drinks containing hydrolysed marine or bovine collagen, together with vitamins and other ingredients directed at skin, hair, nail, joint and muscle health. The products were marketed as liquid food supplements and provided nutritional value, including significant amounts of protein. Minerva argued that the drinks should be zero-rated as food rather than standard-rated.

The FTT applied the established multi-factorial test for determining whether a product is ‘food of a kind used for human consumption’. Although the products were edible, liquid and provided genuine nourishment, those factors were outweighed by their presentation, marketing and the way in which consumers purchased and consumed them.

The fact that the products complied with food-labelling requirements, could be added to smoothies and contained meaningful nutritional value did not determine their VAT treatment. Edibility and nourishment were relevant factors, but were not sufficient on their own to establish that the products were food for VAT purposes.

The FTT concluded that, viewed objectively and as a whole, the products would not be regarded by an informed consumer as ordinary food. They were therefore standard-rated.

Minerva Research Labs Ltd v HM Revenue & Customs [2026] UKFTT 1320 (TCC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1320.html

New guidelines for compliance (GfC) have been published by HMRC and explain how businesses should determine whether fund management services are a single supply or multiple supplies for VAT purposes, particularly where fund management activities are outsourced.

Indicators that HMRC consider include: the number of suppliers involved, the customer’s perspective, terms of contract and economic reality and the intention of the legislation, such that the arrangement does not extend the scope of a relief or exemption. There is no single decisive indicator and all four indicators should be considered in all cases.

Help with VAT on fund management services — GfC20 - GOV.UK

The FTT allowed the taxpayer to recover VAT on certain legal costs connected with taxable management services supplied to its Cameroon subsidiary. However, it rejected the taxpayer’s broader argument that all group-related expenditure was recoverable. Costs not objectively linked to taxable supplies, including general holding-company and investment-related expenditure, were restricted or denied.

The taxpayer charged the Cameroon sub for management and administrative services. HMRC accepted that these supplies were taxable but concluded that the taxpayer had not demonstrated that similar services were supplied to its other subsidiaries. HMRC therefore restricted input tax recovery using an apportionment based on employee time spent on activities related to the Cameroon subsidiary. The taxpayer challenged assessments totalling approximately £884,000 and argued that much of the disputed VAT related directly to the Cameroon sub or to intended taxable activities.

The Tribunal upheld HMRC’s assessments, finding that they represented a genuine and reasonable ‘best judgment’ estimate under section 73(1) of the Value Added Tax Act 1994. However, it found that several categories of legal expenditure had a direct and immediate link with the taxpayer’s taxable management services to the Cameroon subsidiary. These included costs concerning consultants, royalty arrangements, insurance claims and well operations. The associated VAT was therefore recoverable.

Recovery was denied for costs relating to a dispute concerning a Kazakhstan licence, because the taxpayer had not shown a sufficient link with a taxable supply. General corporate and investment-related costs were also not automatically recoverable merely because they benefited the wider group.

The approach is consistent with the CAs findings in the Hotel la Tour case, that there must be a direct and immediate link with a taxable activity. Businesses should retain evidence identifying the recipient of the services, the relevant taxable supplies and the connection between those supplies and the expenditure. General overheads may still be recoverable where they relate to the business as a whole, subject to the applicable attribution and partial-exemption rules.

Victoria Oil & Gas Plc v HM Revenue & Customs [2026] UKFTT 1246 (TCC)

Victoria Oil & Gas plc v The Commissioners for HMRC - Find Case Law - The National Archives

The SC has refused Bolt UK Services Ltd's application for permission to appeal the CA's decision that its ride-hailing services fall outside the Tour Operators Margin Scheme (TOMS).   

The SC has refused Bolt's permission to appeal, concluding that “the application did not raise an arguable point of law of general public importance.”  The CA had previously held that Bolt’s on-demand private hire services do not fall within TOMS because the services are not sufficiently comparable to those typically supplied by travel agents or tour operators. This decision means that operators using a similar model cannot rely on TOMS solely because they buy in and resell travel-related services. Instead, VAT must generally be accounted for under the normal rules, potentially resulting in VAT being due on the full fare charged to passengers rather than only on the operator’s margin or commission. 

The SC’s refusal to hear the appeal brings welcome certainty following several years of litigation. The decision is of limited practical significance for future periods, as legislation introduced from 2 January 2026 expressly excludes most taxi and private hire vehicle journeys from TOMS. However, the judgment remains important for historic periods and for businesses considering whether specialist VAT schemes can apply to non-traditional business models. 

www.supremecourt.uk/cases/uksc-2026-0096 

The FTT rejected the taxpayer’s appeal and found that the taxpayer knew transactions were connected with VAT evasion and inaccuracies in the company’s VAT returns were deliberate.

The taxpayer was a sole director of a company trading in mobile phones, computer equipment and other electronic goods. HMRC alleged that the company had participated in a series of supply chains connected with Missing Trader Intra-Community (MTIC) fraud and issued a personal liability notice (PLN) for approximately £12.8m.

The taxpayer had appealed the PLN issued and argued that he did not know and could not have reasonably known that the transactions were connected with fraudulent VAT evasion. The taxpayer also contended that the company undertook commercial checks and due diligence and stated that there was insufficient evidence to suggest he was involved in fraudulent trading.

HMRC argued otherwise, that the taxpayer knew the transactions were linked to VAT fraud. The taxpayer received repeated warnings from HMRC about the relevant supply chains and HMRC’s suspicions, however the taxpayer continued to trade despite the cautions raised.

The FTT dismissed the taxpayer’s appeal and found that the inaccuracies in the returns were deliberate. As a result, HMRC’s decision was upheld and the director was personally liable for the penalties totalling approximately £12.8m.

This case demonstrates that HMRC will use its powers to hold directors personally liable for penalties, especially where HMRC has put a trader on notice about suspected MTIC risks and the business continues to trade through similar chains.

Hackett v HMRC [2026] UKFTT 1378

www.bailii.org/uk/cases/UKFTT/TC/2026/1378.html

The FTT has found that multiple dwellings relief (MDR) was not available on an annexe 200 feet from the main house.

The taxpayer purchased a large property of three acres with an eight bedroom house, and a separate single storey building (the annexe). The annexe was over 200 feet from the main house, next to a swimming pool. To get from the main house to the annexe it is necessary to cross a bridge over a stream. The annexe had a lavatory and washing facilities, and there were kitchen facilities in the main room. It had its own lockable entrance, a driveway with separate access, parking and heating. The council tax, address and electricity and water meters were shared between the main house and annexe.

HMRC argued that this was not a separate dwelling for the purposes of MDR. The FTT did not agree with HMRC that there was insufficient space and storage, but found for HMRC on the basis of lack of privacy and security. The French windows of the property opened onto the tiled area beside the pool. Therefore those living in the main house and using their pool would have their privacy impaired, as would the occupants of the annexe. Those from the main house would also have to walk 200 feet to the main house in swimming costumes if they could not use the annexe’s facilities.

The FTT stated “we are not satisfied that there are objectively realistic terms under which the Annexe could be occupied without a material intrusion on an occupier's degree of privacy and security consistent with the concept of a single dwelling.”

Smith v HMRC [2026] UKFTT 1351 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2026/1351.html

The following Tax publications have been published.

• What will be in the Autumn Budget 2026?

• Pillar 2: Lessons from the first compliance cycle

• Financial services and the Budget: growth or taxes?

• Expanding into the EU or UK? Avoid costly VAT issues

• Hoping for a boring Budget at the Industry Leaders Conference

• Patent Box relief: A mid-market opportunity?

• What do businesses want from the Autumn Budget?

• The Business Owners Sentiment Survey (The BOSS), Autumn 2026

• Navigating the transition to AVEC and VGEC in the creative industries

• The IPO readiness trap: Preparing to list without losing momentum

• What rural businesses and landed estates want from the Budget

The following client webinars are coming up soon.

• 29 October - In conversation: The Autumn Budget 2026 and what it means for you, your family and your business

• 17 November - Executing your business exit: Managing the sale process to completion

• 3 December - Business post-sale support: Thriving after the transaction

All eyes are on Chancellor John Healey as he prepares to deliver his first Budget on Wednesday 28 October. Although not quite a Halloween Budget, there are as always sectors that may be a bit frightened about what’s in the red box. With a shortage of leaks, it is hard to make predictions, but we wish him luck with the difficult task of balancing the books. As the seventh Chancellor since 2020, at least he has plenty of precedents to follow, or not.