Introduction

The stated aim of the SRS is to harness credible third-party information to uncover hidden non-compliance, reduce the tax gap, and strengthen HMRC’s enforcement capabilities. However, while the promise of increased compliance and deeper investigative reach is compelling, the introduction of a formal and generous reward system raises a host of operational, ethical, and resource challenges.

These include the potential for a dramatic increase in vexatious or opportunistic reports, the demands on HMRC’s capacity to effectively vet and act on information received, and the broader implications for enforcement culture in the UK.

This blog explores the likely impact of the SRS, both intended and unintended, and considers it within a broader global trend for incentivised enforcement.

The structure of the SRS

Under the SRS, individuals who supply information that enables HMRC to collect significant unpaid tax may receive a share of the revenue recovered. HMRC's official guidance states that a reward may be payable where information leads to the collection of at least £1.5 million in additional tax, with awards ranging from 15% to 30% of the amount collected (excluding penalties and interest). The SRS applies primarily to serious tax avoidance and evasion involving large corporations, wealthy individuals, or offshore structures. 

This represents a departure from HMRC’s historical approach, which was a discretionary and modest informant reward system. Prior to the 2025 reforms, HMRC paid out rewards for credible information relating to suspected fraud, but the amounts were limited and did not involve a percentage-based structure. 

In contrast, the US Internal Revenue Service (IRS) Whistleblower Program has paid out substantial awards (often between 15–30% of the recovered tax) and generated billions of dollars in additional revenue collections. Similarly, Canada’s Offshore Tax Information Program has shown the potential benefit of a structured incentive reward scheme. The SRS explicitly draws inspiration from these models.

Increasing credible disclosures 

One of the SRS’s principal aims is to increase the volume of credible disclosures made to HMRC. By aligning economic incentives with compliance objectives, the policy seeks to encourage insiders and other knowledgeable parties will relevant information, who might otherwise remain silent.

Confidential sources, such as employees of large businesses, tax professionals, or intermediaries with insight into avoidance schemes or tax evasion, now have a financial incentive to come forward. This could help HMRC penetrate opaque structures, uncover orchestrated avoidance strategies, and initiate enforcement actions that might not otherwise take place.

Moreover, linking rewards to the actual amount of tax recovered, provides a transparent and proportional incentive. Systems, such as the IRS's programme, have encouraged a steady flow of high-value reports and have generated billions in additional revenue. 

The rise of vexatious and opportunistic reports

Any system that offers potentially substantial financial rewards is likely to attract attention beyond the sphere of legitimate informants. Generous rewards may encourage vexatious, speculative, or opportunistic reports that allege wrongdoing but lack credibility or actionable evidence. 

Even before the SRS was introduced, the volume of HMRC tip-offs had increased substantially in recent years, with a record number of reports in 2024/25 but a decline in the average amount paid to informants, which suggests that many submissions lacked the substance necessary for further action to be taken by HMRC. 

A flood of low-quality reports risks diverting HMRC’s scarce investigative resources away from genuine cases, as investigators will have to sift through reports to identify actionable intelligence. It also raises the possibility of malicious reporting, where individuals lodge unfounded claims with the aim of simply causing upset for the person concerned.

Resource and operational challenges for HMRC

To maintain confidence and effectiveness, HMRC must allocate substantial resources to manage the anticipated volume of information it will receive from informants. This includes initial vetting, risk assessment, prioritisation and, where appropriate, referring matters to compliance divisions or criminal investigation teams within HMRC.

Unlike traditional enforcement investigations initiated by HMRC, third-party disclosures can arrive in a wide variety of formats, levels of detail, and evidentiary rigor. Establishing robust mechanisms to distinguish between genuinely valuable leads and spurious information, will be essential. HMRC’s enforcement teams may also need to enhance their expertise in data analysis, pattern recognition, and financial forensics, in order to handle this demand effectively.

Without adequate resource allocation, there is a risk of delays, which could erode confidence in the SRS. Those contemplating disclosure are more likely to participate in the SRS if they believe their information will be taken seriously and acted upon. Delays or opaque decision-making is likely to reduce participation in the SRS.

Balancing transparency and confidentiality

Another operational consideration for HMRC is how it balances the need for confidentiality with accountability. Safeguarding the identity of informants is often very important. At the same time, the system requires transparency in its reward decision-making process in order to foster confidence. This balancing act adds complexity to HMRC’s administrative workload and requires careful policy considerations.

Broader trends in enforcement: UK, US, Canada and beyond

The introduction of financial rewards for whistleblowers in tax matters aligns with a broader global trend across various enforcement bodies. In financial regulation and economic crime, agencies such as the Serious Fraud Office (SFO) and the Financial Conduct Authority (FCA) have expressed interest or taken preliminary steps toward incentivising whistleblowers. For example, in its annual business plan for 2025/6, the SFO has advocated financial incentives similar to those in the US, and FCA reports reflect ongoing engagement with the topic.

This trend mirrors the longstanding practice in the US under programmes like the IRS whistleblower scheme and the Securities and Exchange Commission whistleblower reward programme, which have demonstrated the potential of third-party intelligence to supplement traditional enforcement action. Canadian programmes, although operating on a smaller scale, with different eligibility criteria and payout bands than those in the US, similarly demonstrate how incentivised disclosure can contribute significantly to revenue collection and enforcement reach. 

The UK’s adoption of a percentage-based reward model reflects an acknowledgement that traditional investigation methods may no longer suffice in an era of complex international tax avoidance and digitalised economic activity.

Maintaining confidence 

To ensure confidence in the SRS, HMRC must ensure it operates with credibility, fairness, and accountability. Criteria for determining eligibility, reward quantum, and deciding borderline cases, must be clear and well-communicated. Discretionary decision-making should be informed by objective criteria.

Crucially, mechanisms for appeal or review, such as those available under the IRS whistleblower programme, would enhance trust among potential participants. Without appropriate avenues for redress, confidence in the SRS will be undermined.

Conclusion

The SRS is a bold and potentially game changing addition to the UK’s tax enforcement toolkit. By aligning financial incentives with compliance objectives, the SRS seeks to elevate the role of third-party disclosures in detecting serious tax avoidance and evasion. In doing so, it draws on established international models that have delivered significant results in other jurisdictions.

BTR Core Fund JPUT (BTR) acquired the leasehold interest in a property in Manchester known as West Tower, for approximately £98 million. The property comprised around 350 residential dwellings, together with unlet commercial premises.

BTR filed with HMRC a SDLT return claiming MDR. In calculating the SDLT due, BTR applied the higher rates for additional dwellings, in line with HMRC’s guidance at the time. This resulted in BTR paying approximately £4.7 million of SDLT.

HMRC later revised its guidance and accepted that the acquisition was not a higher-rates transaction. As a result, BTR had overpaid SDLT by approximately £3.06 million.
Because the time limit for amending the SDLT return had expired, BTR submitted a claim for overpayment relief under paragraph 34, Schedule 10, Finance Act 2003 (FA 2003). HMRC initially gave effect to the claim and repaid the SDLT with interest. 

However, HMRC subsequently opened a compliance check and issued a closure notice concluding that it was not liable to give effect to the claim because the overpayment arose “by reason of a mistake in a claim”, which is an exclusion within paragraph 34A(2), Schedule 10, FA 2003.

BTR appealed to the First-tier Tribunal (FTT), which dismissed its appeal. BTR then appealed to the UT.

UT decision

The appeal was allowed.

Mistake in a claim

The key issue before the UT was whether the excessive SDLT arose “by reason of a mistake in a claim”, within the meaning of paragraph 34A(2), Schedule 10, FA 2003.

The UT held that BTR had correctly made a claim for MDR in its SDLT return. The mistake occurred in the calculation of the SDLT liability, when BTR applied the higher residential rates based on HMRC’s guidance at the time.

The UT emphasised that there was no statutory requirement to quantify the relief or provide calculations as part of the claim itself.

The error was not "a mistake in a claim", but rather, a mistake in the self-assessment of the SDLT due.

Purposive approach

In reaching its decision, the UT applied a purposive approach when construing the relevant statutory language, concluding that the purpose of the “mistake in a claim” exclusion is to prevent taxpayers from circumventing statutory time limits and procedural requirements for making a claim. Where a mistake consists of a failure to make a claim, for whatever reason, relief is not available.

That concern did not arise in the present case because BTR had validly claimed MDR within the SDLT return itself. The overpayment resulted from a computational error in applying the tax rates, rather than any defect in the claim itself. Accordingly, the exclusion did not apply and HMRC was required to give effect to the claim.

Comment

As MDR has been abolished, the significance of this decision is limited to those who have already claimed MDR and miscalculated their liability and are still in time to make an overpayment relief claim.

It is interesting to note that the FTT member, Julian Sims, issued a rare dissenting decision in this case (Judge Gauke had the casting vote) in which he agreed with BTR that the relevant mistake was in the calculation of liability to tax rather than the claim itself, and the UT ultimately agreed with him. 

The decision can be viewed here.

HMRC has identified that organised criminal gangs are using CIS deductions to conduct large-scale tax evasion. This can occur where a contractor fails to deduct or account to HMRC for tax on payments made to subcontractors, or where a subcontractor falsely reclaims deductions that were not made. CIS has always demanded careful compliance, but these changes materially raise the stakes, particularly for businesses working with subcontractors and labour suppliers.

The Changes

Under the new CIS regime, contractors will be liable for any lost tax, in addition to a penalty of up to 30% of the lost tax, if it is established that they "knew or should have known" that a transaction in their supply chain was connected to fraudulent tax evasion. The changes will also be relevant to individual directors and persons connected with the business, because they could also be liable to a penalty of up to 30% of any lost tax.

Additionally, HMRC will gain the power to immediately revoke a business's gross payment status if fraud is detected, with the waiting period for reapplying for this status extended from one year to five years.

In relation to the administration of CIS, from 6 April 2026, mainstream contractors will be required to file a nil return when they have not paid any subcontractors that month, and payments to local authorities and specified public bodies will fall outside the CIS. The intention of these changes is to simplify the CIS, although the requirement to file a nil return will again increase the administrative burden for mainstream contractors.

These measures have been modelled on those introduced to counteract VAT fraud. In that context, the introduction of a constructive knowledge test gave rise to a significant number of factual disputes with HMRC, where companies are put in the difficult position of proving an absence of knowledge of fraud.

The measures follow broader government efforts to tighten compliance across labour supply chains, including closer scrutiny of umbrella companies and PAYE responsibilities. The direction of travel is clear: accountability is shifting onto everyone in the chain, not just those directly perpetrating the fraud.

What you need to do

Now is the time for businesses to:

• review CIS policies, procedures and contracts (including supply chain clauses and onboarding processes)

• assess whether their current level of due diligence would withstand HMRC scrutiny under a “knew or should have known” test

• strengthen record-keeping so that checks carried out on counterparties and payments can be evidenced.

If you would like to discuss the coming changes or if you, or a company in your supply chain, are contacted by HMRC and require expert legal advice and assistance please contact Michelle Sloane or Daniel Williams.

HMRC updates its Guidance on the domestic reverse charge procedure

HMRC has added a new section 3.5.4 'Electric vehicle charging' to its Guidance which explains why the reverse charge does not apply to the supply of electricity at a charging point for electric vehicles.

HMRC's updated Guidance can be viewed here.

HMRC updates its manual: VAT Assessments and Error Correction

HMRC has updated its internal manual to provide information on how HMRC's discretion to issue an assessment under section 73, Value Added Tax Act 1994 operates in relation to input tax error cases.

HMRC's updated manual can be viewed here.

HMRC updates its manual: VAT Cost Sharing Exemption Manual

HMRC has updated its internal manual to provide an example of how VAT operates in relation to cost sharing groups where two or more organisations with exempt and/or non-business activities join together to purchase services on a cooperative basis.

HMRC's updated manual can be viewed here.

Case reports

FTT confirms that reduced-rate VAT is capable of applying to the supply of public Electric Vehicles (EVs) charging

In Charge My Street Ltd v HMRC [2026] UKFTT 318 (TC), the First-tier Tribunal (FTT) considered whether Charge My Street Ltd's (CMSL) supplies of electric vehicle charging to EVs at public charge points (CPs) were subject to tax at the standard rate or the reduced 5% rate.

The key issue to be determined by the FTT was whether these supplies would be considered a supply of "domestic fuel or power" under Note 5(g), Item 1, Group 1, Schedule 7A, Value Added Tax Act 1994 (Note 5(g)), which indicated that supplies can be considered for "domestic use" where the relevant supply is "of electricity to a person at any premises where the electricity (together with any other electricity provided to him at the premises by the same supplier) was not provided at a rate exceeding 1000 kilowatt hours a month".

HMRC disputed the application of Note 5(g) on the basis that CMSL did not always provide the supply "to a person", often supplying through third-party intermediaries. In addition to upfront payment, customers could initiate a charging session using CMSL's partnered app (Fuuse) or through external apps operated by third parties.

The FTT held that supplies of EV charging made by CMSL to drivers as the relevant "person" were capable of falling within Note 5(g). Provision of supply through the Fuuse app did not alter this arrangement as Fuuse merely provided software and a payment processing system. The commercial and economic reality was that CMSL remained the supplier, notwithstanding a contractual term to the contrary. In contrast, operators of third-party apps acted as principals and/or commission agents and thus were considered suppliers to the consumer, rather than CMSL.

The FTT allowed the appeal in part, concluding that insufficient information was available to determine whether some or all of CMSL's supplies fell within the 1,000 kWh threshold.  

The decision can be viewed here.

Why it matters

This decision confirms that a reduced 5% "domestic fuel or power" rate can, in principle, apply to electricity supplied at public charge points if the requirements set out in Note 5(g) are satisfied.

The decision emphasises that the FTT will consider what is the true commercial and economic reality of the relationship between the parties and contractual wording will not be sufficient to re-characterise the true commercial relationship. The case highlights the importance of robust evidential data when resisting HMRC's position.

UT upholds FTT's decision that VAT is chargeable on the full price of prepaid mobile plan bundles at the time of sale

In Lycamobile UK Ltd v HMRC [2026] UKUT 74 (TCC), the Upper Tribunal (UT) considered whether VAT on Lycamobile UK Limited’s (Lycamobile) prepaid mobile 'plan bundles' became chargeable when the bundles were sold, or only when customers used the call, text or data allowances included within them.

HMRC issued an assessment to Lycamobile for more than £50 million in VAT, on the basis that VAT was due when the bundles were purchased. Lycamobile argued that the bundles merely provided rights to future telecommunications services, and therefore VAT should arise only when the allowances were actually used. It also contended that the bundles should be treated as multi-purpose vouchers, and VAT would only become due on redemption.

The key issue for determination was the nature of the supply and whether Lycamobile supplied telecommunications services when the bundle was sold, or only when the allowances were later used.

The UT upheld the FTT’s conclusion that the relevant supply arose when the bundle was sold. In the UT's view, customers were contracting for allowances which conferred the right to access telecommunications services for a fixed period and price, and that there was a direct link between the consideration paid and those allowances once the bundle was acquired. The fact that customers often used only a small proportion of their allowances did not affect the VAT analysis. The UT also rejected Lycamobile's argument that the bundles constituted multi-purpose vouchers.

Accordingly, the UT dismissed Lycamobile’s appeal and confirmed that VAT was chargeable on the full price of the bundle at the time of sale, regardless of whether the allowances are subsequently used.

The decision can be viewed here.

Why it matters

This decision confirms that where customers pay for guaranteed access or availability of services, the taxable supply may occur when that access is granted rather than when the service is actually used. The case provides important clarification for telecom and subscription-based business models where customers purchase bundled service entitlements that may not be fully utilised.

FTT finds that the supplies were supplies of staff and not VAT exempt services

In Genuine Care Homecare Services Ltd v HMRC [2026] UKFTT 235 (TC), the FTT considered whether Genuine Care Homecare Services Ltd (GCHS) was liable to account for VAT under the reverse charge mechanism on supplies received from Atena, a Slovak company, and whether HMRC’s assessments and failure-to-notify penalty were valid.

GCHS operated a domiciliary care business in the UK and engaged carers through Atena. HMRC argued that Atena was supplying staff to GCHS, and therefore GCHS should have accounted for VAT under the reverse charge rules. GCHS contended that Atena contracted directly with service users or that GCHS acted as an undisclosed agent, such that exempt welfare services were supplied.

The FTT rejected these arguments. It found that there was no contract between Atena and the service users, and that Atena’s supplies were supplies of staff to GCHS. As a result, GCHS was required to account for VAT under the reverse charge rules.

The FTT also held that HMRC’s assessments were issued within the applicable time limits and that GCHS did not have a reasonable excuse for failing to notify its VAT liability. GCHS's appeal was therefore dismissed.

The decision can be viewed here.

Why it matters

This decision highlights the importance of the contractual and economic reality in determining whether a supply is one of staff or services, and confirms that cross-border staff supplies may trigger the reverse charge, even where the underlying services are welfare services.

Background

HMRC opened enquiries in 2019 and issued the taxpayers with a series of assessments, penalties and personal liability notices (the Decisions), in relation to VAT. The taxpayers appealed the Decisions to the FTT, but three of the appeals were notified after the 30-day deadline set out in section 83G, Value Added Tax Act 1994 (VATA). 

While the decision of the FTT was, unusually, not published, the FTT refused permission, under section 83G(6), VATA, for three appeals to be brought out of time, applying the guidance given by the UT at [45]-[46] in Martland v HMRC [2018] UKUT 178 (TCC) and subsequently endorsed in HMRC v Katib [2019] UKUT 189 (TCC). That guidance provides that, when considering an application for a late appeal, the FTT could follow the following three-stage test applied by the civil courts:

1. Establish the length of the delay, and whether it was serious or significant.
2. Establish the reason(s) why the default occurred.
3. Evaluate “all the circumstances of the case”. This involves a balancing exercise that essentially assesses the merits of the reason(s) given for the delay and the prejudice that would be caused to both parties by granting or refusing permission. In undertaking that assessment, the FTT must take into account the factors set out at Rule 3.9 of the CPR, namely, the particular importance of the need for litigation to be conducted efficiently and at proportionate cost, and for statutory time limits to be respected. 

The UT decision

The taxpayers applied to the UT for permission to appeal the FTT's decision refusing them permission to appeal to that tribunal out of time. Before the UT, the taxpayers argued, amongst other things, that the decision in Martland was incorrect, as was the FTT's reliance on it when refusing them permission. In particular, the taxpayers contended that Martland had improperly embedded within the discretionary power contained in section 83G(6), VATA, the ex ante additional weight to be attached to the two factors set out at Rule 3.9 of the CPR. The taxpayers argued that as a result, the Martland approach obliged the FTT to attach greater weight to those two factors than might otherwise be the case, which was impermissible. 

While the UT was of the view that the three-stage structure of the discretion at [44] in Martland was "unimpeachable", the UT panel (Marcus Smith J and Judge Cannan) was unable to reach consensus on the question of whether the elevation of the factors in Rule 3.9 of the CPR was permitted as a matter of the statutory construction of section 83G(6), VATA. Instead, by way of casting vote, Marcus Smith J allowed the taxpayers' appeal on this point, finding that Martland had placed a fetter on the discretion of the FTT that was not justified by the terms of section 83G(6). In that regard, Marcus Smith J noted that the UT could not, by way of binding guidance, direct the FTT as to what weight to place on particular factors when it is considering, in all the circumstances, whether to extend time for appealing.

In contrast, Judge Cannan was not convinced that Martland (or Katib) was incorrect, and indicated that, as a matter of judicial comity, he would have dismissed the taxpayers' appeals on this issue. Further, he noted that Martland could be justified on the basis that Parliament, in giving discretion to the FTT in section 83G(6), anticipated and intended that the UT would provide binding guidance on the exercise of that discretion, in so far as such guidance was considered desirable.

Given HMRC’s consistently strict approach to late appeals, and its general resistance to them, it was perhaps inevitable that the UT’s decision would be appealed by HMRC to the CoA.  

The CoA judgment

The CoA unanimously allowed HMRC's appeal.

The CoA noted that the issue raised in the appeal was not whether the guidance in Martland was flawed, but rather, whether it was permissible for the UT to formulate guidelines for the exercise of the FTT's discretion to permit late appeals, attaching particular significance to certain factors. In considering that question, the CoA had no difficulty in concluding that the UT was entitled to give guidance to the FTT. The CoA considered several authorities, including R (Jones) v First-tier Tribunal [2013] UKSC 19, BPP Holdings Ltd v HMRC [2017] UKSC 55, and BPP Holdings Ltd v HMRC [2016] EWCA Civ 121, and noted that a number of important points emerged from these decisions, including:

1. The UT is entitled to give guidance to the FTT as to the proper approach to the lifting or imposing of sanctions for failure to comply with a time limit. On the face of it, that would include a failure to comply with a time limit for filing an appeal.
2. It is an important function of the UT to provide guidance so as to achieve consistency in the FTT.
3. Although the cases on time limits in the CPR do not apply directly, tribunals should generally follow a similar approach. The phrase “time limits” is not itself limited to any particular form of time limit.

The CoA then considered whether, as Marcus Smith J had found, the fact that the FTT's power was a discretion conferred by statute made a difference. In that regard, the CoA noted the tension between his view that, on the one hand, the guidance in Martland was appropriate, but on the other that the UT was not entitled to provide such guidance. Moreover, the CoA observed that in BPP, both the CoA and the Supreme Court approved guidance that did attach particular weight to the factors referred to in Rule 3.9 of the CPR, even though the relevant tribunal rules were silent on the matter.

Instead, the CoA considered that a useful analogy could be drawn with two cases concerning the statutory discretion given to magistrates to make awards of costs: R (Perinpanathan) v City of Westminster Magistrates’ Court [2010] EWCA Civ 40 and Competition and Market Authority v Flynn Pharma Ltd [2022] UKSC 14. The CoA noted that neither of those cases had been drawn to the attention of the UT, but both clearly stated that even where a statutory power was apparently unfettered, a superior court of record could lay down guidance, or even rules, which apply in the absence of special circumstances. 

The CoA next considered the taxpayers' argument that, while it was open to the UT to lay down guidance for the FTT in the exercise of its procedural powers under the tribunal rules, such guidance could not be used so as to inform the exercise of a substantive right to begin proceedings. Accordingly, the taxpayers asserted the UT was mistaken to equate an application for an extension of time to appeal, with a failure to comply with tribunal rules once a case had been commenced before the FTT. The CoA rejected this argument, noting the distinction the taxpayers sought to make was "extremely hard to follow" and that, amongst other things, the purpose (or at least one of the purposes) of section 83G, VATA, was to prescribe part of the procedure for appealing against a decision by HMRC and had little, if anything, to do with the substantive question of whether HMRC’s decision was in fact correct.

Finally, the CoA considered the issue of weighting, and the concern of Marcus Smith J that the Martland guidance attached significant weight to factors that were not expressly referred to in section 83G(6), without any change in the FTT rules. In rejecting that concern, the CoA noted that its decision in BPP made it clear that there would be a change of culture in the tax tribunals and that the approach in Denton v TH White Ltd [2014] EWCA Civ 906 (which gave guidance on the weighting to be attributed to the various factors listed in Rule 3.9 of the CPR), should be followed notwithstanding that the tribunal rules were silent on the weight to be attributed to the various factors to be considered. The CoA also rejected Marcus Smith J’s characterisation of the Martland guidance as amounting to a fetter on discretion as "overblown", noting that the guidance expressly recognises that there is a judicial discretion to be exercised.

Comment

The UT’s decision in Medpro generated a certain amount of optimism amongst taxpayers and practitioners that the FTT might be prepared to adopt a broader and more fact-sensitive approach when undertaking the Martland balancing exercise. In particular, it suggested there was greater scope for undertaking a more comprehensive evaluation of all relevant circumstances, such that the merits of a particular case would not be unduly obscured by the length of the delay in bringing an appeal, and with reduced emphasis on the importance traditionally attached to strict adherence to statutory time limits. Indeed, the UT’s decision guided the FTT towards a more nuanced assessment of fairness. 

However, that optimism has, at least for now, been firmly dashed. The CoA’s judgment makes clear that the orthodox approach remains firmly in place. In practice, subsequent decisions of the FTT, applying the guidance of the UT in Medpro, had already suggested that the practical impact of the UT’s decision would be limited and the hurdle facing a taxpayer seeking permission to appeal out of time remained high. The FTT's recent decision in Lands Luo Ltd v HMRC [2025] UKFTT 1207 (TC), affirmed the correctness of Martland, while decisions like Ian Smicle-Thompson v HMRC [2025] UKFTT 1063 (TC), demonstrate how difficult the test is to satisfy in anything other than truly exceptional cases. 

It is important to note that late appeals do not only arise through carelessness or indifference on the part of taxpayers. Taxpayers can, and do, find themselves out of time due to circumstances beyond their control, including ill-health or professional failings, and yet can still face an uphill struggle when seeking relief from the FTT. The advice to taxpayers and their advisers therefore remains unchanged: compliance with statutory appeal deadlines remains critical, and reliance on the FTT’s discretion is a poor substitute for timely action. 

In May 2007, Mr Robert Glazer and Mrs Pratima Glazer ceased to be partners in Glazers Chartered Accountants (Glazers CA), a general partnership. The terms of Mr Glazer's exit from Glazers CA became a source of dispute with the other partners in Glazers CA.

Following arbitration concerning a non-compete clause in the partnership agreement relating to Glazers CA, Mr Glazer was permitted to acquire a licence to use the firm's client list for consideration of £555,271 (the Licence).

On 19 April 2007, Mr and Mrs Glazer incorporated Ripe Limited Liability Partnership (Ripe LLP) with themselves as the only members to operate the new accountancy business and on 24 April 2007 Ripe Limited (Ripe) was incorporated. Ripe is owned by Mr and Mrs Glazer, who are its only directors.

Mr Glazer transferred the Licence to Ripe and Ripe LLP paid Ripe a fee to use the client list.

Ripe recorded the Licence in its accounts as 'goodwill' and claimed annual amortisation deductions of £50,000, under the IFA regime (now in parts 8 and 9, CTA 2009).

HMRC contended that no IFA had been acquired and considered Ripe had been 'careless', for the purposes of the extended six year time limit. Accordingly, HMRC issued discovery assessments and closure notices to Ripe, disallowing the amortisation deductions for six different accounting periods. Ripe appealed to the FTT.

FTT's decision

The appeal was allowed.

In reaching its decision, the FTT found that the Licence was acquired by Ripe for continuing use in the course of its business and Ripe maintained necessary control over its expected future benefits – the licence therefore constituted an IFA and qualified for amortisation relief.

Although the Licence was not documented and was incorrectly described as 'goodwill' in the company's accounts, this did not alter the fact that it was, in substance, an IFA for corporation tax purposes. 

The FTT also found that no loss of corporation tax had been brought about by careless conduct by the company and therefore the extended six year time limit relied upon by HMRC did not apply (paragraph 46(2), Schedule 18, Finance Act 1998). Two of the four discovery assessments had been issued outside the four year time limit and were therefore invalid in any event (paragraph 46(1), Schedule 18, Finance Act 1998).

Comment

This decision provides a helpful reminder that the tax treatment of an asset will often depend on its substance rather than its form. The fact that the Licence was not documented and was incorrectly described as 'goodwill' in the accounts of the company was not determinative.

It would no doubt have saved a great deal of time and expense if the Licence had been carefully documented at the time it was granted, but the FTT was nevertheless satisfied that both the Licence and its assignment existed, based on the witness evidence relied upon by Ripe. 

Finally, although this decision is a helpful illustration of some of the basic principles applicable to the taxation of IFAs, it should be noted that the rules for taxing goodwill and customer-related IFAs have changed significantly since the events considered by the FTT in this case.

The decision can be viewed here.

Sintra Global Inc (Global), Sintra SA (SA) and Mr Parul Malde, were involved in the alcohol trade. 

HMRC argued that Global, SA and Mr Malde, were involved in the fraudulent diversion of alcohol into the UK from the EU between 2004 and 2014, making use of a process known as 'inward diversion fraud'. 

Following its enquiry, HMRC issued various decisions and penalties to Global, SA and Mr Malde, some of which did not proceed before the First-tier Tribunal (FTT) for determination. The appeals which proceeded before the FTT, and later the Upper Tribunal (UT) and CofA were the following:

a. A decision that Global was liable to be registered for VAT between 1 April 2012 and 30 June 2015 (the Decision). 

b. A registration penalty assessment issued to Global in the sum of approximately £8.7 million (the Penalty). 

c. Three personal liability notices issued to Mr Malde making him personally liable for penalties levied on Global, being the registration penalty, an inaccuracy penalty and an excise duty penalty (the PLNs).

d. A director's liability notice to Mr Malde for 100% of the civil evasion penalty in the sum of approximately £11.1 million, as a result of SA's dishonest failure to register for VAT and to submit VAT returns (the DLN).  

Global appealed the Decision and the Penalty and Mr Malde appealed the PLNs and the DLN, to the FTT. The FTT allowed the appeals of Global and Mr Malde. HMRC appealed to the UT. The UT dismissed HMRC's appeal and HMRC then appealed to the CofA. 

CofA judgment

The appeal was allowed.

The CofA remitted all of the open appeals to the FTT for rehearing in light of the principles established by its judgment.

The key issue before the CofA was whether the burden of proof fell on the taxpayers or HMRC, in a penalty appeal where the taxpayers were seeking to challenge the penalty on the basis that the underlying tax liability was wrong. 

The CofA held that in penalty proceedings the burden of proof is normally on HMRC to establish the primary facts needed to justify imposing the penalty in issue, but if the taxpayer wishes to contend that an underlying liability to tax is wrong, a separate legal burden rests on the taxpayer to prove it, in the same way as they would on appeal against an assessment or decision. In reaching this conclusion, the CofA relied on the following reasoning:

• The taxpayers admitted that the burden of proof on the issue of liability to tax would rest with them if the question was determined in separate appeal proceedings. Therefore, if they did not bear the burden of proof on that issue in a penalty appeal, this would lead to arbitrary and anomalous results.
• If the taxpayers did not bear the burden of proof on the issue of liability to tax in the current circumstances, it would subvert the long-established rule that the legal burden of proof normally lies on the taxpayer to displace an assessment to tax.
• Shifting the burden of proof to HMRC in the circumstances of the instant appeal would be inconsistent with the principles which justify the normal rule, the most important of which is that taxpayers will normally have access to all the information relevant to their tax affairs, and it would give rise to the risk of inconsistent decisions if the same question of underlying liability were determined differently depending on the stage at which it arises. 

The CofA also considered whether the fact that civil tax penalty proceedings in the UK are treated as giving rise to 'criminal charges' within the meaning of Article 6(1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms, requires the legal burden to fall on HMRC to establish the correctness of the underlying liability to tax if it is put in issue by the taxpayer in the penalty proceedings. The CofA decided that it did not and noted that it was common ground that Article 6 did not apply to the underlying assessments and that the burden of proof lay on the taxpayers to displace those assessments. This remained the case even though HMRC had pleaded fraud.

Comment

This judgment is notable, not only because it overturned the conclusions reached by both the FTT and the UT, but because it has confirmed that when a taxpayer challenges a civil evasion penalty on the basis that the underlying tax liability underpinning the penalty is incorrect, the taxpayer bears the legal burden of proving that they are not liable for the underlying tax. 

It is understood that the taxpayers are seeking permission to appeal to the Supreme Court.

The judgment can be viewed here.

HMRC publishes lists of partner jurisdictions and reportable jurisdictions for the Cryptoasset Reporting Framework

HMRC has revised its International Exchange of Information Manual confirming the partner and reportable jurisdictions relevant to the implementation of the OECD’s Cryptoasset Reporting Framework (CARF) in the UK.

The CARF regime has applied since 1 January 2026. It requires UK reporting cryptoasset service providers (RCASPs) to carry out customer due diligence in relation to specified cryptoasset transactions and to submit prescribed information to HMRC.

HMRC will then automatically exchange information about customers resident in a 'reporting jurisdiction' with that jurisdiction. If the RCASP has a closer nexus with a 'partner jurisdiction' than the UK, it only needs to report to the tax authority of that partner jurisdiction.

IEIM8000710 provides a list of partner jurisdictions for the 2026 reporting year and IEIM8000720 provides a list of the reporting jurisdictions for that year.

HMRC updates its guidance to help agents prepare for the launch of "Making Tax Digital for Income Tax" in April 2026

HMRC has updated its guidance for agents to help them prepare for the launch of "Making Tax Digital for Income Tax" in April 2026.

The guidance explains that, from April 2026, landlords and sole traders with an annual turnover of over £50,000 will need to use HMRC-recognised software to keep digital records and submit quarterly updates of income and expenses.

You can read HMRC's guidance here.

HMRC publishes the latest edition of its bi-annual Trusts and Estates Newsletter

HMRC has published the latest edition of its Trusts and Estates Newsletter, providing updates and guidance on inheritance tax and trusts.

The newsletter covers a range of technical and administrative points, including inheritance tax reporting (with specific reference to cryptoassets), Automatic Exchange of Information obligations, changes affecting Employee Ownership Trusts and capital gains tax, and practical service updates from HMRC.

You can read HMRC's newsletter here.

HMRC publishes Loan Charge operational activity briefing paper following the recent review of the Loan Charge

HMRC has published a briefing paper explaining its operational activity following the recent review of the Loan Charge carried out by Ray McCann.

The note sets out HMRC’s approach to implementing the government’s response to the Loan Charge review announced in Budget 2025, including the operational steps it is taking for taxpayers who used disguised remuneration tax avoidance arrangements and how the new settlement opportunity will be rolled out.

You can read HMRC’s briefing paper here.

Case reports

Upper Tribunal dismisses HMRC's appeal and confirms no general principle of reciprocal disclosure

In HMRC v Ducas Ltd [2025] UKUT 362 (TCC), the Upper Tribunal (UT) dismissed HMRC's appeal against certain case management directions issued by the First-tier Tribunal (FTT) and confirmed that there is no general rule that extended disclosure must apply equally to both sides in a tax dispute.

Although the UT’s decision may not be surprising given the high threshold for interfering with case-management decisions of the FTT it is nevertheless significant in confirming that there is no general principle of reciprocity in the disclosure regime before the FTT.  

The UT's decision also serves as a reminder that disclosure applications must be determined on the specific facts and circumstances of the case. HMRC had based its disclosure application almost exclusively on the basis of reciprocity. It had not advanced a broader, fact-specific argument for why extended disclosure from the taxpayer was necessary. If it had done so, it might have been more successful.

You can read our commentary on the decision here.

Upper Tribunal considers 'wholly and exclusively' test in the context of SDLT and ATED

In Investment and Securities Trust Ltd v HMRC [2025] UKUT 00331 (TCC), the UT considered the different 'wholly and exclusively' tests which apply to Stamp Duty Land Tax (SDLT) and Annual Tax on Enveloped Dwellings (ATED). The UT held that a company holding a property option for redevelopment and resale qualified for ATED relief but not relief from the 15% higher rate of SDLT upon acquisition, as the property was not held exclusively for a qualifying trade purpose at that time.

This decision highlights an important distinction between acquisition purpose (for SDLT) and holding purpose (for ATED). It confirms that non-commercial, or shareholder-driven motives at the point of acquisition, can defeat SDLT relief even where the underlying land is intended for development.

By contrast, the UT’s approach to ATED recognises that purposes may change over time and that relief can become available once any non-qualifying acquisition purpose has fallen away. The decision therefore reinforces the need for a temporal and fact-sensitive analysis when advising on ATED liability.

The decision will be of particular interest to property developers using options or other non-standard acquisition structures, especially where connected parties are involved. While such arrangements may be commercially expedient, they may prevent SDLT relief if they serve mixed purposes at acquisition.

You can read our commentary on the decision here.

Court of Appeal confirms that expenses paid by an umbrella company were taxable

In Mainpay Ltd v HMRC [2025] EWCA Civ 1290, the Court of Appeal has confirmed that travel and subsistence expenses paid by an umbrella company to its employees were taxable because there were no single, overarching, employment contracts between the two parties.

The Court of Appeal also confirmed that for HMRC to benefit from the 6 year extended time limit for making a discovery assessment based on a taxpayer's 'careless' conduct, it must establish a causal link between the taxpayer's carelessness and the loss of tax. 

This case illustrates the high level of care that must be taken by advisors and their clients to ensure that they adopt the correct approach when seeking to make payments to employees tax-free. Professional advisors should always give careful consideration to whether they have the necessary expertise to provide specialist tax advice. 

You can read our commentary on the decision here.

And finally …

Adam Craggs and Liam McKay have published an article in Tax Journal focussing on the key developments in the contentious tax arena during 2025. In particular, the tightening of procedural frameworks in tax litigation, clarifying case law on issues such as late and burden-of-proof appeals, and HMRC’s intensified focus on avoidance and criminal compliance activity that is likely to shape the disputes landscape in 2026.

You can read the article here.

Raj and Varsha Sehgal (the Purchasers) acquired a fourth-floor apartment in 20 Grosvenor Square, London, together with a car parking space and a basement storage unit, under a single contract for a single premium of £18.25m. The apartment and parking space were acquired via the assignment of long leases (each exceeding 900 years), while the storage unit was acquired under a separate 20-year lease, granted on the same day and registered under a separate Land Registry title.

A single SDLT return was filed on the basis that the acquisition was wholly residential and subject to the higher rates of SDLT. The Purchasers later sent a letter to HMRC amending the SDLT return and requesting a refund of £1.75m, contending that the transaction attracted non-residential (mixed-use) rates because there was a right to use shared amenities, such as a communal garden, gym, spa and children's play area (the Refund Claim). 

HMRC issued a closure notice refusing the Refund Claim, and the Purchasers appealed the closure notice.

At HMRC's internal review stage, the Purchasers raised an additional argument that non-residential rates applied because the transactions included the storage unit lease, which was not residential. 

HMRC rejected the claim on the basis that the transaction was wholly residential, asserting that the storage unit was not a separate non-residential interest, but was appurtenant to, or subsisted for the benefit of, the apartment.

The Purchasers appealed to the FTT.

FTT's decision

The appeal was allowed.

Nature of the transaction

The FTT found that the acquisition of the apartment and the acquisition of the storage unit were separate land transactions, albeit linked. Each involved a distinct legal interest in separate land which could, in principle, have been acquired by different people. The fact that they were acquired under a single contract for a single price, was not determinative for SDLT purposes.

In any event, even if there had been a single transaction, the storage unit lease was not “an interest or right appurtenant or pertaining” to the apartment, for the purposes of section 43(6), Finance Act 2003. Unlike easements over communal areas considered in earlier cases, the storage unit lease had an independent legal existence. It was granted under a separate lease, could be assigned or underlet independently (subject to restrictions), and did not automatically pass with the apartment.

Residential property

The FTT also rejected HMRC’s argument that the storage unit constituted residential property for the purposes of section 116(1)(c), Finance Act 2003. Although its use was restricted to private residential storage, the lease did not subsist for the benefit of the apartment itself, but for the benefit of whoever held the storage unit lease from time to time. The storage unit could benefit different apartments, or none at all, and therefore lacked the necessary identification with the dwelling.

Accordingly, as the relevant land included non-residential property, the lower non-residential SDLT rates applied and the Purchasers were entitled to a refund of £1.75m.

Comment

The FTT commented, at paragraph 167 of its decision, that this appeared to be a surprising result given the relatively small value of the storage unit. However, the SDLT legislation unambiguously provides that residential rates only apply if the relevant land consists entirely of residential property, the FTT considered that Parliament would not have used this word unless this was the intended outcome.

This decision is significant and will be of wider interest due to the significant difference between residential and non-residential rates of SDLT. Given the number of properties which are sold (or could be sold) with storage units, it would not be surprising if HMRC seek to appeal this decision to the Upper Tribunal.

The decision can be viewed here.

HMRC updates its Guidance on VAT and private school fees

HMRC has updated its Guidance on charging and reclaiming VAT on goods and services related to private school fees. The update provides some clarity on the example given of parents contracting and paying therapists directly and the example of a school supplying education and therapy as separate fees.

HMRC's Guidance can be viewed here.

HMRC updates VAT Notice 703 on zero-rating goods exported from the UK

HMRC has updated its Guidance on VAT on goods exported from the UK (VAT Notice 703). HMRC explain in its updated Guidance how and when you can apply zero-rated VAT to exported goods. The update addresses the latest force of law and customs processes, including the removal of outdated customs terminology and guidance.

HMRC's Guidance can be viewed here.

HMRC revises its internal manual: VAT Government and Public Services

HMRC has updated its internal manual: VAT Government and Public Bodies, in relation to NHS capital building projects. The manual sets out the established process and HMRC's requirements when a taxpayer applies for Contracted Out Services VAT recovery.

HMRC's updated manual can be viewed here.

Case reports

FTT allows input VAT recovery where invoice defects were minor and HMRC’s refusal to exercise discretion was unreasonable

In Athena Luxe Ltd v HMRC [2025] UKFTT 1507 (TC), the First-tier Tribunal (FTT) considered whether Athena Luxe Ltd (Athena) was entitled to recover input VAT on purchases from Harrods and Louis Vuitton. HMRC had reduced Athena's repayment claims on the basis that the invoices were not valid under Regulation 14, VAT Regulations 1995 (VAT Regulations).

HMRC refused recovery on the grounds that the Harrods invoices did not contain a sufficient description of the goods and the Louis Vuitton invoices were addressed to employees, rather than to Athena.

The key issues before the FTT were whether the Harrods documents satisfied Regulation 14(1)(g), VAT Regulations, and whether, in relation to the Louis Vuitton invoices, HMRC had unreasonably refused to exercise its discretion, under Regulation 29, VAT Regulations, to accept alternative evidence.

The FTT held that the Harrods invoices, read together with the corresponding till receipts, contained a description sufficient to identify the goods supplied and were therefore valid invoices for the purposes of Regulation 14(1)(g). In relation to the Louis Vuitton invoices, although they were not compliant, in the view of the FTT, HMRC had acted unreasonably in refusing to exercise its discretion under Regulation 29, particularly given that supplies were not disputed, payment by the business was evidenced, and there was no basis for concluding there had been a “systematic failure” to obtain valid invoices.

The FTT allowed Althena's appeal.

The decision can be viewed here.

Why it matters

This decision provides helpful guidance on the evidence businesses are required to submit to HMRC when claiming input tax.

The decision also confirms that HMRC’s discretion under Regulation 29, VAT Regulations, must be exercised rationally and consistently. Minor invoice defects will not automatically justify denial of input tax where the underlying supplies and payment are clearly evidenced.

FTT holds that personalised biography service was a zero-rated supply of books, not standard-rated ghost-writing services

In Story Terrace Ltd v HMRC [2025] UKFTT 1554 (TC), the FTT considered whether Story Terrace Ltd (Story Terrace) was entitled to zero-rate its supplies of personalised biography books under Item 1, Group 3, Schedule 8, Value Added Tax Act 1994 (VATA 1994).

HMRC assessed VAT on the basis that the supplies were standard-rated, arguing that Story Terrace was predominantly supplying ghost-writing services, rather than books.

The key issue before the FTT was whether Story Terrace’s overall supply, viewed from the perspective of the typical consumer, was properly characterised as a supply of books (zero-rated) or as a supply of ghost-writing services (standard-rated).

The FTT held that the final product clearly met the definition of a book and that the supply was a single composite supply. From the perspective of the typical consumer, the predominant element was the provision of a finished physical book. The ghost-writing and editorial work formed part of the process leading to that outcome. The FTT considered the contractual documentation and concluded that the provision of a book was the predominant element of the supply. The FTT also cautioned against artificially dissecting the supply into separate service elements.

The FTT allowed Story Terrace's appeal.

The decision can be viewed here.

Why it matters

This decision provides useful guidance on applying the predominance test to bespoke creative products. It confirms that a highly personalised, and service-intensive process, can still amount to a zero-rated supply of goods where, viewed objectively, the typical consumer is acquiring a product that, properly characterised, satisfies the legal test for a zero-rated product. The case is likely to be relevant to other hybrid publishing, design and creative service, models.

UT clarifies scope of “disability” for VAT zero-rating in hair replacement case

In Mark Glenn Ltd v HMRC [2026] UKUT 34 (TCC), the Upper Tribunal (UT) considered whether Mark Glenn Ltd (MGL) was entitled to zero-rate supplies of its Kinsey system, a hair replacement treatment for women with severe hair loss, under Item 3, Group 12, Schedule 8, VATA 1994.

HMRC assessed VAT on the basis that the supplies were standard-rated, arguing that severe female hair loss was not a “disability” and that the supply was not a service of adapting goods.

The key issues before the UT were whether: (i) severe female hair loss constituted a disability for VAT purposes; and (ii) the Kinsey system fell within Item 3, as a supply of services of adapting goods to suit a disabled person’s condition.

The UT held that the FTT had erred in law by failing adequately to explain why female baldness was not a disability. Remaking the decision, the UT concluded that severe hair loss in women can constitute a disability, taking into account the real-world social and cultural impact of severe hair loss.

The UT further held that, although the overall supply was a single supply of services, it involved adapting goods (the hairpiece and fibre strands) to suit the person’s condition. The supplies therefore fell within Item 3 and were zero-rated.

The UT allowed MGL’s appeal.

The decision can be viewed here.

Why it matters

This decision is significant in the context of the scope of “disability” and Item 3 zero-rating. It confirms that disability can be assessed by reference to social context and real-world impact, and that a composite service can qualify as a service of adapting goods.

UK publishes draft Carbon Border Adjustment Mechanism Regulations

The Government has published draft secondary legislation for the Carbon Border Adjustment Mechanism (CBAM), ahead of its planned introduction on 1 January 2027.

The draft legislation sets out key administrative requirements, including registration, return submissions, record-keeping, calculation of the CBAM rate, and treatment of overseas carbon pricing (Carbon Price Relief). HMRC has also issued supporting notices and an updated policy summary explaining how the regime will operate.

The draft regulations are subject to a six-week technical consultation.  Any responses or queries regarding the consultation should be submitted by email to cbampolicyteam@hmrc.gov.uk no later than 24 March 2026.

Businesses affected by CBAM should review the potential compliance and supply-chain implications ahead of implementation.

The draft regulations and technical consultation can be viewed here.

New Vaping Product Duty to apply from 1 October 2026

The Government has confirmed that Vaping Product Duty and a related Vaping Duty Stamps regime, will take effect from 1 October 2026, with duty charged at £2.20 per 10ml of vaping liquid.

The new excise duty will introduce a regulatory framework similar in structure to that applying to tobacco products, bringing enhanced compliance, approval and record-keeping obligations, alongside increased costs, for the sector.

Manufacturers, importers and excise warehousekeepers will be required to obtain HMRC approval from 1 April 2026, in advance of the regime going live.

HMRC's Guidance can be viewed here.

EU further delays Deforestation Regulation until December 2026

The EU has confirmed a further postponement of the EU Deforestation Regulation (EUDR), delaying its application for all operators until 30 December 2026, with an additional six-month grace period for micro and small operators.

EUDR prohibits the placing on, or export from, the EU market of specified commodities and derived products unless they can be demonstrated to be “deforestation-free”. The regime imposes enhanced due diligence, traceability and record-keeping requirements across supply chains, with scope driven by customs classification codes and country of production.

The revision also streamlines certain due diligence requirements to reduce administrative burden ahead of implementation.

The EU’s announcement and supporting materials can be viewed here.

Case reports

Juno Sourcing Ltd v HMRC [2025] UKFTT 1447 (TC)

Juno Sourcing Ltd (Juno) appealed to the First-tier Tribunal (FTT) against HMRC's post‑clearance demand (C18) in the sum of £1,373,884.73, comprising £490,523.81 of customs duty and £883,360.92 of import VAT. The C18 related to 52 consignments of personal protective equipment (PPE) imported between 14 April 2020 and 4 November 2020, where Juno acted as the importer of record (IoR). The goods included face masks, face shields, and aprons.

The main issue in the appeal was whether the PPE qualified for disaster relief from customs duty and import VAT under Article 1 of Commission Decision (EU) 2020/491 (the Commission Decision) and whether Juno’s claim for remission under Articles 117–120 of the Union Customs Code (UCC), was valid. Relief was available only if, on the balance of probabilities, the goods were imported by or for an approved organisation, including the NHS, or otherwise met the UCC remission criteria.

FTT's decision

The appeal was dismissed.

The FTT held that relief under the Commission Decision was conditional on the goods being imported by, or actually ending up with, an approved organisation, such as the NHS. In this case, the goods were not imported by the NHS or another approved organisation and the PPE consignments had not reached the NHS or other approved organisations. The mere fact that it was Juno's expectation that the goods would end up with the NHS, was not sufficient. Accordingly, the disaster relief claim failed.

With regard to the remission claim under Articles 117–120 UCC, the FTT concluded that none of the conditions for remission applied to the goods in question. The remission claim was therefore also unsuccessful.

Why it matters

This decision highlights that claims for disaster relief are strictly conditional. Relief is not granted based on intended or expected use alone; the actual delivery to an approved organisation must be demonstrable. Importers acting as IoR bear significant evidential burdens to substantiate both eligibility for relief and proper end‑use of goods. For PPE and similar emergency-related imports, documentation and tracking of delivery to approved recipients is critical to avoid post‑clearance demands.

The decision can be viewed here.

Stark Building Materials (UK) Ltd v HMRC [2026] UKFTT 123 (TC)

Stark Building Materials (UK) Ltd (Stark) appealed to the FTT against HMRC’s refusal to repay excise duty of £931,152.73, paid on hydrocarbon oil imported between 1 January and 17 May 2021, under section 9(4), Hydrocarbon Oil Duties Act 1979 (HODA).

The main issue in the appeal was whether Stark needed to be an “approved person” at the time of importation in order to qualify for repayment under section 9(4), or whether approval obtained before submitting the repayment claim would suffice.

Stark had imported hydrocarbon oil and subsequently used it for qualifying industrial purposes. HMRC argued that repayment relief under section 9(4) required the importer to have been an approved person at or before importation, and that Stark’s later approval was insufficient. Stark contended that its approved person status at the time of claiming repayment satisfied the statutory conditions.

FTT's decision

The appeal was dismissed.

The FTT held that in order to qualify for repayment under section 9(4), the claimant must have been an "approved person" at, or before, the time the oil in respect of which excise duty has been paid is imported. Approval obtained after importation did not meet the statutory requirement. The FTT emphasised that section 9(4) operates as a repayment mechanism only where the statutory conditions for relief under s 9(1) are met at the time of importation. Stark’s later approval could not cure the fact that the conditions were not satisfied when the duty was initially payable.

Why it matters

This decision is significant for importers of excise‑duty goods. It confirms that approved person status must exist at, or before, importation in order to claim repayment under section 9(4) HODA. Businesses should ensure that approval from HMRC is obtained in advance, as retrospective relief will not be available if the statutory conditions are not met at the time of importation. From a practical perspective, importers must carefully manage the timing of approvals and maintain clear records to preserve repayment rights.

The FTT's decision can be viewed here.

Yourway Transport Ltd v HMRC [2026] UKFTT 94 (TC)

Yourway Transport Ltd (Yourway) appealed to the FTT against HMRC’s decisions reducing its claimed import VAT credits and issuing associated VAT assessments relating to its importation of clinical trial drugs (trial drugs). The total sum in dispute was £4,329,955.

The main issue in the appeal was whether Yourway was entitled to a credit for import VAT it incurred on importing trial drugs on behalf of its (mostly US‑based) biopharma clients. The key question was whether Yourway, which did not own the goods before delivery, could nonetheless treat the import VAT as deductible input tax because it acted as agent for the biopharma companies and made supplies (transfers) to clinics and hospitals in EU countries in its own name, under section 47(1), Value Added Tax Act 1994 (VATA).

Yourway contracted with biopharma companies to import trial drugs into the UK, store them under regulated conditions, and deliver them to clinics and hospitals (mostly outside the UK) when ordered. The goods were owned by the biopharma clients until delivery, and Yourway was paid for its services. The trial drugs themselves were provided free of charge to clinics for clinical trials. HMRC reduced Yourway’s claimed VAT credits on the basis that, as agent and non‑owner of the goods, it lacked entitlement to recovered import VAT.

 FTT's decision

The appeal was allowed in part.

The FTT found that, although Yourway never owned the drugs, it acted as agent for its clients in its own name. Under the pre-Brexit version of section 47(1)(b), VATA, which applied at the time, this meant Yourway was treated as both importing and supplying the goods as principal, for VAT purposes. When combined with paragraph 6, Schedule 4, VATA, which treats the removal of business assets from the UK to another Member State as a supply of goods even without consideration, a deemed taxable supply arose. This created the necessary direct and immediate link between the import VAT and Yourway’s deemed taxable supplies, allowing the VAT on EU-destined drugs to be recovered as input tax.

In contrast, for trial drugs that remained in the UK, or were exported to non-EU countries, there was no equivalent legislation that treated the free trial drugs as a deemed supply, and therefore the import VAT could not be linked to any taxable output. As a result, input tax recovery was not available on those imports.

The FTT also rejected a public-law argument based on legitimate expectation. The precise amount of recoverable VAT is to be agreed between the parties.

Why it matters

This decision is significant for businesses acting as agents in international logistics and supply chains, particularly where they import goods they do not own and arrange onward delivery for clients. For importers and logistics providers acting on behalf of third parties, careful analysis is necessary to determine when import VAT credits can be recovered under the agent provisions and the associated direct and immediate link test for deductible input tax. From a practical perspective, businesses should ensure that contractual arrangements, documentation, and VAT treatment reflect the agency relationships.

The FTT’s decision can be viewed here.

Mainpay Ltd (Mainpay) was an umbrella company employing temporary workers that were supplied to agency companies specialising in the education, health and social care sectors. 

Mainpay reimbursed its workers under section 338, Income Tax (Earnings and Pensions) Act 2003, for travel and subsistence expenses free of income tax and claimed that the workers were employed under a single overarching continuous contract of employment, with each separate assignment being a temporary workplace.

HMRC was of the view that each work assignment was a separate employment at a permanent workplace and therefore the travel and subsistence expenses were not deductible for income tax and national insurance purposes and issued determinations and notices accordingly. 

HMRC also sought to argue, in respect of two tax years, that Mainpay had brought about the relevant loss of tax carelessly.

Mainpay had been unsuccessful in its appeals before the First-tier Tribunal (FTT) and the Upper Tribunal (UT), and appealed to the CofA. 

CofA judgment 

The CofA dismissed the appeal. 

With regard to the travel and subsistence expenses, the Court found that Mainpay did not have single, overarching employment contracts with its workers, and therefore the reimbursed travel and subsistence expenses were taxable.

In reaching its decision, the Court concluded that the correct analysis was that there was intermittent employment under a contract of employment when a worker was on an assignment followed by periods when there was no contract of employment and therefore no employment in the gaps between assignments. There was therefore no single overarching employment but rather successive employments. 

The Court also found that each assignment represented a permanent workplace and it did not therefore need to consider whether the travel and subsistence expenses were payable tax-free.

Accordingly, HMRC was entitled to recover PAYE on the travel and subsistence payments that had been made free of income tax. 

With regard to the second issue, the Court found that Mainpay had acted carelessly by failing to take appropriate advice. Mainpay had relied on assurances provided by lawyers rather than seeking advice from tax specialists. The Court agreed with the FTT, which had applied a causal test and concluded that Mainpay's failure to take reasonable care had led directly to the loss of tax arising from treating the expenses as deductible. As a result, the 6 year extended time limit applied in relation to the loss of tax which had been brought about carelessly. 

Comment

The Court of Appeal has confirmed that for HMRC to benefit from the 6 year extended time limit for making a discovery assessment based on a taxpayer's careless conduct, it must establish a causal link between the taxpayer's carelessness and the loss of tax. 

This case also illustrates the high level of care that must be taken by advisors and their clients to ensure that they adopt the correct approach when seeking to make payments to employees tax-free. 

Professional advisors should always give careful consideration to whether they have the necessary expertise to provide specialist tax advice. 

The judgment can be viewed here.

New demands from third parties

Some former participants in these arrangements have been contacted by a company claiming that the “loan debt” has been assigned to it by the original trustees. This company initially sought payment in exchange for extending the loan period. However, more recently, individuals have received a statutory demand seeking repayment of the alleged loans. HMRC has issued Guidance for taxpayers who receive such correspondence.

Take action

A statutory demand is an important legal document which requires action to be taken within strict time periods. Failing to act promptly can lead to significant consequences for the recipient of such a demand, including potential bankruptcy proceedings.
If you have participated in disguised remuneration or similar arrangements and:

• received correspondence from an unfamiliar company seeking payment in return for extending the loan period, or
• been served with a statutory demand in relation to such arrangements

you should seek specialist legal advice immediately in order to protect your position and understand the options available to you. In many cases, it will be possible to successfully challenge the statutory demand, but it is important that you take action and do not ignore the demand.

HMRC alleged that Ducas Ltd (Ducas) facilitated the fraudulent evasion of more than £171 million in national insurance contributions (NICs). It was also alleged that Ducas supplied its customers (employment agencies) with fraudulent documents suggesting that income tax and NICs had been properly deducted and paid when, according to HMRC, this was not the case. HMRC argued that such activity made Ducas liable for the unpaid NICs as a deemed secondary contributor under the Social Security (Categorisation of Earners) Regulations 1978/1689. Ducas appealed to the First-tier Tribunal (FTT). 

HMRC’s evidence was obtained from investigations into Ducas’ customers, rather than from Ducas itself. The result was a significant imbalance in the parties’ access to potentially relevant material. Matters escalated in December 2024, when the High Court granted HMRC freezing orders against Ducas and several connected companies. 

The FTT held a case-management hearing in March 2025, setting out the procedural steps leading to a 20-day substantive hearing listed for April 2026. 

With regard to disclosure, the FTT adopted a tailored approach. Although standard disclosure, under rule 27 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, only requires a party to disclose those documents which it intends to rely on, the FTT directed HMRC to provide a wider, CPR-style form of extended disclosure. HMRC was required to disclose not only the documents it intended to rely on at the appeal hearing, but also any material in its possession that supported Ducas’ case or undermined HMRC’s own case. 

The FTT explained that HMRC, as the party bearing the burden of proving fraud, was in a very different position from the taxpayer. Most of the key documents were held by HMRC because they had been obtained from third-party agencies. Ducas, on the other hand, might have no knowledge of certain documents that were potentially relevant to its defence. Against that backdrop, the FTT considered it appropriate to require HMRC to disclose a wider range of material.

In contrast, the FTT required Ducas to provide only standard disclosure. Ducas was not required to conduct broad searches for documents that might be harmful to its case or to match HMRC’s extended disclosure obligations. This was because the FTT regarded HMRC's position as fundamentally different in light of its evidential third party sources and the nature of the allegations it was pursuing. The FTT also rejected HMRC’s argument that fairness demanded reciprocal disclosure obligations. 

The disclosure direction given by the FTT became the centre of HMRC’s appeal to the UT.

The FTT's decision can be viewed here. 

UT decision 

HMRC's appeal was dismissed.

The UT confirmed that no general principle of reciprocal disclosure exists in tax tribunal proceedings. It accepted that extended disclosure can sometimes promote equality of arms but that did not mean that extended disclosure had to be imposed on all parties whenever it was imposed on one. The procedural rules are inherently flexible and disclosure must depend on the needs and circumstances of each case.

The UT emphasised that disclosure orders must be party-specific and issue-specific, rather than driven by symmetry for its own sake. An order for disclosure must be informed by the circumstances of a particular party and the primary issues in dispute, rather than by what has been ordered for the opposing party. In this case, the FTT had been entitled to consider the fact that HMRC bore the burden of proving serious allegations of fraud and that it held a substantial body of documents, sourced from third parties, which Ducas did not have. Those factors justified the FTT imposing extended disclosure on HMRC alone. 

HMRC also advanced a rationality challenge, arguing that even if no reciprocity principle existed, the FTT’s decision could not be justified because fairness required Ducas to also make extended disclosure. The UT disagreed. It acknowledged that there were reasons why the FTT could have imposed extended disclosure on Ducas, but reiterated that appellate tribunals must show significant restraint when reviewing case-management decisions. The question was not whether the UT would have reached the same view, but whether the FTT’s decision fell outside the “generous ambit” of its case-management discretion. In this instance, it did not. The FTT had considered the relevant factors, exercised judgement and reached a conclusion that was plainly open to it. HMRC's rationality challenge therefore failed.

Comment

Although the UT’s decision may not be surprising given the high threshold for interfering with case-management decisions of the FTT, it is nevertheless significant in confirming that there is no general principle of reciprocity in the disclosure regime before the FTT.  

The UT's decision also serves as a reminder that disclosure applications must be determined on the specific facts and circumstances of the case. HMRC had based its disclosure application almost exclusively on the basis of reciprocity. It had not advanced a broader, fact-specific argument, for why extended disclosure from Ducas was necessary. If it had done so, it might have been more successful.

The UT's decision can be viewed here. 

Investment and Securities Trust Ltd (IST) was a property development company controlled indirectly by Ms Voice, who also owned and occupied a high-value residential property in St John’s Wood, London. In March 2014, IST entered into an option agreement with Ms Voice, granting it the right to acquire the property for £9.3m. The option premium was £4.65m, nearly 50% of the property’s value, and was structured so that the price paid for the option would form part of the purchase price if the option was exercised. 

IST intended to redevelop the property and carried on a property development trade throughout the relevant period. However, market conditions deteriorated and, after exercising the option in 2019, IST sold the property without having carried out the intended redevelopment work.

IST filed its SDLT return on the basis that the higher 15% rate did not apply and claimed relief from ATED on the basis that the option was acquired and held exclusively for the purposes of a property development trade. HMRC disagreed with IST and assessed it to SDLT at the higher rate and charged ATED.

IST appealed the assessments to the First-tier Tribunal (FTT). While the FTT accepted that IST carried on a genuine property development trade and intended to redevelop the property, it concluded that the option was not acquired exclusively for qualifying purposes. In particular, it found that the option also served to address Ms Voice’s pressing need for funds and to prevent the sale of the property to third parties. On that basis, relief from both the higher rate of SDLT and ATED, was denied.

IST appealed to the UT.

UT's decision

The appeal was allowed in part.

The UT considered separately the availability of relief from SDLT and ATED, emphasising the different statutory tests.

The UT dismissed IST’s appeal in relation to the SDLT assessment. Paragraph 5(1)(b), Schedule 4A, Finance Act 2003, requires the chargeable interest itself (in this case, the option) to be acquired exclusively for qualifying purposes. The UT confirmed that this is not a 'main purpose' test and that the wider commercial context, including the structure and pricing of the option, may properly be considered when identifying purpose.

Although the UT accepted that some of the additional purposes identified by the FTT (such as preventing a third-party sale and allowing time to raise funds) fell within the scope of a property development trade, the FTT was entitled to find that one purpose of acquiring the option was to address Ms Voice’s personal need for liquidity. That non-qualifying purpose was sufficient to defeat the exclusive purpose requirement. 

The UT allowed IST’s appeal in relation to the ATED assessments. It held that the FTT had erred in law by treating the purpose of acquiring the option as determinative of the purpose for which it was held. Section 138, Finance Act 2013, requires a day-by-day assessment of the purpose for which the interest is held during the relevant chargeable periods.

On the facts, the UT concluded that Ms Voice’s pressing need for funds was a purpose of acquiring the option, but that purpose had been exhausted once the option was granted. There was no evidence that it remained a purpose of holding the option thereafter. The remaining purposes fell squarely within IST’s property development trade. Accordingly, the statutory conditions for ATED relief were satisfied, and the ATED assessments were set aside.

Comment

This decision highlights an important distinction between acquisition purpose (for SDLT) and holding purpose (for ATED). It confirms that non-commercial, or shareholder-driven motives at the point of acquisition, can defeat SDLT relief even where the underlying land is intended for development.

By contrast, the UT’s approach to ATED recognises that purposes may change over time and that relief can become available once any non-qualifying acquisition purpose has fallen away. The decision therefore reinforces the need for a temporal and fact-sensitive analysis when advising on ATED liability.

The decision will be of particular interest to property developers using options or other non-standard acquisition structures, especially where connected parties are involved. While such arrangements may be commercially expedient, they may prevent SDLT relief if they serve mixed purposes at acquisition.

The decision can be viewed here.

HMRC updates its International Manual to reflect changes introduced in the Finance Bill 2026

HMRC has updated its International Manual to reflect changes introduced in the Finance Bill 2026.

For example, HMRC has added a new section (INTM414000) to provide guidance on transfer pricing reform. It clarifies when HMRC will consider issuing a transfer pricing notice and provides examples of the application of the anti-avoidance provision which was implemented to tackle arrangements where the main purpose (or one of the main purposes) is to prevent the participation condition.

HMRC has also published revised guidance for non-residents trading in the UK (INTM261030).

OECD/G20 Inclusive Framework agrees Pillar Two package

The 147 jurisdictions in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting have agreed a global minimum tax package setting out a plan for the operation of Pillar Two in a digitalised and globalised economy.

The package, often referred to as the “side-by-side” framework, introduces targeted simplifications and safe harbours to support co-existence between the global minimum tax and domestic minimum tax regimes, and to facilitate implementation.

The UK has confirmed that the measures will apply from 1 January 2026 and be legislated in a future Finance Bill.

The OECD's press release can be viewed here.

HMRC consults on CIS simplifications

HMRC has published a consultation and draft legislation proposing administrative simplifications to the Construction Industry Scheme (CIS).

The proposals include reinstating nil CIS returns (subject to notification requirements) and excluding payments to local authorities and certain public bodies from the CIS. The consultation closed on 3 February 2026, with the regulations expected to come into force on 6 April 2026.

The consultation can be viewed here and the draft legislation here.

HMRC targets cryptoassets in IHT reporting

HMRC has issued letters to agents who submit IHT400 returns, reminding them that it considers cryptoassets to be property for inheritance tax purposes and that they must be declared where relevant.

Agents are asked to confirm whether estates hold cryptoassets, to report them in Box 76 of the IHT400 with supporting detail in the Additional information section, and to amend prior returns using a Corrective Account, where necessary. The letters refer to HMRC’s Cryptoassets Manual and IHT Manual, and note that unprompted disclosures may still be available in appropriate cases.

HMRC's template letter can be viewed here.

Case reports

Share buy-back satisfied 'trade benefit' test and was taxable as a capital gain rather than a distribution

In Boulting v HMRC [2025] UKFTT 1272 (TC), the First-tier Tribunal (FTT) allowed the taxpayer’s appeal, finding that the purchase of shares met the 'trade benefit' test in section 1033, Corporation Tax Act 2010 and was therefore taxable as a capital gain and not as a distribution.

This decision confirms that the 'trade benefit' test in section 1033, requires a purposive enquiry focused on the company’s commercial objectives, rather than on valuation issues, or the seller’s personal motivation.

The FTT has demonstrated in this decision that where a share buy-back is part of a genuine and commercially necessary exit to resolve management dysfunction, it is prepared to recognise a trade benefit even if the business appears profitable at the time, or if valuation is imperfect.

The decision also strengthens the position of family companies and owner-managed businesses undertaking purchase of own share transactions for succession or governance reasons, especially where management conflict threatens commercial performance.

You can read our commentary on the decision here.

Tribunal confirms MDR relief in SDLT appeal

In Michelle Jacqueline Berrell & Anor v HMRC [2025] UKFTT 1067 (TC), the FTT allowed the taxpayers' appeal and confirmed their claim for Multiple Dwellings Relief (MDR).

This decision confirms that the test for 'dwelling', under Schedule 6B, Finance Act 2003, is fact-specific and multi-factorial. Shared access or utilities will not automatically disqualify a unit from being a 'dwelling'. The FTT's willingness to envisage realistic occupancy terms, including shared common areas and garden access restrictions, provides a more nuanced approach than a rigid 'fully self-contained' test.

For property purchasers considering MDR when acquiring a property with an annexe (or sub-unit), this case highlights the importance of establishing as many self-contained features as possible at completion, such as: independent entrance, bathroom, kitchen capability, heating, and stop-tap/fuse box. Equally, it demonstrates that some shared elements, such as driveway, utility meters and garden access, will not necessarily prevent MDR if, overall, the sub-unit is suitable for separate occupation and privacy/security can be managed under realistic terms.

The decision also serves as a reminder that planning permission wording, for example, labelling an annexe as 'ancillary' and marketing a property as a single dwelling, whilst factors to be taken into consideration, are not determinative.

You can read our commentary on the decision here.

Tribunal orders HMRC to disclose documents to taxpayers in offshore trust case

In Evans & Ors v HMRC [2025] UKFTT 1112 (TC), the FTT allowed the taxpayers' disclosure application in part, ordering HMRC to provide most of the documents sought by the taxpayers (other than in relation to confidential correspondence between HMRC and foreign tax authorities).

In appeals before the FTT, the standard disclosure position is that a party only has to disclose documents they intend to rely upon. However, this decision illustrates that, in appropriate circumstances, the FTT will order HMRC to disclose relevant documents to appellant taxpayers, even where HMRC does not intend to rely on those documents and/or they are prejudicial to HMRC's case.

The issue of disclosure is topical at the moment, and another notable recent case is United Wholesale Grocers Ltd v HMRC [2025] UKFTT 1066 (TC), in which the FTT allowed the appellant taxpayer's application for specific disclosure, requiring HMRC to disclose documents concerning supply chains and related matters, mirroring the higher standard of disclosure provided for in the High Court under the Civil Procedure Rules.

The judge's comments in Evans on his use of AI in producing his decision are also worthy of note (see [42]-[49]). There can be little doubt that the use of AI by tax tribunal judges is likely to increase substantially as the technology develops.

You can read our commentary on the decision here.

And finally …

Adam Craggs and Liam McKay published an article in Tax Journal commenting on the key developments in the contentious tax arena in 2025. In particular, the article focuses on the procedural frameworks in tax litigation, case law on issues such as late appeals and the burden of proof, and HMRC’s intensified focus on avoidance and criminal compliance activity that is likely to shape the disputes landscape in 2026.

You can read the article here.

Crypto-assets: developments in 2025

Once dismissed as a passing fad, crypto-assets are now an established part of the UK's financial landscape, and 2025 saw an increasing amount of regulation in this area — from increased compliance interventions to new policy developments and targeted 'nudge' campaigns by HMRC. 

In April last year, HM Treasury published the draft Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025, which aims to create new regulated activities for crypto-assets. If implemented, the order will bring a number of crypto-asset activities within the remit of the FCA, and will mean that firms and individuals conducting certain activities will need to apply for FCA authorisation before carrying out any of them by way of business in the UK To that end, in September 2025, the FCA published a consultation paper on the proposed changes and is seeking feedback from affected parties.

Also in 2025, the FCA announced that the ban on offering crypto exchange-traded notes to retail investors would be lifted from 8 October 2025, signaling a further step toward integrating crypto-assets into mainstream financial markets.

Research published in March 2025, commissioned by the FCA, highlighted the scale of this shift. As of August 2024, 12% of UK adults (around 7 million people) reported owning crypto-assets, up from 10% in 2022 and just 4.4% in 2021. Crypto-asset ownership remains concentrated among younger, predominantly male investors, with Bitcoin and Ethereum the most commonly held crypto-assets. While one-third of investors held crypto-assets worth £100 ($133) or less, a small, but statistically significant increase, was observed among those holding crypto-assets worth between £1,001 and £5,000, suggesting a gradual deepening of engagement within the retail market.

The growing use of crypto-assets presents UK regulators with a range of novel and complex challenges, heightened by both the relatively young investor base and the fast-evolving nature of the sector itself. When it comes to taxation, those challenges are explicitly acknowledged in HMRC's published guidance, which recognises that the tax treatment of crypto-assets continues to develop due to the evolving nature of the underlying technology and the areas in which crypto-assets are used, and that HMRC's views may also evolve accordingly. HMRC's guidance sets a clear tone for taxpayers holding crypto-assets: uncertainty remains high and with it the risk, for both individuals and businesses, of inadvertently falling foul of the UK's tax rules is significant.

Crypto-asset reporting framework implementation

A persistent challenge for regulators in the crypto-asset space is simply identifying those who hold or transact in crypto-assets. The Cryptoasset Reporting Framework (CARF), is designed to address that gap and strengthen global tax transparency by facilitating the automatic exchange of tax-relevant information relating to crypto-asset activity.

The UK has implemented CARF, through the Reporting Cryptoasset Service Providers (Due Diligence and Reporting Requirements) Regulations 2025, which imposed new obligations on crypto-asset service providers and their customers from 1 January 2026. HMRC estimates that these measures will raise an additional £80 million in tax revenue by 2029-2030.

Under CARF, UK businesses that enable crypto-assets to be bought, sold, transferred or exchanged, called reporting crypto-asset service providers, will be obliged to undertake due diligence to identify crypto-assets users. This will require reporting crypto-asset service providers, to collect self-certificates from crypto-asset users, validate the content of those certificates and maintain clear audit trails of the due diligence process. Reporting crypto-asset service providers will also be required to collect aggregate transaction data on their customers' crypto-asset activities.

Similarly, users will be required to provide self-certification information to reporting crypto-asset service providers. For individuals, this will include a name, date of birth, address and national insurance number or unique taxpayer reference number, whilst for entities it will include the business address and company registration number.

Self-certification information must be reported to HMRC by reporting crypto-asset service providers where the user is tax resident in the UK, or another jurisdiction that applies CARF. HMRC will then exchange the information with other CARF jurisdictions. Penalties for noncompliance apply to both reporting crypto-asset service providers and users and range from £100 to £5,000, depending on the nature of the failure.

In recent years, the sources of information available to HMRC have given it an unprecedented insight into the financial affairs of UK taxpayers. However, HMRC's guidance acknowledges that the rapidly expanding and developing nature of crypto-assets means that tax authorities have historically had limited means to gather data on crypto-asset users, creating a notable gap in their information gathering processes.

The implementation of CARF will significantly improve HMRC's visibility in this area, enabling it to identify taxpayers with potential crypto-asset holdings more readily and to target its compliance interventions and 'nudge' campaigns with far greater precision.

HMRC 'nudge' campaigns

HMRC uses nudge campaigns as part of its compliance strategy to encourage taxpayers to voluntarily disclose information relevant to their tax affairs. These campaigns involve targeted letters, emails or messages prompting individuals or businesses to review or correct their tax affairs. The aim of such campaigns is to promote voluntary compliance and resolve potential issues without resorting to formal tax inquiries or investigations.

HMRC's deployment of nudge campaigns has increased significantly in recent years, including in relation to crypto-assets. There was a 134% increase in the number of nudge letters sent to individuals suspected of owing tax in respect of their crypto-asset dealings in the 2024/25 tax year (HMRC sent 67,000 such letters in that period).

This rise in activity likely reflects both the growth in crypto-asset ownership, and a broader and more pressing issue: many taxpayers appear to be struggling to understand and meet their tax obligations in relation to crypto-assets. Given the demographics of typical crypto-asset owners and the rapid evolution of the sector, this is perhaps not surprising, but it also suggests a need for greater information and education about the tax implications of owning and dealing in crypto-assets.

HMRC's increased reliance on nudge campaigns targeted at crypto-asset owners can be taken as a tacit acknowledgment that compliance in this area is challenging. Indeed, we have identified two recurring issues in this area:

• many existing tax provisions are not well suited to the unique and sophisticated nature of crypto-assets, making their application difficult; and
• HMRC itself is still developing its understanding of how crypto-assets and their underlying technologies operate, which can hamper the efficient resolution of crypto- asset based enquiries.

For now, the soft-touch approach of alerting taxpayers to potential issues and giving them an opportunity to put things right in a relatively non-confrontational way, including through the use of HMRC's Cryptoasset Disclosure Service, appears to be HMRC's preferred strategy. However, this stance is unlikely to persist indefinitely, particularly in the current economic climate, where HMRC finds itself facing ever-growing pressure to increase the tax yield. It is therefore likely that if compliance rates do not improve, HMRC will shift from the current gentle nudge-based approach to a more assertive and less forgiving enforcement strategy.

Information and education

HMRC appears to have recognised the need for clearer and more accessible information to help taxpayers understand their tax responsibilities regarding crypto-assets.

From the 2024/25 tax year onward, the self-assessment tax return has been updated to include a dedicated crypto-assets section. In addition, HMRC has, over the past year, issued a series of updates to its crypto-asset guidance and manuals. These include, for example, revised guidance on calculating gains on the disposal of crypto-assets and information on the forthcoming changes introduced by CARF.

2026 and beyond

Taxpayers can expect a marked increase in HMRC's compliance activity in relation to crypto-assets space in the year ahead and beyond. Individuals who own or trade crypto-assets, especially in significant volumes, are increasingly likely to find themselves the focus of attention from HMRC.

In particular, we anticipate a rise in data-driven compliance following the implementation of CARF at the start of 2026. With access to substantial new data relating to crypto-asset ownership and transactions, HMRC will be able to identify risks and target its compliance activities more effectively than it has been able to do in the past.

As well as the crypto-asset-specific implications, taxpayers should not underestimate the extent to which this new information may broaden the scope of HMRC enquiries into their wider tax affairs, especially where transactions have occurred offshore in another CARF jurisdiction. Those with significant offshore assets will already recognise the parallels with the impact that the Common Reporting Standard has had on HMRC's compliance activity.

The introduction of CARF will almost certainly create transitional issues for both reporting crypto-asset service providers and their customers, which means that there are also likely to be practical challenges for reporting crypto-asset service providers and users as the CARF regime beds in.

Conclusion

Reporting crypto-asset service providers, in particular, must ensure that they fully understand and are able to comply with their new regulatory obligations (from 1 January 2026), to avoid finding themselves at the sharp end of HMRC compliance interventions.

In light of the anticipated increase in HMRC's compliance activities, taxpayers holding crypto-assets should also review transactions from prior years to ensure that there are no gaps in their tax compliance. Where issues are identified, they should take steps to correct the position promptly, and before HMRC contacts them.

Finally, the growth in both the number of taxpayers holding crypto-assets and HMRC's increased activity in this area, means that crypto-asset-related tax issues will become an ever more significant part of the tax landscape. Practitioners must therefore develop a solid understanding of crypto-assets and the underlying technology if they are to be in a position to properly support and advise their clients. This is no small task, but an increasingly essential one.

• HMRC has published a Brief confirming that the supply of temporary medical staff is exempt from VAT and that affected businesses may submit rebate claims for overpaid VAT, subject to the usual statutory limits and conditions.

HMRC's Brief can be viewed here.

• HMRC is targeting VAT agents with a history of late VAT returns, as part of a wider compliance and agent-standards initiative aimed at improving timely filing and reducing error and fraud within the VAT system.

HMRC's pro-forma letter can be viewed here.

• HMRC has published a Policy paper confirming that, from 2 January 2026, private hire vehicle and taxi operators are excluded from the VAT Tour Operators’ Margin Scheme, meaning VAT must be accounted for on the full value of fares rather than the margin.

HMRC's Policy paper can be viewed here.

Case reports

Littlewoods Ltd v HMRC [2025] UKFTT 1602 (TC)

In this case the First-tier Tribunal (FTT) had to consider whether Littlewoods Ltd (Littlewoods) was entitled to recover input tax on costs incurred in producing product-specific photographs used in its catalogues and online retail business.

Littlewoods operates an online retail business selling consumer goods. Customers are also offered a range of flexible payment options, including interest-bearing credit and insurance, which are exempt supplies for VAT purposes. HMRC denied recovery on the basis that the photography costs were linked to both taxable supplies and exempt finance, arguing that it should therefore be treated as residual input tax for partial exemption purposes.  Littlewoods appealed to the FTT.

The key issue for the FTT to determine was whether the photography costs were directly and immediately linked solely to Littlewoods’ taxable retail supplies, or were they also linked to exempt supplies of credit and insurance.

The FTT applied the 'direct and immediate link' test, undertaking a multi-factorial and objective assessment of the costs by examining their nature and tracing how they were deployed in order to determine which supplies they were directly connected with.

The FTT found that the primary function of the photographs was to accurately display products to customers who could not see them in person, serving as a virtual substitute for a physical shop display. In addition, the FTT concluded that the costs of producing the photographs did not have a direct and immediate link to the exempt supplies of credit or insurance. Therefore, although the business model relied heavily on offering flexible payment options, it was insufficient to establish a direct link between the photography costs and exempt finance supplies.

Accordingly, the FTT allowed Littlewoods’ appeal, ruling that the photography costs were attributable exclusively to taxable retail supplies.

The decision can be viewed here.

Why it matters

This decision confirms that product-specific imagery can be fully attributable to taxable supplies, even if finance and insurance products are offered alongside the retail proposition.

The decision also demonstrates how VAT rules can apply in a partial exemption scenario and highlights the importance of a detailed factual analysis as retail models which, on their face, appear similar, can be subject to different VAT positions.

Hotel La Tour Ltd v HMRC [2025] UKSC 46

In this case the Supreme Court considered whether Hotel La Tour Ltd (HLT) was entitled to recover input VAT in respect of professional fees incurred in connection with the sale of shares in Hotel La Tour Birmingham Ltd (HLTB), HLT's wholly owned subsidiary.

HLT was a holding company which provided management services to HLTB, a company operating a luxury hotel in Birmingham. In order to fund the development of a new hotel in Milton Keynes, HLT sold its shares in HLTB and incurred professional fees (including corporate finance, legal and tax advice) amounting to £382,900 plus £76,823 VAT. HLT claimed recovery of the input VAT on the basis that the costs were linked to its overall taxable hotel business rather than to the share sale itself. HMRC denied recovery, contending that the costs were directly and immediately linked to an exempt share disposal. HLT appealed.

The key issue for determination in the appeal was whether the professional fees were directly and immediately linked to the exempt share sale, in which case the input VAT was irrecoverable or to HLT’s general taxable business, in which case the VAT would be deductible (in full or in part).

The FTT allowed HLT’s appeal, holding that the share sale was a fundraising transaction and that the professional fees were linked to HLT’s overall taxable business. The Upper Tribunal upheld that decision and HMRC appealed to the Court of Appeal. The Court of Appeal allowed HMRC’s appeal, concluding that the fees were directly and immediately linked to the exempt share sale. HLT appealed to the Supreme Court.

The Supreme Court dismissed HLT’s appeal. The Court rejected HLT’s submission that the direct and immediate link test is modified where a share sale is undertaken to raise funds for taxable activities. It reaffirmed that existing CJEU authority remains good law and that the motive of raising finance does not affect the identification of the relevant output transaction for VAT purposes. On the facts, the Supreme Court concluded that the professional costs were incurred as part of the process of disposing of HLTB and were therefore attributable to that exempt transaction, rather than to HLT’s wider hotel operations. The associated input VAT was accordingly irrecoverable.

The judgment can be viewed here.

Why it matters

The Supreme Court has confirmed a strict application of the direct and immediate link test in cases involving exempt share disposals. Where professional fees are incurred to carry out an exempt transaction, input VAT will be irrecoverable, even if the proceeds are used entirely to fund taxable activities.

This decision will also have wider importance for taxpayers involved in future corporate restructurings, group reorganisations and exits, where professional fees are incurred on share disposals.

East Midlands Waste Management Ltd v HMRC [2025] UKFTT 1603 (TC)

In this case the FTT considered whether East Midlands Waste Management Ltd (EMWM) should be permitted to bring three VAT appeals out of time, comprising two penalty appeals and one appeal against a VAT assessment.

The appeals related to two penalties issued under Schedule 24, Finance Act 2007 (Penalty 1 of £229,872 and Penalty 2 of £39,845) and a VAT assessment of £265,958. HMRC objected to the appeal of the two penalties but did not oppose the VAT assessment appeal. The FTT was therefore required to decide whether to exercise its statutory discretion to admit the late appeals.

The key issue for determination by the FTT was whether, applying the approach in William Martland v HMRC [2018] UKUT 178 (TCC) (Martland), now confirmed by the Court of Appeal in HMRC v Medpro Healthcare Ltd [2026] EWCA Civ 14 (Medpro) (judgment handed down on 19 January 2026), the FTT should grant permission for the appeals to proceed despite significant delays beyond the 30-day statutory time limit. Penalty 1 was appealed 273 days late and Penalty 2 was appealed 228 days late. The appeal against the VAT assessment was only 10 days late. In determining the appeal, the FTT applied the three-stage approach provided in Martland, which requires consideration of:

(1) the length of the delay;
(2) the reasons for the delay; and
(3) an evaluation of all the circumstances.

The FTT accepted that there was a period during which EMWM had a reasonable excuse for the delay, which was due to a change of advisers during a complex and ongoing HMRC investigation, combined with difficulties in obtaining complete records from the former adviser. However, the FTT found that the reasonable excuse did not extend indefinitely and that there were periods of unjustified delay, particularly after HMRC had rejected the late review requests.

Notwithstanding this, in all the circumstances, the FTT held that it would be disproportionate to deny EMWM the opportunity to challenge the penalties. The FTT concluded that, taking into account all relevant facts, HMRC could not have been in any real doubt as to the likelihood that EMWM would challenge the penalties. The penalty appeals were therefore admitted out of time. The appeal against the VAT assessment was also admitted.

The decision can be viewed here.

Why it matters

This case is significant in demonstrating how the tax tribunals are likely to approach applications for late appeals post-Martland and Medpro. Further clarification has also recently been provided by the Court of Appeal in Medpro.

Although statutory deadlines should be adhered to where possible in order to avoid the uncertainty of late appeal applications to the FTT, this decision shows that the FTT may admit a late appeal where fairness and proportionality justifies so doing. Transitions between professional advisors and level of engagement with HMRC can be relevant factors for the FTT to consider.

John Boulting was the majority shareholder and a director of PSC Training and Development Group Ltd (PSC), having built the business from the 1990s. By 2013/14, serious management tensions had developed within PSC, which created instability, contributed to resignations at a senior level, and prevented the other directors from running the business effectively. It was  decided that Mr Boulting would retire from the business.

A planned exit was negotiated whereby PSC would buy eight of Mr Boulting’s shares for £4.8m, with most of his remaining shares gifted to his son to facilitate succession. PSC applied for, and received, HMRC clearance under section 1033, CTA 2010, that the purchase of own shares would be treated as a capital gain, rather than a distribution. The purchase was completed in January 2015 and duly included in Mr Boulting's 2014/15 tax return (the Return) as giving rise to a capital gain eligible for Entrepreneurs’ Relief (as it then was).

HMRC subsequently opened an enquiry into the Return. As a result of its enquiry, HMRC determined that the sale of the shares constituted a distribution to Mr Boulting that was subject to income tax. HMRC claimed that the purpose of the payment was mainly to reward Mr Boulting for his past investment and activity and to extract cash from the business, rather than being wholly or mainly for the benefit of the trade, such that the conditions in section 1033 were not satisfied. HMRC also said that the clearance it had previously given was void because the share value used was materially greater than market value and this had not been disclosed to it in the clearance application.  HMRC issued a closure notice on this basis amending the Return and increasing Mr Boulting's tax liability by £1,008,621.39. 

Mr Boulting appealed the closure notice to the FTT.

FTT's decision

The appeal was allowed. 

The central issue before the FTT was whether the purchase was made 'wholly or mainly for the purpose of benefiting the company’s trade' such that the conditions in section 1033 were satisfied. HMRC's position was that the purchase of Mr Boulting's shares was not necessary to benefit the trade because the business was already profitable and growing and there was no clear evidence that the purchase was essential to unlock investment, or resolve any deadlock. HMRC also argued that because (in its view) the price paid was excessive, it followed that it could not be regarded as a payment whose whole or main purpose was to benefit PSC’s trade. HMRC contended that the purchase was simply a mechanism to remunerate Mr Boulting.

Mr Boulting argued that the price paid was not excessive and that the purchase was wholly or mainly for the purposes of benefitting the trade, as it removed a majority shareholder who had been blocking investment and who would not relinquish key decision-making responsibility.

In rejecting HMRC's arguments, the FTT found that the share purchase was a necessary part of resolving serious management deadlock within PSC. Although the group was profitable, the FTT accepted the evidence advanced by Mr Boulting that this position was not sustainable without further investment, which Mr Boulting consistently blocked. The FTT found that Mr Boulting's continued control was hindering the business and the company regarded his exit as essential to protect and advance its trade. The sale purchase was therefore undertaken to facilitate that exit, without which the wider succession plan could not proceed.

In reaching its conclusion, the FTT stressed that the statutory test focuses on the company’s purpose, not the seller’s motives. PSC’s purpose was to remove a blocking shareholder, not to reward past involvement or extract cash from the business. 

The FTT also rejected HMRC’s criticisms of the valuation of the shares, concluding that the valuation was a genuine commercial exercise and that the negotiated price did not indicate a non-trade motive. In the view of the FTT, the dominant purpose of the purchase was to benefit PSC’s trade by enabling effective management and necessary investment and that any extraction of cash was simply an effect, rather than the purpose, of the transaction.

The FTT therefore concluded that the purchase was made wholly or mainly for the purpose of benefiting PSC’s trade and that Condition A in section 1033 was satisfied. Accordingly, the purchase consideration was correctly subject to capital gains tax and not income tax.

Comment

This decision confirms that the 'trade benefit' test in section 1033, requires a purposive enquiry focused on the company’s commercial objectives, rather than on valuation issues, or the seller’s personal motivation.

The FTT has demonstrated in this decision that where a share buy-back is part of a genuine and commercially necessary exit to resolve management dysfunction, it is prepared to recognise a trade benefit even if the business appears profitable at the time, or if valuation is imperfect.

The decision also strengthens the position of family companies and owner-managed businesses undertaking purchase of own share transactions for succession or governance reasons, especially where management conflict threatens commercial performance.

The decision can be viewed here.

Introduction 

As anticipated, the significant injection of funding for HMRC in Budget 2024 has translated into a marked increase in compliance activity in 2025. Both practitioners and taxpayers alike have noted a more assertive HMRC, keen to make full use of its expanded powers and resources. While the effect of the Chancellor’s announcements in Budget 2025 are still being considered, the trajectory is clear: Finance Bill 2025/26 is set to confer yet further powers and operational capacity on HMRC, helping to shape an even more active and contested tax landscape in 2026.

As for how busy the past year has been, the published quarterly figures provide a useful indication. Although full-year statistics are still awaited, the First-tier Tribunal (FTT) received 1,732 appeals in the first three months of 2025, around 1.5% fewer than in the same period in 2024. This slight decline might be due to greater use of alternative dispute resolution (ADR). Disposals, however, fell more sharply: the FTT concluded 1,704 cases in the first quarter of 2025, a drop of roughly 25% year-on-year. As at 31 March 2025, the FTT’s open caseload remained substantial at 48,818 cases, representing a decrease of about 4.6% (2,371 cases) compared with the previous year. Given that appeal volumes have been trending upwards for over a decade, these clearance rates are unlikely to make a meaningful dent in the backlog any time soon. Taxpayers should therefore expect FTT timelines to remain prolonged for the foreseeable future. 

Case volumes in the Upper Tribunal (UT) are, understandably, far smaller, but the available figures are nonetheless noteworthy. In the first three months of 2025, the UT received 400 appeals – an increase of almost 22% compared with the same period in 2024. Disposals, by contrast, remained static: the UT concluded 37 cases in the first quarter of both 2024 and 2025. As at 31 March 2025, the UT’s open caseload had risen to 171, representing a 12.5% increase year-on-year.

Data on tax-related litigation in the superior courts remains difficult to ascertain. Nevertheless, the publicly available figures indicate that 31 applications for judicial review were lodged against HMRC in the first and second quarters of 2025. Although the full-year statistics will be needed before a definitive assessment can be carried out, this compares with 181 applications for the whole of 2024 and points towards a material decline in judicial review activity in 2025. Whilst judicial review continues to play a crucial role in scrutinising HMRC decision-making, it has become an increasingly challenging route for taxpayers to pursue – something that may well be reflected in the relatively low number of applications reported in 2025.

Against this backdrop, we highlight below some notable developments during 2025 that are likely to be of interest to taxpayers and their advisers. 

Case developments

While many of the judgments and decisions issued by the courts and tax tribunals during 2025 were routine, several stand-out decisions address core procedural and evidential issues with the potential to shape the conduct of tax litigation in 2026. A number of these rulings merit particular attention.

Late appeals 

Medpro Healthcare Limited & Another v HMRC [2025] UKUT 255 (TCC)

The UT’s decision in Medpro is widely viewed as one of last year’s more significant procedural decisions. In Medpro, the UT held that its earlier decision in Martland v HMRC [2018] UKUT 178 (TCC), had fettered the FTT’s discretion by elevating efficiency, proportionality and compliance, above other relevant factors in the balancing exercise required when considering late appeal applications. As Martland has, for nearly a decade, provided the touchstone for assessing whether a late appeal should be admitted, Medpro was initially welcomed as an important recalibration in the taxpayer's favour.

However, the picture has proven to be more complex. Subsequent decisions of the FTT indicate that the threshold for late appeals remains extremely high, as the FTT seeks to reconcile two competing strands of UT authority. For example, in Lands Luo Ltd v HMRC [2025] UKFTT 1207 (TC), the panel, including the Senior President of Tribunals, Lord Justice Dingemans, applied Martland as being consistent with Court of Appeal authority, though on the facts, the taxpayer was permitted to appeal out of time.

With Martland and Medpro now pulling in different directions, the issue appears destined for clarification by the Court of Appeal. Until then, taxpayers should proceed on the basis that late appeals will continue to be admitted only in exceptional circumstances.

Burden of proof 

Universal Cycles Ltd & Others v HMRC [2025] UKFTT 01208 (TC)

One of the perennial difficulties facing taxpayers when challenging HMRC decisions is that the burden of proof often rests on them. Where enquiries have lasted many years and the underlying events are historic, the evidential disadvantage for taxpayers can be acute, particularly when documentary records are no longer available or incomplete, due to the passage of time.

The FTT’s decision in Universal Cycles offers a helpful reassertion of first principles, albeit in a limited area of direct tax. The FTT held in that case that where HMRC seeks to rely on the commission of a criminal act in order to invoke the extended time limits for issuing a Post Clearance Demand Note, the burden of proof lies with HMRC. HMRC cannot simply default to the general position under section 16(6), Finance Act 1994, that the taxpayer must disprove HMRC’s case. Because HMRC alleged a criminal act, the FTT confirmed that it was required to prove that act, consistent with the basic principle that 'he who alleges, must prove'.

The decision provides a welcome reminder that serious allegations demand cogent evidence, and taxpayers should not be required to disprove unparticularised HMRC suspicions, especially in cases involving long running and/or complex enquiries. 

Lists of documents

Burton Skip Hire Ltd v HMRC [2025] UKFTT 1113 (TC)

The FTT’s decision in Burton, that a party is not entitled to rely on a document omitted from its List of Documents, even if that document is later exhibited to a witness statement, came as a surprise to many practitioners. Because Lists of Documents are prepared and exchanged at a very early stage in an appeal, often long before witness evidence is prepared, it has long been common practice (and seemingly accepted by the FTT) that documents exhibited to witness statements could be relied on whether or not they appeared on the party's original List of Documents. Burton suggests that this is no longer permissible and a party must now apply to the FTT for permission to rely on any document not included in its original List of Documents.

On its face, Burton introduces an unnecessary layer of administration that is only likely to lead to delay and increase costs for the parties and generate avoidable work for a tribunal whose resources are limited and already under considerable strain. Given that evidence is exchanged well in advance of any hearing, it is difficult to see how reliance on a document exhibited to a statement, but not included in the party's List of Documents, would cause any prejudice to the other party. This is an area where further clarification, potentially through a Practice Statement, would be welcome to ensure consistency and avoid unnecessary procedural skirmishes.

HMRC Data Subject Access Requests

Michael Ashley v HMRC [2025] EWHC 134 (KB)

Access to information held by HMRC is often critical to a taxpayer’s ability to understand how decisions about them have been reached and to assess whether those decisions are lawful. Although Article 15 of the UK GDPR gives taxpayers a clear right to obtain such information, HMRC’s processing of Data Subject Access Requests (DSARs) has long been fraught with difficulty – securing even the most basic material from HMRC can often feel like getting blood from a stone.

In Ashley, the High Court considered these practices and the Court found HMRC’s approach to be unduly restrictive and procedurally flawed. The Court provided helpful guidance on the proper application of the exemptions frequently invoked by HMRC in justifying the withholding of information from taxpayers and clarified the proper test for assessing what constitutes “personal data” for DSAR purposes. The judgment serves as an important reminder that DSARs are legitimate and can be a helpful means by which taxpayers can ascertain how decisions about them have been arrived at by HMRC. Ashley also confirms that HMRC is under a duty to engage with them fully and transparently.

Procedural changes

The appointment of a new FTT Chamber President on 1 May 2025, has been accompanied by a number of welcome procedural developments. 

A new Practice Statement has updated the FTT’s approach to ADR in tax appeals,¹ reinforcing the FTT’s duty, under Rule 3(1)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the FTT Rules), to bring to the attention of the parties the availability of any appropriate alternative procedure for the resolution of disputes.

Among other things, the Practice Statement confirms that the FTT will ordinarily grant a stay of 150 days where an appeal has been accepted into ADR. It also places renewed emphasis on the consequences of an unreasonable refusal to engage in ADR noting that, in appropriate cases, such conduct may lead to adverse costs orders or a reduced recovery of costs, and may constitute 'unreasonable conduct', for the purposes of Rule 10(1)(b) of the FTT Rules (order for costs).

ADR remains an important mechanism for avoiding protracted and costly litigation with HMRC. Indeed, the Government is currently exploring ways to modernise and improve HMRC’s dispute resolution processes, including ADR. Against that backdrop, the FTT’s renewed focus on ADR is to be welcomed, particularly given the scale of the FTT’s existing caseload. With litigation timetables continuing to stretch, ADR is likely to play an increasingly prominent role in the resolution of tax disputes, and more taxpayers may be encouraged to take advantage of the process in 2026.

In November, the FTT also published a new Practice Statement on Applications for Extension of Time,² formalising its approach and offering welcome clarity for practitioners and taxpayers. Under the new framework, in-time, agreed applications are granted automatically: one extension of up to 60 days for the filing of HMRC’s Statement of Case, and two extensions of up to 28 days each for compliance with any other directions. In-time applications, without agreement, will be determined by a judge on the papers or listed for a hearing where appropriate.

Out-of-time applications must be made as soon as possible and only at a point when the party is able to comply with the direction. Such applications must include submissions explaining why, in all the circumstances, the non-compliance should be excused, together with the other party’s position on those circumstances.

The new Practice Statement is a pragmatic and sensible development. It provides parties with greater certainty, streamlines case management, and conserves tribunal resources. In any litigation, there may be times when a deadline cannot be met for legitimate reasons, and the revised approach ensures that routine extensions can be dealt with efficiently. Historically, parties have struggled to obtain a judicial determination on extension requests before the new deadline had passed, resulting in de facto extensions being obtained by default. In many respects, the new Practice Statement simply codifies and regularises what was already happening in practice, while improving transparency and certainty for all involved.

Avoidance firmly in the spotlight

Tax avoidance remained a central focus for HMRC during 2025, and all indications – from enforcement activity to new measures announced in Budget 2025 – suggest that this will continue to be a priority for HMRC during 2026. 

HMRC’s latest Annual Report, underlines the scale of its compliance operation. In the period 1 April 2024 to 31 March 2025, HMRC secured a record £48 billion in compliance yield, surpassing its annual target of £45.4 billion and equating to a return of £23 for every £1 invested in its compliance workforce. This heightened activity is underpinned by continuing expansion: HMRC has already recruited an additional 500 compliance officers, with plans to add a further 5,000 by 2029/30, a move expected to generate £6.8 billion of additional revenue over the next five years.

Much of this yield continues to arise from relatively routine behavioural issues: error and failure to take reasonable care, remain the most common reasons for taxpayers not paying the correct amount of tax. In that regard, HMRC’s behavioural interventions have continued a pace, with its 'nudge' and targeted tax-education campaigns reaching more than six million taxpayers last year and resulting in £448 million of additional tax for the Exchequer. Alongside this, HMRC completed 316,000 compliance checks, reflecting the breadth of enquiries opened by HMRC.

Looking ahead to 2026, taxpayers should expect this compliance environment to become even more acute. Budget 2025’s package of measures, from enhanced powers against avoidance facilitators to new sanctions, potential criminal offences, and an expanded debt-recovery framework, points towards a year in which avoidance-related activity will feature prominently in the compliance landscape. As more disputes move from enquiry to appeal, the FTT is likely to see a rise in avoidance-related appeals, including penalty disputes, information notice appeals, and challenges to HMRC’s characterisation of taxpayer behaviour. Against the backdrop of already strained FTT capacity, HMRC's increased activity in this area may well contribute to longer delays and increased pressure on case-management administration processes.

For taxpayers and advisers, the message is clear, HMRC’s scrutiny of avoidance is set to remain vigorous for the foreseeable future. Proactive compliance, careful documentation, and early engagement in dispute resolution (including ADR) will be more important than ever as the contentious tax landscape becomes increasingly congested and more complex during 2026.

Criminal enforcement goes up a gear

Criminal attacks and evasion remain a significant concern for HMRC, together accounting for 23% of the 2023/24 tax gap (9% from criminal attacks and 14% from evasion) of approximately £46.87 billion. Against a difficult fiscal backdrop, the pressure on HMRC to increase its activity in the criminal sphere is only set to grow, particularly given the comparatively modest level of prosecutions achieved in 2025.

The latest enforcement statistics illustrate both the scale of HMRC’s intelligence-led activity and the Government’s expectations for stronger performance in the years ahead. In 2024/25, HMRC received 164,670 reports of alleged fraud through its Fraud Reporting Gateway and paid £852,438 in rewards to individuals providing HMRC with valuable information. HMRC's Fraud Investigation Service (FIS) opened more than 11,000 new civil investigations into suspected fraud and commenced 446 new criminal investigations – a 3.7% increase on the previous year. Those investigations resulted in 557 positive charging decisions, 310 prosecutions, and 281 convictions, with an overall success rate of 91%. HMRC have also increasingly targeted wealthy tax evaders, with 275 individuals currently under investigation.

The financial impact of these activities is significant. HMRC reports that it protected £2.43 billion through civil fraud work and a further £1.5 billion through criminal investigations. In addition, it recovered £191 million from proceeds of crime and COP9 activity. The Autumn Budget 2024 signalled a further escalation, announcing new investment to expand the size and capability of FIS, alongside enhanced counter-fraud technology, including digital analytics and automation, designed to keep pace with increasingly sophisticated criminal operations.

Offshore non-compliance also remains high on HMRC’s agenda. The UK received Common Reporting Standard data relating to more than 10 million financial accounts from 106 jurisdictions, during the 2023 calendar year. HMRC’s analysis of that information resulted in 20,000 letters to taxpayers who had potentially under-declared offshore income in 2024/25 and generated £80.1 million in additional yield through the Worldwide Disclosure Facility.

Budget 2025 reinforces HMRC's current trajectory on the criminal front. The reward scheme for informants is being significantly strengthened, with immediate effect: where recoveries exceed £1.5 million, HMRC will now be able to pay informants up to 30% of the additional tax secured. 

Conclusion

Last year saw significant developments across the contentious tax landscape: tighter procedural frameworks in some areas of FTT practice; a run of decisions clarifying (and at times upending!) important procedural issues; an ever-sharper focus on avoidance; and a markedly more assertive approach to criminal compliance. Budget 2025 adds further momentum, providing HMRC with new powers, resources and technological capability, that will shape the disputes environment in 2026 . As these strands converge, taxpayers and advisers alike, should brace themselves for a more interventionist, data-driven and fast-moving enforcement climate, which means that procedural discipline, proactive compliance and strategic dispute resolution, will be more critical than ever in the year ahead and beyond.

 ¹Practice Statement: Alternative Dispute Resolution In Tax Disputes. 

 ²Practice Statement: Applications for Extension of Time. 

The appeal concerned the availability of MDR for Stamp Duty Land Tax (SDLT) purposes on the purchase of a property consisting of a house and an annexe.

On 15 December 2021, Michelle Jacqueline Berrell and Rory James Thomas (the Taxpayers) completed the purchase of a residential property in Aylesbury for £492,000 (the Property). The Taxpayers filed an SDLT return in respect of the purchase without claiming MDR and paid SDLT of £14,600. On 12 July 2022, the Taxpayers filed an amendment to the original SDLT return reclaiming SDLT of £9,680, on the basis that MDR applied. 

The Property consisted of a modern detached red-brick three-bedroom house (the Main House) plus an attached single-storey annexe (formerly a garage) which included a studio room (living/bedroom), toilet and shower room, and a utility room with a sink and high voltage cook connection (the Annexe). The Main House and the Annexe had independent access via a front porch. The porch door from the front led to two internal doors, one into the Main House and one into the Annexe. At the time of purchase, the Annexe relied on the Main House’s boiler for hot water. The two parts did not have separate utility meters, separate council tax registration, or separate Land Registry titles. They did share a driveway and front porch. A narrow rear hallway situated between the Main House kitchen and the Annexe utility provided access to the garden.  

On 22 March 2023, HMRC opened an enquiry into the SDLT reclaim and on 13 October 2023, issued a closure notice rejecting the MDR claim. On 21 February 2024, following the outcome of an internal review upholding the closure notice, the Taxpayers appealed to the FTT.

The dispute centred on the correct interpretation of Schedule 6B, Finance Act 2003 (FA 2003), which provides for MDR, and specifically paragraph 7(2)(a), which defines a “dwelling” as a building or part of a building that is “used or suitable for use as a single dwelling”. The test for “suitable for use as a single dwelling” has been discussed in cases such as Fiander and Brower v HMRC [2021] UKUT 0156 (TCC) and requires assessment of the physical attributes of the property under consideration at the effective date (i.e. completion). It is also necessary to consider whether the unit affords facilities for the occupant’s basic domestic needs (sleeping, hygiene, and cooking) and has a degree of privacy, self-sufficiency and security. 

HMRC contended that the Annexe lacked sufficient independence (due to shared access, lack of separate meters, reliance on the main boiler, lack of separate title and apparent marketing as a single dwelling) and that the hallway arrangement undermined privacy and security. 

The Taxpayers argued that the Annexe was clearly capable of independent occupation and that the shared elements did not preclude the unit being a separate dwelling for the purposes of MDR.

The appeal required the FTT to determine whether the transaction’s “main subject-matter” consisted of “at least two dwellings” within Schedule 6B, and in turn whether the property comprised two units, each suitable for use as a single dwelling at the effective date. 

FTT decision

The appeal was allowed.

The FTT accepted the agreed facts, including Ms Berrell’s evidence, and took the effective date as being15 December 2021.

In reaching its decision, the FTT applied the multifactorial test to be applied in determining whether MDR applies, as set out in Fiander and considered all relevant physical attributes of the Property and the context, as at the effective date. In so doing, it identified a set of features pointing in favour of the Main House and the Annexe being separate dwellings. The Annexe had a studio living/bedroom room, its own shower and toilet, a utility room with a sink and a high-voltage cooker connection (so capable of cooking without physical alteration) and separate access via a lockable front door (albeit through a shared porch). There was independent electrical heating, a separate fuse box, separate stop tap, running water and mains electricity, for the Annexe. In the view of the FTT, these features were “strong” indicators of suitability for separate occupation. 

However, a number of factors did point against separate dwellings. The shared driveway and front porch, lack of separate utility meters, shared boiler hot water supply, no separate council tax registration or separate Land Registry title and, significantly, the configuration of the rear hallway and the doors to the garden, raised difficult issues of privacy and security. 

With regard to the question of terms of occupation, HMRC argued that the FTT should not envisage hypothetical terms of tenancy or occupation. The FTT rejected such a rigid approach. In the view of the FTT, whilst the physical attributes at completion must be the starting point, the test does not exclude consideration of “realistic legal terms on which such occupancy could be granted”, as part of the multifactorial assessment. The FTT considered three potential models for the hallway arrangement: 

(i) hallway being part of the Main House; 

(ii) hallway being communal; 

(iii) hallway being part of the Annexe. 

It concluded that the “most practical” model was the hallway being communal and the Main House having exclusive use of the garden, with the Annexe not having independent garden access. While acknowledging practical difficulties (including the one-way bolt door in the Annexe and garden access restrictions), the FTT concluded that a reasonable objective observer could envisage terms of occupation that addressed the privacy/security issues. 

Weighing all the factors, the FTT found that despite the shared hallway and some limitations, the Annexe was suitable for use as a separate dwelling, within the meaning of paragraph 7(2)(a), Schedule 6B, FA 2003 and MDR therefore applied.

Comment

This decision reinforces that the test for “dwelling”, under Schedule 6B, is fact-specific and multi-factorial. Shared access or utilities will not automatically disqualify a unit from being a “dwelling”. The FTT's willingness to envisage realistic occupancy terms, including shared common areas and garden access restrictions, provides a more nuanced approach than a rigid 'fully self-contained' test.

For property purchasers considering MDR when acquiring a property with an annexe (or sub-unit), this case highlights the importance of establishing as many self-contained features as possible at completion, such as: independent entrance, bathroom, kitchen capability, heating, and stop-tap/fuse box. Equally, it demonstrates that some shared elements, such as driveway, utility meters and garden access, will not necessarily prevent MDR if, overall, the sub-unit is suitable for separate occupation and privacy/security can be managed under realistic terms.

The decision also serves as a reminder that planning permission wording (e.g. labelling an annexe as 'ancillary') and marketing a property as a single dwelling, whilst factors to be taken into consideration, are not determinative.

The decision can be viewed here.

Judicial review remains a vital mechanism through which taxpayers can hold HMRC to account in the exercise of its powers. In recent years, success in such claims has become increasingly difficult, with the courts tending to afford HMRC a broad margin of discretion when it makes decisions affecting taxpayers. Against that backdrop, the High Court’s recent decision in Aubrey Weis v HMRC [2025] EWHC 2479 (Admin), is noteworthy because, despite the claim being significantly out of time, the Court allowed the taxpayer’s claim to proceed. 

Background

Mr Weis challenged certain closure notices issued by HMRC (presumably pursuant to section 28A TMA 1970, although the published decisions do not refer to the relevant statutory provision) in May 2019, in respect of a number of tax years between 2005 and 2013 (the Notices). HMRC had concluded that the taxpayer was domiciled in the UK during the period in question and was therefore not entitled to claim the remittance basis of taxation. As a result, the taxpayer's worldwide income was brought within the charge to UK tax, and the Notices sought additional tax of more than £6.3m. Mr Weis requested an internal review, following which the Notices were upheld in November 2021. Mr Weis appealed the Notices to the First-tier Tribunal (Tax Chamber) (FTT) in December 2021. 

The FTT dismissed Mr Weis' appeal, finding that he had obtained a domicile of choice in the UK prior to the tax years in question (see Aubrey Weis v HMRC [2025] UKFTT 348 (TC)).

Mr Weis also challenged the Notices by way of an application for judicial review, on the basis that he had a substantive legitimate expectation that HMRC would treat him as domiciled outside the UK and would not charge him tax retrospectively on a different domicile basis. That expectation was said to arise, inter alia, from correspondence with HMRC in 2000, in which HMRC had accepted Mr Weis' claim to be domiciled in Israel. Actions taken by HMRC in subsequent tax years were said to confirm that HMRC's decision regarding Mr Weis' domicile status in 2000 was being abided by. Mr Weis contended that, in reliance on HMRC's assurances, he filed his subsequent tax returns on the basis that he was not domiciled in the UK and planned his financial affairs accordingly, in particular, by making offshore investments that would not be taxable on the remittance basis.

However, in February 2013, HMRC advised Mr Weis that it would no longer abide by its decision in 2000, and that it intended to challenge Mr Weis' domicile retrospectively. That ultimately led to the issue of the Notices and subsequent appeal to the FTT. At the same time, Mr Weis also made a formal complaint to HMRC under Tier 1 of HMRC’s internal complaints process and raised the legitimate expectation issue. In October 2021, HMRC rejected the complaint and stated that no legitimate expectation had been created. In December 2021, Mr Weis requested that his complaint be considered under Tier 2 of HMRC's complaints process and provided a legal opinion from tax counsel that supported his claim of legitimate expectation. In May 2022, the Tier 2 complaint was rejected by HMRC. 

In August 2022, Mr Weis' agent made a complaint to the Adjudicator’s Office (the AO). The AO subsequently requested that the agent provide proof of authorisation to act. The agent claimed that they never received this letter. In any event, in the absence of any response to its letter, and unbeknownst to Mr Weis or his agent, the AO closed the complaint. At some subsequent point, Mr Weis and HMRC entered into HMRC's Alternative Dispute Resolution (ADR) process, and a deliberate decision was made by Mr Weis not to pursue the AO for a response to his complaint while he was actively pursuing ADR. Indeed, it was not until March 2024, that Mr Weis instructed solicitors to follow up on the complaint he had made to the AO. In May 2024, the AO advised that it would not review the complaint because the file had been closed.

The judicial review claim 

Mr Weis filed his judicial review claim in the High Court in June 2024 (within one month of being informed by the AO that it would not review his complaint), challenging HMRC's decision to issue the Notices. Permission to bring the judicial review was refused on the papers by the High Court on the basis that the claim was brought substantially out of time, there was no good reason to extend time, and because the claim was unarguable. Mr Weis then renewed his application to an oral hearing, arguing that there was a good reason for the Court to extend time to pursue the claim and that permission should be granted. In particular, Mr Weis asserted that, throughout the period in question, he had been pursuing an alternative remedy, namely, his complaints and ADR and, while he had not explicitly indicated an intention to bring judicial review proceedings during those processes, he asserted that HMRC was on notice at all times that he was relying upon a legitimate expectation argument. Accordingly, there was no prejudice to HMRC, nor was there any detriment to good administration because HMRC was always aware of the legitimate expectation point, and the judicial review proceedings would always have been stayed behind the appeal to the FTT in any event. Mr Weis further asserted that he had suffered detriment because he had, based on HMRC’s assurance and subsequent conduct, chosen to hold funds offshore and, had he understood that his domicile was being questioned, he would have been able to bring the funds onshore and generate higher returns, avoid fees incurred in keeping his funds offshore and he would have had the opportunity to make charitable contributions to offset his tax liabilities.

In contrast, HMRC argued that there was no good reason to extend time, and no arguable case to justify permission being granted in any event. HMRC asserted that it was prejudiced as a result of the very long delay in bringing the claim, and that no satisfactory explanation had been provided for the significant delay, noting there were substantial periods of time when no alternative remedy was being pursued by Mr Weis, with no explanation for that inactivity. HMRC also submitted that the referral to the AO was not a suitable alternative remedy for Mr Weis to pursue as the AO could not consider a complaint concerning legitimate expectation. Finally, HMRC asserted that the issues raised in the claim were not of importance for the public at large, did not require consideration of fundamental rights, and Mr Weis' legitimate expectation claim was weak.

The High Court's decision 

In considering the parties' competing arguments, the Court determined that the date from which time began to run for the judicial review claim was the date of the Notices in May 2019. However, the Court accepted that it was entirely reasonable for Mr Weis to have sought a statutory review before filing judicial review proceedings and therefore examined the 30 month period after the conclusion of the statutory review until the issue of the claim form, in order to ascertain whether the further period of delay was excusable or not.

The Court commented that the further period of delay of 14 months was not “wholly lacking in excuse”, noting that Mr Weis had pursued an internal review. However, in its view, the referral to the AO was not a suitable alternative remedy because the AO could not consider whether Mr Weis had a legitimate expectation, and it was not realistic to expect that that issue would, or could, have been resolved by the AO. Legitimate expectation was a matter that could only be addressed by the Administrative Court. Nevertheless, the Court accepted that the complaint to the AO demonstrated that Mr Weis did not simply sit on his hands and he was continuing to assert his reliance on the legitimate expectation throughout. Furthermore, although the Court did not have a great deal of information concerning the ADR process the parties engaged in, it considered it likely that it would have embraced the years covered by the asserted legitimate expectation.

However, the Court determined that there was an unjustified period of delay of 14 months between the end of the ADR and the filing of the judicial review claim. Nevertheless, the Court observed that the question was not whether there was a good reason for the delay, but whether there is a good reason to extend time. That question involved consideration of the importance of the issues, the prospect of success, the presence or absence of prejudice or detriment to good administration, and the public interest. In deciding that there was, in this instance, a good reason to extend time, the Court noted the following factors:

• The issues raised by Mr Weis were important because, while they were not issues of significant public interest, as they essentially turned on the specific treatment of Mr Weis and did not involve wider policy issues, they were not trivial because they involved an obligation to pay tax of around £3.6m, which was a substantial sum.
• The issues were clearly arguable, and there was a realistic prospect of success. In particular, HMRC's statements and conduct were arguably clear, unambiguous and devoid of relevant qualification. The Court did, however, observe that the merits of the case were not clear-cut for either party.
• There was no real prejudice or detriment to good administration caused by the delay because, at all material times, HMRC was aware of the legitimate expectation point being raised by Mr Weis. It had therefore not come as a surprise to HMRC, and there was no suggestion that, for instance, the delay in bringing the proceedings affected the evidence that was available to deal with the claim.
• It is highly unlikely that the judicial review proceedings would have progressed in any significant way until the FTT had reached its decision on the underlying question of domicile. Accordingly, even if Mr Weis had commenced judicial proceedings sooner than he did, the substantive hearing would not have been heard until after the FTT appeal had concluded. HMRC was therefore not in a materially worse position in having to deal with the judicial review claim now, than it would have been in had the claim being issued promptly.

The Court therefore extended time to bring the judicial review proceedings and granted permission.

Comment

Rule 54.5 of the Civil Procedure Rules (CPR) imposes strict time limits on the bringing of judicial review claims, requiring a judicial review claim form to be filed "promptly and, in any event, not later than three months after the grounds to make the claim first arose". Those time limits are normally rigorously enforced by the High Court, and many taxpayers who have fallen foul of them, even by a matter of days, have had their applications for permission to bring a judicial review refused. Indeed, in recent years, the High Court has placed increasing emphasis on the requirement for "promptness", often treating the three-month longstop period as a secondary consideration when determining whether a claim for judicial review has been brought in time. It is also not uncommon for HMRC to raise a timing point in circumstances where a claim form has been filed close to the three-month time limit. The decision in Weis is therefore of particular note given the Court was willing to extend time despite what was, by any measure, a very significant delay.

Taxpayers seeking to bring a judicial review claim will take some comfort from the Weis decision and the fact that even a substantial delay will not necessarily mean the end of the road for their claim. Indeed, in the more recent decision in R (oao Robin Houldsworth) v HMRC [2025] EWHC 2848 (Admin), the High Court again extended time for a judicial review claim that was made late, citing the decision in Weis and taking a similar approach to weighing up the relevant factors when determining whether there was a good reason to extend time. In that regard, Weis emphasises that the court will weigh up all relevant factors and crucially, reaffirms that the focus is on whether there is good reason to extend time, rather than whether there was good reason for the delay, although the latter will inevitably be relevant to the court's decision. That approach necessarily invites a broader, more holistic assessment of the circumstances, than a narrow inquiry into the causes of the delay. As in Weis, those considerations may also include the magnitude of the tax liability at stake. This is a sensible approach and one that recognises that judicial review is a remedy of last resort and procedural failures can therefore have serious consequences for taxpayers, particularly where, as in Weis, the underlying claim has a real prospect of success and an alternative remedy had been pursued during the intervening period.   

That said, Weis carries a cautionary note. It is imperative that taxpayers should, whenever possible, strive to avoid having to rely on the court's discretion to extend time for bringing a judicial review claim. The Weis judgment is clear that claimants must pursue available alternative remedies promptly, but those alternative remedies must be realistically capable of resolving the dispute between the parties without recourse to judicial review. If not, a taxpayer who pursues such remedies and does not take steps to protect their position in relation to judicial review, may find that any claim falls outside the time limits contained in CPR 54.5 and the High Court may not be willing to exercise its discretion and extend the time period. It therefore remains the case that, in circumstances where it is considered that an appeal should be pursued before the FTT before commencing judicial review proceedings, it would be prudent to make a 'protective' application for judicial review within the proscribed time limits referred to in CPR 54.5. If appropriate, the judicial review proceedings can then be stayed pending the outcome of the appeal proceedings before the FTT.

As for HMRC, while the substantive arguments in Weis remain to be tested, the Court’s observations may give the department pause for thought. Domicile remains a high-profile and important issue, and HMRC will be acutely aware of the implications of a published judgment recognising a taxpayer’s legitimate expectation in this area, particularly one that could constrain HMRC's position in other cases. In that context, the circumstances in Weis may provide HMRC with sufficient cover to resolve the dispute by agreement rather than risk an adverse ruling, and it will be interesting to see whether a substantive judgment ultimately emerges in the next 12–18 months.

The judgment can be viewed here.

The underlying appeals challenged Capital Gains Tax (CGT) liabilities of approximately £15m, relating to tax planning arrangements involving offshore trusts and the application of double taxation conventions between the UK and New Zealand, and the UK and Mauritius.  
The specific decision in question was a case management decision concerning a disclosure application by the appellants seeking disclosure of specific documents from HMRC.

The appellants sought the requested documents on the basis that they were necessary for the appellants to establish the factual basis of claims, to assess whether estoppel applied (to prevent HMRC from denying their claims for relief) and to understand HMRC's historical position. 

FTT decision 

The application was granted, other than in relation to confidential correspondence between HMRC and the New Zealand and Mauritian tax authorities. 
With regard to those documents to be disclosed, the FTT directed HMRC to undertake a further search to locate any outstanding documents and to make disclosure by way of an amended List of Documents, commenting that it had doubts as to the overall integrity of the original exercise which HMRC had conducted. The FTT said that the appellants should be provided with the documents, even if HMRC did not intend to rely on them and/or regarded them as adverse to its case. 

The FTT did not consider the appellants request to be unfocussed or disproportionate and it did not amount to a 'fishing exercise', as had been argued by HMRC. In the view of the FTT, HMRC's original efforts had been inadequate. 

With regard to the confidential correspondence between HMRC and the New Zealand and Mauritian tax authorities, the FTT decided, on balance, that this correspondence should not be disclosed to the appellants. The FTT considered that it was not clear that this category of documentation would be relevant to the case and HMRC's concerns about publishing its confidential communications with other states concerning tax treaty negotiations, were legitimate. 

Comment 

In appeals before the FTT, the standard disclosure position is that a party only has to disclose documents they intend to rely upon. However, this decision illustrates that, in appropriate circumstances, the FTT will order HMRC to disclose relevant documents to appellant taxpayers, even where HMRC does not intend to rely on those documents and/or they are prejudicial to HMRC's case.

The issue of disclosure is topical at the moment, and another notable recent case is United Wholesale Grocers Ltd v HMRC [2025] UKFTT 1066 (TC), in which the FTT allowed the appellant's application for specific disclosure requiring HMRC to disclose documents concerning supply chains and related matters, mirroring the higher standard of disclosure provided for in the High Court under the Civil Procedure Rules.

The judge's comments in Evans on his use of AI in producing his decision are also worthy of note (see [42]-[49]). There can be little doubt that the use of AI by tax tribunal judges is likely to increase substantially as the technology develops.

The decision can be viewed here.

Introduction

The guidance, which replaces guidance on corporate cooperation issued in 2019, sets out clearer expectations for companies seeking to resolve allegations of criminal misconduct through cooperation. This includes timelines for engagement, a stronger presumption in favour of DPAs where corporates self-report and a more detailed framework for what constitutes “genuine” cooperation.

The SFO’s approach now goes further than the DPA Code of Practice (published in 2013) by offering what appears to be a de facto guarantee: if a corporate promptly self-reports suspected criminal conduct and provides full cooperation, the SFO will invite it to negotiate a DPA rather than prosecute, unless "exceptional circumstances" apply. 

The guidance coincides with broader efforts to increase case intake for the agency, including a government review of whistleblower compensation and the introduction of the “failure to prevent fraud” offence under the Economic Crime and Corporate Transparency Act 2023. Self-reporting though remains a key source of cases for the SFO. The agency's Director, Nick Ephgrave QPM, has previously stated that one of the main aims of this guidance is to counteract a decline in recent years in the number of companies self-reporting.

Potential impact of the guidance

For companies at risk of prosecution in bribery and fraud cases, DPAs generally offer an appealing route to resolution. They are negotiated agreements between the company and enforcement agencies, such as the SFO and Crown Prosecution Service in which, broadly, the company agrees to various terms, normally including payment of a financial penalty and obligations to cooperate in connected prosecutions and to make necessary enhancement to its financial crime compliance framework. In exchange, the SFO agrees to suspend its prosecution of the company and discontinue its case if the company satisfies all the DPA terms. Specifically, they offer companies certainty, reduced financial penalties and, importantly, no criminal conviction. 

The SFO's latest guidance provides greater clarity to companies on what they will need to do to be eligible for a DPA along with a more structured framework for self-reporting. It also provides statements from the SFO as to the process it will observe following a self-report and the speed with which it will respond and investigate. 

This clarity is welcome, and the timelines the SFO has said it will seek to follow offer some encouragement to companies that cases will not become protracted. However, there remain some open questions, including around what is meant by "exceptional circumstances" where self-reporting and cooperation will not be enough to secure a DPA and how cases that have previously resulted in a DPA, such as the Rolls-Royce case, which were not considered to be self-reports by the SFO, would now be treated. 

It remains to be seen if the greater clarity around outcome and speed of investigation offered by the SFO in this latest guidance will be sufficient to encourage more companies to self-report potential criminal wrongdoing. Also, the guidance does not include any detail on other means by which the SFO will increase its efforts to identify new cases involving potential wrongdoing by corporates. Therefore, companies will still need to weigh up the risks and benefits of making, or not making, an early disclosure to the SFO. In carrying out this balancing exercise corporates will need to consider not just the SFO's guidance but also the wider context of developments concerning financial crime enforcement, such as the coming into effect of the offence of failure to prevent fraud (pursuant to section 199 of the Economic Crime and Corporate Transparency Act 2023 (ECCTA)), and the recent broadening of the test for establishing corporate criminal liability (set out in section 196, ECCTA). 

What are the key provisions in the guidance?

• Clearer expectations of cooperation: The guidance outlines proactive steps companies must take to demonstrate adequate levels of cooperation in order to be eligible for a DPA, including preservation and provision of relevant material (including overseas documents) and early consultation before internal investigative steps are taken. With respect to legal professional privilege, the SFO states that companies will not be penalised for asserting it, but emphasises that voluntary waiver will be treated as a “significant cooperative act” and will "weight strongly in favour of cooperation".
• Importance of self-reporting: Prompt voluntary disclosure to the SFO of potential criminal wrongdoing by a company disclosure is now framed as a “key consideration” when determining whether a DPA is appropriate, though no guarantee is provided. However, the guidance significantly narrows the gap between “key consideration” and effective assurance. If companies self-report and cooperate fully, an invitation to a DPA negotiation is now all but guaranteed. Notably, the SFO has also accepted that DPAs may be appropriate even for companies that did not self-report, provided their cooperation is “exemplary” (a nod to past cases such as Rolls-Royce and Airbus). The guidance provides a non-exhaustive list of conduct that it may consider "exemplary", including providing to the SFO: (i) facts of the relevant criminal conduct, including identifying the individuals involved; (ii) information regarding any previous corporate criminal conduct and how it was resolved; and (iii) a thorough analysis of the company's compliance procedures at the time of the alleged offending, including any deficiencies at that time.
• Discouragement of forum shopping and limits on what will be considered a self-report: The SFO will not treat a report to another authority (such as a disclosure to a business's regulator, such as HMRC or the Financial Conduct Authority) as a self-report unless the SFO is notified “simultaneously or immediately thereafter”. Equally, the SFO may not accept that a company has self-reported if it has disclosed the conduct to an overseas agency whose enforcement action may be seen as a more lenient avenue for the company.
• Timely engagement: The SFO has provided indications as to its own processes and speed of response. These are intended to offer certainty to companies and to demonstrate that a self-report will not cause the company to face significant delays in waiting for final resolution of the matter. The SFO will respond to self-reports within 48 hours and decide within six months whether to open an investigation. If DPA negotiations are initiated, they are generally to be concluded within a further six months. The SFO says it will aim to conclude its investigation within a "reasonably prompt time frame". The SFO also states that it will provide regular updates throughout the process to the company. These timelines reflect a wider organisational shift aimed at reducing delay and uncertainty which have been longstanding barriers to cooperation cited by corporates and their advisers.

Conclusion

The SFO's guidance offers welcome clarity to companies when considering whether they should self-report potential wrongdoing to the SFO, or, if already under investigation, whether they should adopt a cooperative approach to their dealings with the agency. The language of the guidance, particularly when compared to the previous 2019 version, suggests the SFO may take a somewhat more corporate-friendly approach when assessing whether matters are suitable for DPAs.

However, to achieve its aim of encouraging more companies to self-report, this guidance will likely need to be coupled with increased enforcement activity from the SFO, including the agency identifying and pursuing suitable cases through other means. The increased threat of the "stick" of the SFO identifying and prosecuting a company's wrongdoing, will make the "carrot" offered by the guidance more appealing.

News 

HMRC has updated its Guidance for financial institutions who report information using the Automatic Exchange of Information

HMRC has updated its Guidance on how financial institutions should report information to HMRC under the Automatic Exchange of Information (AEOI) program.

There are currently two AEOI regimes that apply to the UK:

1. the United States Foreign Account Tax Compliance Act (FATCA), which requires UK financial institutions to report to HMRC on US customers that hold accounts with them; and;
2. the Common Reporting Standard (CRS) which provides for automatic exchange of financial account information within the Organisation for Economic Co-operation and Development (OECD).

From 1 January 2027, financial institutions will not be able to use HMRC's combined CRS and FATCA schema. Instead, they must provide separate reports using:

• the amended CRS Extensible Markup Language schema published by the OECD; and
• the Internal Revenue Service FATCA schema. 

HMRC has updated its Guidance for the CIS

HMRC has updated its Guidance on the Construction Industry Scheme (CIS).

Specifically, HMRC has made the following changes:

1. Section 1.8 has been updated to confirm that employment status for CIS purposes is determined in accordance with common law.
2. Section 2.12 now includes clearer guidance on when agencies are treated as subcontractors and new material on the application of the off-payroll working rules to agencies.
3. Section 2.13 has been revised to provide further clarity on the rules for agency workers, including an added section on how off-payroll working applies to those workers.
4. A new section 2.14 has been introduced, setting out when agencies may be regarded as contractors under the CIS.

HMRC has updated its International Exchange of Information Manual

HMRC has updated its International Exchange of Information Manual with a new chapter on the crypto-assets reporting framework (CARF).

The CARF comes into effect in the UK on 1 January 2026 and will require certain crypto-asset service providers to undertake due diligence on their users and report tax-relevant crypto-asset data to HMRC.

The new chapter is designed to help relevant crypto-asset service providers prepare for the CARF and put in place any systems and procedures required to meet their obligations under the new rules. 

HMRC has issued a policy paper which warns employment agencies and employers of new tax fraud models

HMRC has issued a policy paper warning employers and recruitment agencies about new fraudulent payroll models that claim to reduce employment tax liabilities.

HMRC reports that businesses are being approached by organisations who claim they can acquire companies with existing tax credits on file with HMRC. These organisations claim the tax credits can be used to offset employment taxes, including PAYE and National Insurance.

The paper explains how these arrangements are marketed, why HMRC consider them to constitute tax evasion, and the risks for businesses that use them, including liability for unpaid tax, interest and penalties. It also sets out the signs HMRC say businesses should look for when such models are being promoted and advises businesses to undertake robust due diligence and seek appropriate independent professional advice.

Case reports 

Tribunal allows expat's appeal confirming that SIPP withdrawals were not subject to UK tax

In Trevor John Masters v HMRC [2025] UKFTT 967 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal, finding that withdrawals from a self-invested personal pension (SIPP), by a non-UK resident, were not taxable in the UK, under the terms of the UK-Portugal Double Tax Convention (DTC). This decision provides important guidance on the application of double tax treaties to pension transfers and withdrawals. The case confirms that a transfer to a SIPP will not necessarily break the employment link for treaty purposes and provides a degree of clarity for expatriate taxpayers and their advisers on the interaction between UK pension rules and DTCs.

The case is also a reminder of the complexities and potential pitfalls that can arise when transferring or consolidating pension arrangements, particularly where a change in tax residence is involved. Small differences in structure, timing, or contribution history, can have significant tax implications in both jurisdictions. Individuals should seek specialist advice before transferring pensions or drawing benefits overseas, as missteps can inadvertently forfeit treaty relief, or trigger unexpected UK tax liabilities.

You can read our commentary on the decision here. 

Tribunal confirms caregiver living with parents is eligible for principal private residence relief

In Mark Campbell v HMRC [2025] UKFTT 00867, the FTT allowed the taxpayer’s appeal and confirmed that principal private residence (PPR) relief was available on the disposal of multiple properties as the taxpayer qualified under the job-related accommodation rules whilst residing at his parents’ home in order to care for his father.

The taxpayer's appeal was initially dismissed by the FTT but was allowed by the Upper Tribunal (UT) who found there had been multiple material errors of law and remitted the outstanding issues back to a reconstituted FTT.

This case provides some important practical lessons for taxpayers and their advisers in relation to PPR relief claims, particularly, where a taxpayer has multiple properties or unusual living arrangements, such as living with family members due to caregiving responsibilities. 

The UT confirmed that a taxpayer’s intention at the time of acquisition is critical in establishing whether a property was their only or main residence. Taxpayers should ensure they retain contemporaneous evidence, such as correspondence, property searches or personal notes, to support their intentions.

The reconstituted FTT also clarified the correct application of the job-related accommodation rules. Accommodation must be occupied by reason of employment, not simply due to convenience or family ties. Taxpayers should assess the necessity of the living arrangement and its connection to the taxpayer’s duties, rather than simply relying on general assumptions.

Finally, with regard to penalties, the UT made it clear that findings of deliberate behaviour must be supported by clear and specific reasoning from HMRC. A generic conclusion will not suffice.

You can read our commentary on the decision here. 

Taxpayer recovers almost £2m in successful SDLT appeal

In Christian Peter Candy v HMRC [2025] UKFTT 416 (TC), the FTT confirmed that the taxpayer was entitled to bring a claim for repayment of stamp duty land tax (SDLT) outside the usual 12-month window for amending a return, by relying on paragraph 34, Schedule 10, Finance Act 2003.

The FTT's interpretation of paragraph 34 will be welcomed by taxpayers who are in a similar position to Mr Candy and who are seeking to claim SDLT relief outside the 12-month amendment window.

The FTT's analysis of paragraph 34 may also have broader application to taxpayers who are seeking overpayment relief in relation to other taxes.

You can read our commentary on the decision here.

And finally …

Check out our Taxing Matters podcast, that explores complex tax issues and recent developments in tax law.

In Season 4, Episode 2:

We discuss top tips for tax litigation with Jonathan Davey KC of Wilberforce Chambers. The podcast and transcript can be found here.

In Season 4, Episode 3:

We speak with Rebecca Sheldon of Old Square Tax Chambers, about the Court of Appeal’s recent decision in A Taxpayer v HMRC, in which Rebecca was instructed on behalf of the taxpayer. The podcast and transcript can be found here.

When will the SFO assess compliance programmes?

The guidance sets out six scenarios in which the SFO may be expected to scrutinise a company’s compliance framework. Those scenarios are:

• when deciding whether to prosecute – an assessment of the compliance programme will form a key part of the application of the Full Code Test, with an ineffective compliance programme being a factor in favour of prosecuting
• when negotiating and approving deferred prosecution agreements (DPAs) – an assessment will be made on the effectiveness of the compliance programme at the time of the offending, the time of the self-reporting and the time of the DPA. This will be a relevant factor in both the appropriateness of the case for a DPA and whether the imposition of a monitor may be required. Generally, only companies with an effective compliance programme in place at the time of negotiations will be considered for a DPA
• when monitoring compliance with DPA terms and overseeing monitorships
• when assessing the “adequate procedures” defence under the Bribery Act 2010
• when assessing the “reasonable procedures” defence under the Economic Crime and Corporate Transparency Act 2023 (ECCTA)
• during sentencing.

What makes compliance “effective”?

A central element of the guidance is the SFO’s position that compliance must be effective and not just a "paper exercise". Prosecutors will assess how policies and procedures operate in practice ie whether they are proportionate, risk-based, properly resourced and genuinely embedded across the organisation.

The SFO signals that it will go beyond high-level assertions and examine real world outcomes ie looking at how risks are identified, how issues are escalated, and whether policies actually influence conduct. It also reiterates that an ineffective compliance programme, at the time of the offence, is a public-interest factor in favour of prosecution.

Bribery Act and ECCTA defences

The guidance also restates the different standards for the “failure to prevent” offences that it will consider when assessing compliance procedures.

Bribery Act 2010: Adequate procedures

Organisations must show they had adequate procedures in place at the time of the bribe. 

An assessment will be made against the Ministry of Justice’s well-known six principles: proportionate procedures, top-level commitment, risk assessment, due diligence, communication and monitoring/review.

ECCTA 2023: Reasonable procedures

The ECCTA defence requires reasonable procedures to prevent fraud, or evidence that it was not reasonable to have such procedures. The Home Office principles mirror the Bribery Act 2010 framework but include additional focus on factors including:

• dynamic and frequently updated risk assessment; and
• learning from internal investigations, whistleblowing and near-misses.

How does the SFO assess compliance programmes?

The guidance states that the SFO will use a full range of investigative tools to evaluate corporate compliance, including:

• voluntary disclosures;
• compelled disclosure of documents; and
• interviews with witnesses and suspects.

This reinforces the need for companies to maintain clear, contemporaneous records showing how policies operate in practice and supporting key decisions made by the business around financial crime controls. 

Part of the SFO's wider enforcement approach

This new guidance reinforces guidance issued by the SFO in April 2025, relating to self-reporting, cooperation and DPAs. Read together, these two guidance documents underline the increasing importance of financial crime compliance programmes and the level of scrutiny that prosecuting agencies may apply to them. From an enforcement perspective, the two guidance documents make it clear that to avoid prosecution, or to obtain a DPA at the end of an investigation, the SFO will expect a company to have in place compliance procedures that are effective in practice, are supported by clear records and that demonstrate that the risks faced by the business have been properly considered. 

Practical steps for companies

In light of the updated guidance, organisations should consider taking active steps, including:

• reviewing their anti-bribery and anti-fraud frameworks to ensure that they meet the levels set out in the respective statutory guidance issued in connection with the Bribery Act 2010 and ECCTA
• when reviewing their financial crime compliance procedures, considering their operational effectiveness, not merely the presence of a set of policies
• ensuring financial crime risk assessments are dynamic and updated periodically and when new information emerges
• clearly documenting key decisions taken around financial crime compliance, whistleblowing and internal investigations.

 Medpro Healthcare Ltd (Medpro) and its director, Mr Kalvinder Ruprai, sought to bring late appeals to the FTT against VAT penalties and personal liability notices issued by HMRC. The penalties imposed were in excess of £1 million.

The first notice of appeal was filed 70 days late and the second and third notices were each 5 months and 17 days late. The delays were attributed to Mr Ruprai's serious ill-health and the failures of his professional adviser, who had overlooked the appeal deadlines.

Permission to bring the appeals out of time was sought from the FTT under section 83G(6), Value Added Tax Act 1994 (VATA 1994), which grants the FTT unfettered discretion to permit late appeals. The exercise of that discretion is guided by the decision in Martland v HMRC [2018] UKUT 178 (TCC), which established the following three-stage analysis.

1. establish the length of the delay;
2. identify the reasons for that delay; and
3. consider all the circumstances in the round,  balancing them while giving particular emphasis to the importance of efficient, proportionate litigation and the prejudice that would be caused to both parties by granting or refusing permission.

The FTT refused all three late-appeal applications. The FTT said that that it was unacceptable for the professional adviser to overlook the possibility of an appeal. This failure was treated as the failure of the taxpayers in accordance with the general rule in HMRC v Katib [2019] UKUT 189 (TCC).

Medpro and Mr Ruprai appealed to the UT.

UT's decision

By the casting vote of Mr Justice Marcus Smith, the appeals were allowed.

In allowing the appeals, the UT considered that the FTT's decision contained the following material errors of law:

• The FTT failed to correctly apply the Marland test because it made no reference to Stage 3  (Ground 1).
• The FTT relied on the general rule in Katib, that failures of an adviser are treated as failures of the taxpayer, but failed to consider whether any exceptional circumstances existed that justified departing from that rule (Ground 2).
• The FTT copied from the parties' skeleton arguments but it failed to demonstrate that it had considered the applicants' submissions or exercised its own independent judgement. This breached the duty of a court or tribunal to provide adequate reasons for its decision (Ground 3).
• The rules in Martland and Katib improperly constrain the FTT's discretion and are therefore  wrong in law and the FTT erred by applying those rules (Ground 4).

Comment

The most important feature of this decision is the significant attack on the correctness of the previous UT decisions in Martland and Katib.

The taxpayers argued that the discretion accorded to the FTT to allow late appeals was different to the discretion given to the court in the context of relief from sanctions and therefore the UT was wrong to adopt, wholesale, the test in Denton v TH White Ltd [2014] 1 WLR 3926.

The test in Denton specifies that two specific factors should be given particular weight when carrying out the balancing exercise: (1) the need for litigation to be conducted efficiently and at proportionate cost; and (2) the need to enforce compliance with rules, practice directions and orders. This reflects the wording of CPR3.9, but not the wording of section 83G(6), VATA 1994, which does not attach particular weight to any specific factors.

The UT was divided on this issue. Judge Cannan's view was that Parliament, in giving discretion to the FTT, anticipated and intended that the UT would provide binding guidance on the exercise of that discretion. However, Mr Justice Marcus Smith was of the view that CPR3.9 had been specifically amended to add weight to certain factors whereas section 83G(6), VATA 1994, had not, accordingly, the UT in Martland and Katib had unjustifiably fettered the discretion of the FTT. Mr Justice Marcus Smith had the casting vote and therefore the appeal was allowed on that ground.

The approach taken by the FTT and UT to late appeals has varied since the Medpro decision. In Tajinder Pawar v The Commissioners for HMRC [2025] UKUT 00309 (TCC), the UT held that the Medpro test should now be followed as it is the more recent decision.

However, in Lands Luo Ltd v HMRC [2025] UKFTT 1207 (TC), the FTT expressly preferred the Martland test. The FTT referred back to the Court of Appeal's decision in BPP Holdings Ltd v HMRC (BPP Holdings) [2016] EWCA Civ 121, which held that there was nothing in the wording of the overriding objective of the FTT rules that is inconsistent with the general legal policy in Denton, as reflected in the Martland test.

In both of these recent decisions it was held that applying either test would produce the same result.

We may not get clarity on this issue until there is a case where each test produces a different result – watch this space.

The decision can be viewed here.

• HMRC has published a Brief 6, explaining changes in the right to input tax deduction for insurance intermediary services supplied outside the UK before 31 December 2023.

HMRC's Brief can be viewed here.

• HMRC's recorded webinar link for 'VAT on private school fees - what you need to charge and reclaim VAT for' has been updated.

  The webinar can be accessed here.

• HMRC has updated its internal manual concerning the VAT treatment of contracted out services relating to government departments and health authorities, giving practical advice in relation to VAT recovery concerning computer services systems and/or software packages.

The updated internal manual can be viewed here.

Case reports

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

This appeal concerned whether VAT should have been charged on the supply of car parking at hospitals. Ordinarily, VAT is charged on the supply of goods and services. However, there is an exception where a public body is supplying a service, which would otherwise be taxable, if it is ‘acting as a public authority’. A body is ‘acting as a public authority’ if it acts under a ‘special legislative regime’ (SLR). A body will be acting under an SLR when it is under different legal rules to a private operator carrying out the same activity. If the exception applies, the public body is not treated as a taxable person and so it does not have to charge VAT on its supply of the relevant goods or services. Even when this exception applies, if treating the public body as non-taxable would lead to ‘significant distortions of competition’, then the public body is restored to being taxable.

Northumbria Healthcare NHS Foundation Trust (the Trust) supplied paid-for car parking at various sites between May 2013 and March 2016. The Trust argued that it was acting under an SLR, because there was guidance from the Department of Health regarding its car parking operations in conjunction with the public law obligation to follow such guidance unless there was good reason not to. The Trust argued that this meant it was not a taxable person when it supplied car parking. Alternatively, it argued that the provision of car parking was closely linked to its functions of providing healthcare and so it was not a taxable person when it supplied car parking. On this basis, the Trust made a claim for overpaid VAT. HMRC rejected the Trust’s claim and both the First-tier Tribunal (FTT) and the Upper Tribunal (UT) dismissed the Trust’s appeal. The Court of Appeal allowed the Trust’s appeal and HMRC appealed to the Supreme Court.

The Supreme Court considered the following issues:

(1) whether NHS car-parking was performed under a SLR such that the Trust was acting as a public authority and fell within the exclusion under Article 13 of the Principal VAT Directive (PVD) and could be treated as non-taxable for VAT purposes; and

(2) whether exempting the Trust from VAT would lead to significant distortions of competition.

The Supreme Court allowed HMRC's appeal and confirmed that the Trust had to pay VAT on its hospital car parking charges because it was not acting as a public authority when providing car parking. The Court said that the guidance relied upon by the Trust did not constitute a legally binding regime with the certainty required to qualify as a SLR. Guidance, even externally issued, did not create enforceable obligations as it could be departed from and amended.

The Court was also of the view that even if the Trust had qualified as a SLR, exempting the Trust from VAT would have resulted in more than negligible distortions of competition. Evidence showed that VAT-free treatment would either allow the Trust to undercut its competitors or enable it to retain higher profits, both of which would constitute distortions of competition.

Why it matters

This judgment has sector-wide financial implications, as around 70 similar NHS appeals were stayed behind this case, with up to £100 million of VAT in issue.

The Supreme Court has clarified the VAT position for NHS organisations providing car-parking supplies and limits the circumstances in which public bodies can rely on Article 13 PVD to avoid taxable-person status. Crucially, non-binding guidance, even when combined with public-law duties, cannot amount to a SLR. Only legally enforceable obligations with sufficient certainty can satisfy Article 13.

The judgment can be viewed here.

Eurocent (Buckingham) Ltd v HMRC [2025] UKFTT 01253 (TC)

The FTT considered whether Eurocent (Buckingham) Ltd (Eurocent) was entitled to recover input VAT on professional fees incurred in connection with the purchase of a parade of let retail units.

Eurocent had claimed input VAT in respect of two invoices: one from BHNV Development Ltd (BHNV) for £46,000 of VAT on consultancy and property-related services, and another from Colridge Ltd (Colridge) for £4,960 of VAT, described only as an 'Introduction' fee.

The appeal turned on three questions. First, whether HMRC could deny input tax even if the invoices themselves were valid. Second, whether the BHNV and Colridge invoices complied with the VAT invoice requirements. Third, if any invoice was invalid, whether HMRC acted reasonably in refusing to accept alternative evidence under Regulation 29(2), Value Added Tax Regulations 1995.

HMRC's position was that it could refuse input tax recovery under Regulation 29(2) even if valid VAT invoices existed, on the basis that no genuine taxable supplies had been made. The FTT rejected HMRC’s argument, holding that Regulation 29(2) gives HMRC discretion to accept alternative evidence where invoices are missing or defective, but it does not empower HMRC to deny input tax where valid invoices are held. The FTT found that HMRC’s decision letters and internal review had been made solely under Regulation 29(2), not under any broader power.

Accordingly, the FTT concluded that the BHNV invoice was valid: it contained sufficient detail of the services provided, and it was acceptable for the date of issue and time of supply to coincide. However, the FTT found that the Colridge invoice was invalid, as it lacked the customer’s address, and an adequate description of the services supplied. The FTT held that HMRC had not acted unreasonably in refusing to exercise its discretion under Regulation 29(2) to accept alternative evidence.

The appeal was therefore allowed in part. Input tax on the BHNV invoice was recoverable, but not on the Colridge invoice.

Why it matters

This decision confirms that Regulation 29(2) concerns evidential sufficiency, not substantive entitlement. For businesses, the case underlines the importance of ensuring invoices satisfy legal requirements in order to allow them to make appropriate claims for input tax.

The decision can be viewed here.

Illuminate Skins Clinics Ltd v HMRC [2025] UKUT 00341 (TCC)

The UT considered whether Illuminate Skin Clinics Ltd (Illuminate) was entitled to treat its cosmetic and aesthetic treatments as exempt supplies of 'medical care' for VAT purposes under Item 1, Group 7, Schedule 9, Value Added Tax Act 1994.

Illuminate operated a private clinic offering a range of aesthetic and skincare procedures, including treatments for collagen loss, excess fat, Botox and dermal fillers. Illuminate sought to recover VAT on these aesthetic treatments on the basis that they were exempt as supplies of 'medical care', arguing that many of the procedures were performed for therapeutic purposes.

The FTT had dismissed Illuminate's claim for VAT repayment, concluding that the services did not constitute 'medical care'.

Illuminate relied on four grounds of appeal, arguing that the FTT:

1. focused on 'commercial and economic reality' instead of asking itself whether the services were purely cosmetic and therefore outside the exemption (Ground 1);

2. based its decision upon its view of the purpose, or primary purpose, of Illuminate's services when the correct question was whether the treatment was purely cosmetic (Ground 2);

    

3. assessed therapeutic purpose too narrowly and misapplied the case law on what constitutes medical/therapeutic care (Ground 3); 

4. did not deal with Illuminate’s argument that HMRC was trying to impose an EU exclusion regarding cosmetic care that Parliament had not enacted into UK law (Ground 4).

The UT rejected Grounds 1 and 2, because the FTT had applied the correct legal test for the medical-care exemption, namely, identifying the principal purpose or aim of each treatment. The FTT had properly focused on whether each procedure had a therapeutic aim, and its references to 'commercial and economic reality' did not amount to an error of law.

With regard to Ground 3, the UT agreed with Illuminate that the FTT had unduly confined its assessment of therapeutic purpose by setting overly rigid evidential expectations for diagnosis. The FTT should have applied a holistic, multifactorial analysis of the evidence, considering the practitioner’s recorded diagnoses, the patient’s circumstances, the clinical context and the nature of the procedure.

The UT rejected Ground 4. The UT was of the view that there was no error of law in the FTT’s treatment of Illuminate’s 'Parliamentary intention' argument as the FTT had adequately addressed the point and applied the correct legal framework.

The appeal was therefore partly successful, with the UT setting aside the FTT’s decision in part and remitting the case to the FTT for reconsideration of the therapeutic purpose assessment, in light of its findings.

Why it matters

This decision provides important guidance on the VAT treatment of cosmetic and aesthetic medicine. It confirms that an exemption arises only where the principal purpose of a treatment is therapeutic and clarifies how the tax tribunals should determine that purpose. The UT’s emphasis on giving appropriate weight to medical diagnoses, distinguishing between cosmetic motivations and therapeutic aims, and conducting a transaction-by-transaction analysis, will influence numerous stayed appeals in the sector. It also limits the ability of HMRC to characterise aesthetic treatments as taxable without properly engaging with the medical evidence presented by qualified practitioners.

The decision can be viewed here.

Freeport reliefs clarified in new HMRC guide

HMRC has published updated Help with Freeports – GfC14 guidelines, explaining the full suite of tax and customs-duty benefits available to businesses operating in UK Freeports.

Inside Freeport customs sites, firms can store or process goods under the Freeport special procedure, with import duty, import VAT, and even excise duty suspended while goods remain in the zone.

Meanwhile, in special tax sites, companies may access tax reductions such as zero-rate secondary Class 1 National Insurance, enhanced capital allowances on plant and machinery, and relief on business rates and property taxes.

The guidance highlights how to qualify, key record-keeping obligations, common pitfalls, and the process to correct errors.

Developing Countries Trading Scheme (DCTS): Goods Graduation from 1 January 2026

From 1 January 2026 until 31 December 2028, under the DCTS, the UK will suspend preferential customs duty rates on a range of goods imported from the “Standard Preferences” tier countries currently India and Indonesia. The graduated goods include, for India: products of milling, fats and oils, inorganic/organic chemicals, textiles (cotton, man-made fibres), apparel, carpets, iron/steel and precious metal articles. For Indonesia: selected chapters such as edible fats and oils, wicker manufactures, footwear and musical instruments. The change applies to UK importers and exporters to these countries who should review the impact this will have on duty costs and supply chains.

HMRC's Notice can be viewed here.

Import Control System 2 now live

HMRC has announced the transition from the Import Control System 2 Northern Ireland (ICSNI) to Import Control System 2 (ICS2) for entry summary declarations on goods moving from Great Britain to Northern Ireland. While businesses were expected to migrate by 1 September 2025, HMRC is allowing continued use of ICSNI until 31 December 2025. Traders using the Trader Support Service will be automatically registered for ICS2, while others must register via the EU Shared Trader Interface.

HMRC’s Guidance can be viewed here.

Case reports

Drinks and Food UK Ltd v HMRC [2025] UKUT 315 (TCC)

Drinks and Food UK Ltd (DFUK) appealed to the Upper Tribunal (UT) against the First-tier Tribunal’s (FTT) decision to uphold HMRC’s refusal of its claim for excise duty drawback under the Excise Goods (Drawback) Regulations 1995 (EGDR).

The dispute centred on whether:

(1)  the company’s claim was made within the statutory three-year time limit;

(2) HMRC had waived that limit; and

(3)  the company had complied with other procedural requirements, including those concerning duty-stamp obliteration and export documentation.

DFUK had paid excise duty on alcoholic goods in 2014 and sought to reclaim that duty after exporting the goods between December 2020 and April 2021 and submitted to HMRC a notice of intention to claim drawback in November 2020, and a formal claim in April 2021. HMRC refused the claim on three main grounds: (1)  it was out of time under regulation 7(6) of the EGDR; (2) it had not properly obliterated duty stamps under the Duty Stamp Regulations 2006 (DSR); and (3) it had failed to produce the required export evidence, such as CHIEF system S8 print-outs showing a “departed” status.

A subsequent review upheld HMRC’s refusal, leading the company to appeal to the FTT. The FTT dismissed the appeal, except for a small portion of the claim amounting to around £9,700.

The FTT's decision can be viewed here. 

DFUK appealed to the UT, arguing that HMRC’s refusal was unreasonable, that its 2019 correspondence with HMRC amounted to a waiver of the time limit, and that the FTT had misunderstood the scope of its jurisdiction. HMRC cross-appealed, arguing that the FTT had exceeded its powers in reviewing certain aspects of HMRC’s discretion.

UT's decision

The UT upheld the FTT’s decision. It confirmed that the FTT had jurisdiction under section 16(5), Finance Act 1994, to consider whether HMRC’s discretionary decision was reasonable, but it agreed with HMRC that it had acted lawfully in refusing the bulk of the claim. The UT accepted that a 2019 email from HMRC’s drawback team could be interpreted as an assurance that a late claim would be considered, meaning the time limit was not itself determinative. Nevertheless, DFUK still failed to meet the substantive conditions for drawback.

In the view of the UT, the requirement in Excise Notice 207 to obliterate duty stamps in accordance with the DSR, was clear and proportionate, and DFUK's agent had failed to comply with this requirement by not providing the necessary notice or record of stamp obliteration. It was also of the view that HMRC was entitled to reject parts of the claim for which no valid export documentation had been produced.

The UT's decision can be viewed here.

Why it matters

This decision provides important guidance on the scope of the FTT's jurisdiction under section 16(5), Finance Act 1994, and highlights the strict nature of compliance required under the drawback regime. While the UT accepted that HMRC’s communications could amount to a waiver of procedural time limits, it confirmed that such assurances do not excuse failure to meet other statutory conditions. The case highlights the need for exporters to maintain meticulous procedural compliance documentation, especially with regard to duty-stamp management and export evidence, if they wish to recover excise duty lawfully paid.

Kerrie Brennan v HMRC [2025] UKUT 00310 (TCC)

Ms Brennan appealed the FTT's decision, which upheld an excise duty assessment and a related wrongdoing penalty to the UT.

The case concerned a shipment of large “Euro bins” which were transported from Germany to Northern Ireland in containers which were described as wheelie bins but which were found to contain thousands of kilograms of duty-unpaid tobacco.

Before the FTT, Ms Brennan argued that she had arranged transport of the bins unaware of the illicit tobacco contained within them, and that she was not “holding” possession of excise goods for the purposes of Regulation 13 of The Excise Goods (Holding, Movement and Duty Point) Regulations 2010) (HMDP). She also contended that she had a reasonable excuse, for the purposes of paragraph 20, Schedule 41 to the Finance Act 2008, in relation to the wrongdoing penalty which HMRC had imposed.

The FTT dismissed Ms Brennan's appeal, holding that she was “concerned in carrying, removing, depositing, keeping or otherwise dealing with” the goods and that she did not establish a reasonable excuse.

Ms Brennan appealed to the UT, where she argued that the FTT erred in its analysis of “holding” and relied on the principle from R v Taylor and another [2013] EWCA Crim 1151 that an “innocent agent” not physically in possession of goods cannot be treated as "holding".

The FTT's decision can be viewed here.

UT's decision

The UT rejected Ms Brennan's appeal. It held that in excise duty law the concept of “holding” may include arrangements where the person arranges transport and the paperwork is in their name even if they do not physically hold the goods. Ms Brennan’s role in arranging transport, with the documentation in her name, meant the FTT was entitled to conclude that she was “holding” the goods for the purposes of Regulation 13, HMDP. The UT also held that Ms Brennan did not have a reasonable excuse. The factual findings of the FTT were not perverse or legally wrong, and Ms Brennan did not therefore satisfy the threshold for a reasonable excuse, under Schedule 41, Finance Act 2008.

The UT's decision can be viewed here.

Why it matters

This decision confirms that in the context of excise duty, “holding” goods can extend beyond physical possession to include situations where the taxpayer arranges transport and the consignment documentation names them. It also serves as a stark reminder of the high threshold that has to be met in order to establish a “reasonable excuse” in excise wrongdoing penalty cases. Taxpayers and businesses involved in logistics or goods transport, should remain alert to the risk of being caught out by excise‐duty obligations and the potential serious consequences for them if illicit cargoes have unwittingly been transported.

WM Morrison Supermarket Ltd v HMRC [2025] UKFTT 1145 (TC)

WM Morrison Supermarket Ltd (Morrisons) appealed to the FTT against a post‑clearance demand in the sum of £5,073,187.80, issued by HMRC for anti‑dumping duty (ADD) and import VAT, in respect of household aluminium foil imported between 22 March 2018 and 19 November 2020, and declared as originating from Thailand.

The main issue in the appeal was whether a factory in Thailand, operated by the exporter, which undertook certain final‑stage processing of the foil, had carried out the “last, substantial, economically‑justified processing or working” in the UK customs origin sense (under Article 60 of the Union Customs Code (UCC)), which would mean the goods were of Thai origin and would avoid ADD, or whether the processing was not economically justified (Article 33 UCC Delegated Regulation) and therefore the goods would remain of Chinese origin and subject to ADD.

Morrisons had bought aluminium foil manufactured entirely in China until May 2017, after which time the exporter group moved certain final operations to Thailand. The Thai operations accounted for about 5% of total production cost.

HMRC argued that the Thai factory was established with the dominant purpose of avoiding ADD and that the Thai processing was minimal and did not amount to the requisite “substantial processing”.

The FTT heard evidence from the Thai factory’s general manager, expert metallurgical witnesses, and reviewed corporate website/social media content of the exporter, that explicitly referenced to elimination of ADD.

FTT's decision

The appeal was dismissed.

Morrisons bore the burden of proof and the FTT applied the two‑stage statutory test: first, was the processing economically justified or was it principally aimed at avoiding ADD (Article 33 UCC‑DA); and second, if it was economically justified, did the Thai processing constitute the last substantial processing (Article 60 UCC).

On the first issue, the FTT found that the contemporaneous online material, for example, the maker’s website and buyer‑to‑buyer postings, contained clear statements that the Thai facility was opened to “eliminate anti‑dumping rate” and therefore provided objective evidence that avoidance of ADD was the principal or dominant purpose. Morrisons’ evidence of local‑market demand and export volumes was found to be insufficient and of reduced weight (partly because of deficiencies in its witness evidence). Accordingly, the processing was not economically justified.

With regard to the "substantial processing" question, the FTT concluded that even if the processing had been economically justified, the Thai processing effected only microscopic metallurgical changes and did not meet the qualifying threshold. The product before and after the processing appeared to be essentially the same, both met the British standard for household foil, and the cost share and extent of change were insufficient to amount to a new product or important stage of manufacture.

The FTT's decision can be viewed here.

Why it matters

This decision is significant for importers because it illustrates how the rules on non‑preferential origin are being rigorously applied by HMRC. It confirms that statements by exporters (including on websites/social media) can be persuasive evidence of intent. It also underscores that relatively modest finishing or packaging operations abroad may not satisfy the “last substantial processing” test under Article 60 UCC, especially where core manufacturing remains elsewhere. There is a heavy evidential burden on importers to show genuine commercial reasons for relocation of production and meaningful processing abroad. From a practical perspective, companies declaring origin overseas must ensure that communications and documentation support the commercial logic, and that the overseas operations are substantial, and not merely final packaging or minor finishing.

Mr Masters, a former Tesco executive, accrued a defined benefit pension entitlement under Tesco’s pension scheme from 1983 to 2015 (the DB scheme). In 2016, he transferred his defined benefit pension to a UK-registered SIPP. Mr Masters subsequently became resident in Portugal under the favourable non-habitual resident (NHR) regime. In the 2019/20 tax year, Mr Masters withdrew c.£3.5m from the SIPP, on which UK income tax of c.£1.5m was withheld at source. 

Mr Masters claimed that the withdrawals were “pensions paid in consideration of past employment”, within the meaning of Article 17(1)(a) of the UK-Portugal DTC and therefore taxable only in Portugal. Accordingly, Mr Masters applied to HMRC for a no tax (NT) code to prevent UK tax being deducted. This application was rejected. In his 2019/20 tax return, Mr Masters claimed relief in respect of the tax that had been withheld in relation to the SIPP withdrawals.

HMRC subsequently enquired into Mr Masters' 2019/20 tax return and rejected his claim for relief. In particular, HMRC concluded that the transfer of benefits from the DB scheme to the SIPP, severed the required causal link between the pension and Mr Masters’ past employment. In HMRC’s view, once the funds were transferred to the SIPP, they ceased to be “pensions paid in consideration of past employment” and instead became payments under a separate pension arrangement, falling outside Article 17(1)(a) of the UK-Portugal DTC. As the withdrawals were therefore taxable in the UK, because they were not "subject to tax" in Portugal, they were taxable in the UK. 

HMRC issued a closure notice on that basis. Mr Masters appealed the closure notice and HMRC's refusal of his claim for an NT code, to the FTT.

FTT's decision

The appeals were allowed.

The key issue before the FTT was whether the SIPP withdrawals were paid "in consideration of past employment". The parties were in agreement that a sufficient causal connection between past employment and the SIPP withdrawals was required in order for that condition to be met.  

Mr Masters' position was that the relevant causal connection had not been broken and was sufficient to meet the condition because, amongst other things: his entitlement under the DB Scheme was funded directly by, and as a result of, his employment with Tesco; the funds remained within a UK pension scheme at all times (and Mr Masters did not obtain any form of legal ownership of those funds before his receipt of the SIPP withdrawals); and Mr Masters did not contribute any further funds to the SIPP and the only subsequent increase in the SIPP funds was due to investment returns.

HMRC argued that the causal connection had been broken between the SIPP withdrawals and Mr Masters' employment with Tesco because, amongst other things: Mr Masters’ employment was not a condition of the SIPP; the funds were voluntarily taken from the DB scheme whilst the employment was ongoing and placed into the SIPP; the SIPP was fundamentally an investment product; and there was not merely a transfer of capital but also the opening of a new pension product, unconnected with Mr Masters' employment.   

The FTT noted that the degree of relevant causal connection was clearly sufficient and unbroken where an employer and employee (through salary sacrifice) contribute to an occupational pension scheme, which then pays a pension or similar remuneration. Equally, the relevant causal connection was clearly broken where an employee receives a salary from their employer and then pays some of that salary into a SIPP, which subsequently pays a pension or similar remuneration. 

While noting that Mr Masters' facts fell somewhere between the two extremes, the FTT concluded that, if paid direct to Mr Masters, the Tesco funds would be "paid in consideration of past employment" and the mere fact that the funds were transferred from the DB scheme to the SIPP, did not break the relevant causal connection between Mr Masters’ employment with Tesco and the subsequent SIPP withdrawals paid to Mr Masters. The FTT also confirmed that a payment from a SIPP could, in principle, be "paid in consideration of past employment". 

The FTT then considered whether there were any other facts that reduced the degree of relevant causal connection between Mr Masters’ employment with Tesco and the SIPP withdrawals to such an extent that the SIPP withdrawals were not in fact “paid in consideration of past employment”. In finding that there were no such facts, the FTT noted that Mr Masters had built up his entitlement in the DB scheme over a period of 32 years and 8 months of his employment with Tesco; the funds were the only contribution made to the SIPP; Mr Masters did not make any subsequent contributions to the SIPP; and the funds had been in the SIPP for only four years before the SIPP withdrawals were made, which was a proportionately short period of time compared to Mr Masters’ period of pensionable service with Tesco. The FTT concluded  that all of these facts maintained the necessary degree of relevant causal connection between the SIPP withdrawals and Mr Masters’ past employment with Tesco, so that the SIPP withdrawals were “paid in consideration of past employment”

The FTT therefore held that the SIPP withdrawals were within Article 17 of the DTC and, as Mr Masters was resident in Portugal at the time of the SIPP withdrawals, the DTC allocated the taxation rights over those withdrawals to Portugal. 

Comment

This decision provides some important guidance on the application of double tax treaties to pension transfers and withdrawals. The case confirms that a transfer to a SIPP will not necessarily break the employment link for treaty purposes and provides a degree of clarity for expatriate taxpayers and their advisers on the interaction between UK pension rules and DTCs. Pensioners relocating abroad may be able to rely on treaty protection if the funds remain clearly traceable to past employment.

The case is also a reminder of the complexities and potential pitfalls that can arise when transferring or consolidating pension arrangements, particularly where a change in tax residence is involved. Small differences in structure, timing, or contribution history, can have significant tax implications in both jurisdictions. Individuals should seek specialist advice before transferring pensions or drawing benefits overseas, as missteps can inadvertently forfeit treaty relief, or trigger unexpected UK tax liabilities.

The decision can be viewed here.

Recent procedural decisions

There have been a number of recent procedural decisions that are worthy of note.

Hardship

Clear Pay Payroll Ltd v HMRC [2025] UKFTT 916 (TC), concerned an application by the taxpayer that the First-tier Tribunal (FTT) should entertain its appeal against an assessment to VAT without the taxpayer having to pay the disputed VAT in advance. 

HMRC brought a winding-up against the taxpayer in respect of the unpaid assessment. The taxpayer subsequently advised HMRC that it wished to appeal the assessment and claimed hardship. HMRC requested that the taxpayer provide extensive documents and information in support of its claim of hardship. The taxpayer did not provide the requested documents and information. Instead, it argued that, as HMRC had sought a winding-up petition on the basis that it believed the taxpayer was unable to pay its debts as they fell due, it would be contradictory for HMRC not to accept that payment of the amount subject to the appeal could be made without the taxpayer suffering hardship. Following further correspondence between the parties, and in the absence of the information and documents requested being provided, HMRC ultimately refused the taxpayer's request for hardship.

Before the FTT, the taxpayer challenged the FTT's jurisdiction on the basis that the winding-up petition amounted to confirmation by HMRC that hardship was satisfied and effectively meant there was no hardship issue for the FTT to determine. Accordingly, the taxpayer argued that the right course was for the FTT to decline jurisdiction and make a finding of fact that HMRC was satisfied that the test for hardship was met. The FTT disagreed, finding that it was clear that HMRC did not agree that hardship had been made out. To that end, the FTT noted that the test for hardship, in section 84(3B), the Value Added Tax Act 1994 (VATA), was very different from the grounds for which a company may be wound up by the court under the Insolvency Act 1986. The FTT noted, for example, winding-up focuses on the position of the company alone in determining whether it is unable to pay its debts, whereas the test for hardship in VATA requires a broader review and, in appropriate circumstances, can encompass a review of the resources available to other connected persons. Accordingly, the FTT determined that it was not, at least in theory, inconsistent for HMRC to pursue its petition in the High Court for winding up of the company and, at the same time, oppose an application to the FTT that the company would suffer hardship if it were required to pay the amount of the disputed VAT.

As to the substantive point, the FTT was satisfied that the taxpayer would suffer hardship if required to pay the VAT in dispute, having regard to the principles set out in HMRC v Elbrook (Cash & Carry) Ltd [2017] UKUT 181 (TCC). In particular, the FTT held, amongst other things, that: the taxpayer was in no position to pay the disputed VAT; the test for hardship was 'all or nothing', such that the fact the taxpayer might have some limited funds to make part payment was irrelevant; the test for hardship was applied at the date of the hearing, and it was irrelevant that the taxpayer had not responded to HMRC’s requests for hardship information; and if the requirement to pay the disputed VAT was maintained, the taxpayer would be denied its right to appeal. 

The requirement to pay disputed VAT before pursuing an indirect tax appeal has long been viewed as an onerous condition, undermining taxpayers’ rights to appeal and the principles of natural justice. In today’s challenging economic climate, where many businesses face significant financial pressures, the unfairness of this rule is thrown into even sharper focus. Against that backdrop, the decision in Clear Pay offers valuable guidance on both the hardship process and the application of the relevant legal principles.

Reinstatement

In Parwinder Gill v HMRC [2025] UKFTT 930 (TC), the FTT considered an application by the taxpayer for the reinstatement of an appeal against a personal liability notice (PLN) issued to him for alleged deliberate inaccuracies contained in his VAT returns. The appeal had been automatically struck out by the FTT following the taxpayer's failure to file witness evidence in accordance with an 'unless order' issued by the FTT. The taxpayer, who had been represented by an agent, was unaware that his appeal had been struck out until he received a demand from HMRC for c.£1.8m.  

The taxpayer's appeal to the FTT was filed in December 2022. The taxpayer had suffered from ill-health for a number of years. He had been diagnosed with anxiety and depression, Type 2 diabetes, had had a transient ischemic attack, and had also been diagnosed with autistic spectrum disorder. In February 2023, the taxpayer's mother, who had lived with him for 62 years, also died. In the months that followed the filing of the taxpayer's appeal, HMRC's correspondence to the taxpayer's agent seeking to agree directions for the conduct of the appeal went unanswered. The FTT ultimately issued directions for the progress of the appeal to both HMRC and the agent, which included a requirement for the taxpayer to file witness evidence. The directions were not provided to the taxpayer by his agent, and the deadlines passed without the taxpayer providing any witness evidence. In addition, HMRC's correspondence to the agent continued to go unanswered. 

Accordingly, in October 2023, the FTT wrote to the agent to remind them of the directions and indicated that, in the absence of a response within 14 days, the FTT may issue a direction which might lead to the striking out of the appeal. Four days before the FTT's letter, the taxpayer was taken to hospital by emergency ambulance and diagnosed with end stage renal failure and Covid, receiving treatment over the following month. During that period, the taxpayer's wife was also seriously hurt in a car accident.   

In the absence of any response from the agent to the FTT's letter, the FTT issued the 'unless order' and the appeal was subsequently struck out. Around the same time, the taxpayer was diagnosed with heart failure. Upon learning that his appeal had been struck out, the taxpayer applied for reinstatement, noting there had been a breakdown in communication with his agent and that the taxpayer had assumed that there was a backlog in arranging the hearing due to Covid. HMRC objected to the appeal being reinstated. 

In considering the taxpayer's application, the FTT applied the three stage test in Martland v HMRC [2018] UKUT 178 (TCC). In that regard, the FTT found that the length of the taxpayer's delay in complying with the FTT's directions was both significant and serious. Further, the FTT did not accept that the reason for the delay was because of the taxpayer's ill-health, but rather because of the agent's failure to tell the taxpayer about the requirement to file evidence, the FTT's letter, and the unless order. The FTT noted that the case law established that it should not normally find that a person’s reliance on their adviser provides a good reason for delay and that the usual position was that the reasonable taxpayer would check with their adviser, which the taxpayer had failed to do. However, the FTT determined that the reasonable taxpayer in the specific taxpayer’s position would not be closely monitoring their adviser to make sure the appeal was on track. Instead, they would be focused on their life-threatening health conditions and the consequences of their wife’s car accident. Accordingly, the FTT found that it was reasonable for the taxpayer not to contact his agent during the relevant periods. 

Finally, balancing all of the circumstances of the case, and placing particular weight on the need to enforce compliance with statutory time limits and to conduct litigation efficiently and at a proportionate cost, the FTT concluded that the factors favoured allowing the application.

It is well established that taxpayers face significant difficulty in securing the reinstatement of appeals once they have been struck out. The decision in Gill exemplifies the high threshold that must be satisfied: only where non-compliance with FTT directions can be justified by particularly strong reasons will reinstatement be permitted. Notably, however, Gill was determined by reference to the Martland test prior to the Medpro modifications, discussed below. In any event, Gill serves as a reminder of the critical importance of adherence to FTT directions and of the obligation on practitioners to implement robust systems to ensure timely compliance.

Inadequate reasons

In Medpro Healthcare Ltd & Another v HMRC [2025] UKUT 255 (TCC), the Upper Tribunal (UT) considered an appeal against the FTT’s refusal to admit late appeals against PLNs and VAT penalties under section 83G, VATA. Although the FTT’s decision was, somewhat unusually, not published, it appears that the taxpayers had relied on ill-health as the reason for their delay. The FTT nevertheless concluded that the taxpayers had failed to satisfy the criteria for permitting late appeals, applying the three stage test in Martland.

Before the UT, the taxpayers contended, amongst other things, that: 

• the FTT had provided insufficient reasons for its decision;
• the FTT had failed to consider the third stage of the Martland test (namely, the overall balancing exercise); and
• Martland had improperly embedded within the discretionary power under section 83G(6), VATA, the ex ante additional weight to be attached to the two factors under CPR 3.9(1), namely, the need for litigation to be conducted efficiently and at a proportionate cost, and the need to enforce compliance with rules, practice directions and orders.

The UT upheld the taxpayers' appeal on all grounds. In terms of the FTT's approach, the UT observed that there were a number of problems with the FTT's written decision, including:

• Much of the first 109 paragraphs of the decision were cut and pasted from the parties' written submissions without any acknowledgement that most of the decision was not in the FTT’s own words or its own consideration of the evidence and the authorities.
• There was an asymmetric use of the written submissions, with the losing side's submissions not set out or dealt with in the decision.
• There were occasional, but only very brief, references to the oral evidence, such that the UT could not be sure that the oral evidence was properly taken into account by the FTT.
• The FTT included what purported to be a quotation from a Court of Appeal decision, when in fact it came from a decision of the UT. 

In assessing the parties' arguments on sufficiency of reasons, the UT noted that the requirement for a tribunal or court to give reasons for its decision was a function of due process, and therefore of justice. The UT noted the rationale for the duty had a number of aspects, including fairness, allowing the losing party to understand whether there had been an appealable error of law, and acting as a constraint on the judiciary's exercise of power. A failure to give reasons was therefore a free-standing ground of appeal, and a failure to give reasons for a decision, or material part of a decision, itself constitutes a good ground of appeal. In concluding that the FTT's decision did not contain adequate reasons, the UT found that the dispositive parts of the decision were not reasoned, and did not identify the route by which the FTT determined that the taxpayers' applications to bring late appeals were refused. 

In light of the UT's finding that the FTT's reasons were inadequate, the UT could not be satisfied that the FTT had carried out the balancing exercise required by Martland, largely because the FTT had not explained its reasoning. The UT noted that the dispositive section of the FTT's decision did not specifically refer to stage 3 of the Martland test, there was no reference to the balancing exercise at stage 3, or to taking into account all the circumstances of the case. Further, and although not a ground of appeal raised by the taxpayers, the UT observed that it was also in some doubt as to what consideration the FTT gave to stage 2 of the Martland test (establishing the reason, or reasons, why the default occurred), noting that a failure properly to consider stage 2 was a strong indicator that the FTT did not properly consider stage 3 of the Martland test. Overall, the UT determined that the FTT’s approach meant that it disabled itself from conducting a meaningful stage 3 assessment.

The UT was, however, divided on the wider challenge to Martland itself. By casting vote, it accepted the taxpayers’ argument that paragraph [45] of Martland had wrongly fettered the FTT’s discretion by elevating efficiency, proportionality and compliance, above other factors in the balancing exercise to be carried out by the FTT, when considering an application for a late appeal. In that regard, the UT observed that it could not, by way of binding guidance, direct the FTT as to what weight to place on particular factors when it is considering whether to extend time for appealing. Given the force of the point as advanced by the taxpayers, and the frequency with which the FTT is required to apply the Martland test, the UT considered it was vital that this area of the law was clearly stated. To that end, the UT concluded that the practice adopted in the FTT with regard to Martland and the power in section 83G(6), VATA, was clearly wrong. 

The decision in Medpro is significant in two respects. First, it reinforces the need for FTT decisions to be clear, reasoned and complete. Given the time and costs involved in FTT proceedings, and the fact that appeals therefrom may only be brought on points of law, parties must be left in no doubt about the FTT’s findings and the reasoning behind them. Medpro therefore sets a clear benchmark for the standard of decision-making expected of FTT judges. But perhaps of more importance, is the UT's departure from a key aspect of the Martland test. Martland has imposed an exceptionally high bar for late appeals. As we have noted in previous Reviews, the application of Martland has led the FTT to refuse applications even in what appear to be compelling circumstances. Medpro clarifies that the discretion under section 83G(6) is a genuinely holistic one: the FTT must weigh all the circumstances, without according predetermined priority to particular factors such as efficiency or compliance. 

While the threshold for a late appeal is likely to remain high, taxpayers will view Medpro as a welcome recalibration that restores some level of balance and fairness to FTT procedure.

Late appeals after Medpro

In Remiglio di Lellio v HMRC [2025] UKFTT 1071 (TC), the taxpayer sought permission to appeal assessments, penalties and PLNs between six and seven years late. The taxpayer contended that the reason for the delay was that he and his agent believed that appeals had been made, and that he had been diagnosed with cancer around the time some of the assessments had been issued and he had requested HMRC liaise with his agent because of the time and energy required to deal with his medical treatment. 

The FTT refused the taxpayer's application. Applying stage 1 of the Martland test, the FTT found that the taxpayer's delay was serious and significant. In considering the reasons for the taxpayer's delay under stage 2 of the Martland test, the FTT concluded that the taxpayer's belief that appeals had been made was both wrong and unreasonable, given HMRC had repeatedly told him that there were no open appeals. Rather, the FTT determined that, in the face of HMRC's assertions, a reasonable taxpayer would have asked their agent to show them a copy of the appeals as well as copies of the related correspondence from HMRC. The FTT did not accept that the taxpayer's particular circumstances, namely, his serious illness, prevented him from asking his agent for that information. In particular, the FTT noted that, notwithstanding his medical treatment, the taxpayer continued to work in his restaurant and corresponded with HMRC on a number of occasions. Finally, in applying the balancing exercise in stage 3 of the Martland test, the FTT noted that, in light of Medpro, it should not give any special weight to the need for litigation to be conducted efficiently and at proportionate cost, or to the need to enforce compliance with rules, practice directions and orders. The result of that balancing exercise was that, in the FTT's view, the range of factors against allowing late appeals significantly outweighed those in favour, and the application was therefore refused.     

The extent to which Medpro will affect taxpayers’ prospects of success in late appeal applications remains uncertain. In Remiglio, the taxpayer faced particularly unfavourable facts, compounded by a substantial delay, making the case especially difficult to advance. While the decision may reinforce the perception that taxpayers continue to face significant obstacles in persuading the FTT to admit late appeals, the FTT is bound by Medpro and the guidance provided by the UT and if it is ignored or misapplied by the FTT, a taxpayer is likely to receive a favourable reception on appeal to the UT.

Mark Campbell was living at his parents’ home, under an employment contract to provide care for his father, when he bought and sold four residential properties in quick succession between 2010 and 2016. He did not notify HMRC of any tax liability. 

HMRC became aware of the final disposal in the 2015/16 tax year and requested that Mr Campbell file a tax return. 

In response to this request, Mr Campbell submitted a return claiming PPR relief under section 222, Taxation of Chargeable Gains Act 1992 (TCGA), on the basis he was residing in job-related accommodation and the job-related accommodation exemption in section 222(8), TCGA, applied. 

HMRC opened an enquiry into the return and later issued a closure notice under section 28A, Taxes Management Act 1970 (TMA), rejecting the PPR relief claim. 

HMRC also issued discovery assessments to Mr Campbell, under sections 29, TMA, for the earlier disposals made in the 2012/13 and 2014/15 tax years. 

The closure notice and discovery assessments were issued on the basis that Mr Campbell was either carrying on a trade and liable to income tax on the profits or, alternatively, liable to capital gains tax (CGT) with no entitlement to PPR relief. 

Penalties for deliberate failure to notify were also imposed under Schedule 41, Finance Act 2008. 

Mr Campbell appealed to the FTT.

FTT decision

The appeals were dismissed. 

The FTT found that Mr Campbell’s activities did not amount to trading, so he was not liable to income tax in relation to the property disposals. However, the FTT held that PPR relief was not available, as none of the properties had been Mr Campbell's only or main residence, and his parents’ home did not qualify as job-related accommodation. The FTT also upheld the validity of the discovery assessments and closure notice, and concluded that the penalties that had been issued for failure to notify were appropriate, based on deliberate behaviour.

A copy of the FTT's decision can be viewed here.

Mr Campbell appealed to the Upper Tribunal (UT).

UT decision

The appeals were allowed in part.

Mr Campbell argued that the FTT had erred in law in its treatment of PPR relief, the validity of the discovery assessments, and the finding of deliberate behaviour. 

The UT held that the FTT had wrongly applied the job-related accommodation test, failed to consider Mr Campbell’s intentions at the time of acquiring the properties, and improperly transposed findings across the disposals. These were material errors of law, and the FTT’s decision on PPR relief was set aside. 

The UT also concluded that the FTT had made a material error of law in relation to the penalties, both in finding that Mr Campbell's behaviour was deliberate and in failing to consider whether HMRC’s penalty decisions were correct or should be mitigated. The penalties decision was therefore set aside.

However, the UT upheld the FTT’s conclusion that the discovery assessments were valid. 

The case was remitted to a differently constituted FTT to reconsider the outstanding issues.

A copy of the UT's decision can be viewed here.

Differently constituted FTT decision

The FTT found that Mr Campbell was entitled to full PPR relief on three of the four properties, based on his intention at acquisition to occupy each as his only or main residence. With regard to the fourth property, PPR relief was allowed for 19 out of 27 months of ownership - one month based on intention to occupy, and 18 months under the statutory deemed occupation rule in section 223(2), TCGA. The remaining gain was fully covered by Mr Campbell’s annual exemption, so no CGT was payable. 

Mr Campbell's appeal against HMRC's closure notice, discovery assessments, and penalties was therefore ultimately allowed.

A copy of the FTT's final decision can be viewed here. 

Comment

This case provides some important practical lessons for taxpayers and their advisers in relation to PPR relief claims, particularly, where a taxpayer has multiple properties or unusual living arrangements, such as living with family members due to caregiving responsibilities. 

The UT confirmed that a taxpayer’s intention at the time of acquisition is critical in establishing whether a property was their only or main residence. Taxpayers should ensure they retain contemporaneous evidence, such as correspondence, property searches or personal notes, to support their intentions.

The FTT also clarified the correct application of the job-related accommodation rules. Accommodation must be occupied by reason of employment, not simply due to convenience or family ties. Taxpayers should assess the necessity of the living arrangement and its connection to the taxpayer’s duties, rather than simply relying on general assumptions.

Finally, with regard to penalties, the UT made it clear that findings of deliberate behaviour must be supported by clear and specific reasoning from HMRC. A generic conclusion will not suffice.

HMRC publishes Guidance on upcoming changes to umbrella company PAYE rules

HMRC has published Guidance which explains what companies should consider if they are in a labour supply chain that includes an umbrella company, or any third party supplying labour.

Draft legislation was published on 21 July 2025, which includes measures to make UK agencies supplying workers to end clients jointly and severally responsible for the PAYE liabilities of the umbrella company that employs the worker. These rules will come into force on 6 April 2026.

The Guidance provides a high-level explanation of how these rules will work.

HMRC has also added new paragraphs to its employment status manual: ESM2400 to ESM2440.

HMRC publishes Guidance on how digital platform operators should report sellers' information to HMRC

Digital platforms are required to collect details from sellers on their platforms and report this information to HMRC. A digital platform includes any software, including mobile apps and websites, which allow you to offer services and goods to users.

HMRC has published Guidance which explains how digital platform operators should:

1. Check whether they need to register with HMRC as a digital platform operator.
2. Collect information from sellers on their platform.
3. Report that information to HMRC.

HMRC has also published Guidance in respect of steps two and three, which can be viewed here and here.

HMRC publishes Guidance on Research and Development tax relief claims

HMRC has published the following additional Guidance relating to claims for research and development (R&D) tax relief:

1. Guidance and an online tool which allows you to input information about your project and receive HMRC's view as to whether it might qualify for R&D tax relief.

2. Guidance for agents or accountancy professionals explaining how to report other agents and professionals who are suspected of giving HMRC misleading information, having poor technical knowledge, or engaging in dishonest behaviour.

HMRC publishes policy paper on the tax treatment of Cryptoasset Exchange Traded Notes

Cryptoasset Exchange Traded Notes (CETNs) are debt instruments that mirror the performance of specified cryptoassets. CETNs were previously restricted to professional investors but from 8 October 2025, following changes to Financial Conduct Authority rules, they will be open to retail investors as well.

HMRC has published a policy paper which explains how CETNs will be treated for tax purposes, including their eligibility for inclusion within Individual Savings Accounts and registered pension schemes.

HMRC publishes new pages in its International Exchange of Information Manual listing reportable jurisdictions for Digital Platform Tax Reporting

HMRC has published new pages in its International Exchange of Information Manual providing updated lists of partner and reportable jurisdictions under the UK’s digital platform tax reporting rules, as set out in the Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023 (SI 2023/817).

The updates include:

• IEIM906000 – revised list of partner jurisdictions for the 2025 reporting period.
• IEIM906100 – revised list of reportable jurisdictions for 2025.
• IEIM906200 – index page for previous reporting periods.
• IEIM906201 – list of reportable jurisdictions for 2024.

New partner jurisdictions added for the 2025 reporting period include: Colombia, Croatia, Czechia, Iceland, Lithuania, the Netherlands, Poland, the Slovak Republic, and Slovenia.

Case reports

Case 1

Tribunal grants taxpayer's application for disclosure against HMRC in Kittel appeal

In CIS-Pay Ltd v HMRC [2025] UKFTT 00751 (TC), the First-tier Tribunal (FTT) granted the taxpayer's application for disclosure of all material within HMRC's possession that might assist its case or undermine HMRC's case.

This decision highlights the importance that the FTT attaches to protecting procedural fairness in hearings involving penalties, that are considered criminal charges, due to their punitive nature.

The FTT recognised that although the underlying tax appeal fell outside the protections of Article 6 of the European Convention on Human Rights, the penalty issue constituted a criminal charge engaging Article 6 rights, including disclosure obligations. It rejected HMRC's argument that Article 6 rights are limited only to penalty specific conditions and do not extend to overlapping issues with the substantive appeal. 

You can read our commentary on the decision here.

Case 2

Tribunal confirms its decision on 'intangible fixed assets' preventing HMRC from reopening the issue

In Inside Track 3 LLP and Ingenious Film Partners 2 LLP v HMRC [2025] UKFTT 986, the FTT has issued a further decision in the long running Ingenious film partnerships litigation and has ruled in favour of the taxpayers, confirming that its decision, of several years earlier, had determined that certain rights held by the LLPs constitute intangible fixed assets, for the purposes of Part 8 of the Corporation Tax Act 2009, and HMRC could not therefore reopen that issue.

This decision reinforces the importance of paying attention at every stage of the appeal process, especially with regard to appeal deadlines in complex and multi-faceted tax litigation. Points left unappealed cannot be revisited. When appealing a decision of the tax tribunals, it is important to ensure that all issues are carefully considered and taken on appeal if necessary, in order to avoid any later ambiguity arising. In complex multi-stage disputes, tax advisers need to be alert to which points have been expressly, or implicitly, decided and which issues remain to be determined. 

This decision enhances the principle of finality and certainty in tax litigation. Once an issue is decided and unchallenged on appeal, it should no longer be vulnerable to fresh attack.

You can read our commentary on the decision here.

Case 3

IHT not due on failed EBT arrangement

In Tonkin v HMRC [2025] UKFTT 750 (TC), the FTT allowed the taxpayer's appeal against a charge to inheritance tax (IHT) under section 94 (charge on participators in a close company), Inheritance Act 1984, which HMRC considered had arisen as a result of an ineffective employee benefit trust (EBT) arrangement.

This is a significant victory for the taxpayer. The decision considers fundamental issues of double taxation and the ability of HMRC to take different approaches in the context of different taxes. The decision is likely to be welcomed by the large number of taxpayers who implemented EBT arrangements and in respect of whom HMRC wish to impose an IHT liability.

You can read our commentary on the decision here.

And finally …

In collaboration with Temple Tax Chambers, our latest Tax Take webinar series explore the UK tax landscape and key considerations for professionals and business leaders seeking insights into the often-complex world of tax.

The webinars cover the following topics:

- HMRC's penalty regime

- Judicial review proceedings

- Research & Development tax reliefs

- HMRC's information powers

Recordings of the webinars can be found on Tax Take +

Mr Candy initially incurred a SDLT liability of £1.92m, arising from the substantial performance of a contracted-out lease in relation to a property known as Gordon House (a substantial house with associated buildings and a garden). This liability was declared in a land transaction return and paid. Subsequently, the contract was extinguished through novation and was not carried into effect. This occurred after the expiry of the standard 12-month period allowed for amending a return.

Mr Candy then made two alternative claims for SDLT relief. One under section 44(9), Finance Act 2003 (the section 44 claim) and another for overpayment relief under paragraph 34, Schedule 10, Finance Act 2003 (the overpayment relief claim). 

Different statutory time limits apply to each claim. A claim under section 44 must be made by amending the land transaction return within 12 months of its filing date, whereas a claim under paragraph 34 must be submitted within four years of the transaction date and must not be made by way of a land transaction return.

The section 44 claim was submitted to HMRC outside the 12-month amendment window and the overpayment relief claim was made within the four-year time limit. It was common ground between the parties that had the section 44 claim been made within time, SDLT relief would have been available to Mr Candy.

In earlier proceedings concerning the section 44 claim, the Court of Appeal had held that the claim was invalid due to it being time-barred (Christian Peter Candy v HMRC [2022] EWCA Civ 144). Following that decision, the stay which had been in place in relation to the alternative overpayment relief claim was lifted, and it was that claim which was considered by the FTT in this decision.

FTT decision 

The appeal was allowed. 

The question for determination by the FTT was whether overpayment relief under paragraph 34 was available in circumstances where SDLT would have been repayable under section 44(9), if a claim under that provision had been brought in time.

HMRC argued that the overpayment relief claim should fail because section 44(9) provides an alternative statutory remedy which prevents paragraph 34 from applying. In effect, HMRC argued that section 44 constitutes an exclusive remedy, and allowing a claim under paragraph 34 would undermine the statutory time limit imposed by section 44(9).

Mr Candy contended that paragraph 34 operates as an independent provision, intended as a 'backstop' remedy where relief is not available under any other statutory provision.

In the view of the FTT, Mr Candy was entitled to bring the overpayment relief claim and was not prevented in doing so by the operation of section 44(9). 

In reaching its conclusion, the FTT considered the legislation and the Explanatory Notes which introduced paragraph 34 as well as HMRC's Technical Note which, although not having the same weight, helped put the provision in context. 

The FTT concluded that the purpose of paragraph 34 is to provide a final statutory remedy when no other remedy exists and is a last resort or back-stop, where all other statutory relief provisions have been exhausted. The FTT noted that paragraph 34 had undergone legislative change which widened its application from covering overpayments in cases of mistake to covering, subject to certain limitations, any situation in which a person overpays or is over-assessed an amount in respect of SDLT.  In its view, section 44(9) does not prevent SDLT relief being claimed under paragraph 34, if the claimant satisfies the conditions referred to in that paragraph. The FTT considered that such an interpretation did not undermine the operation of section 44(9) because such an interpretation did not require a divergence from the natural meaning of the statutory language and was consistent with the architecture of the SDLT framework and the purpose of the legislation, as indicated in the Explanatory Notes and Technical Note. 

Comment

The FTT's interpretation of paragraph 34 will be welcomed by taxpayers who are in a similar position to Mr Candy and who are seeking to claim SDLT relief outside the 12-month amendment window.

The FTT's analysis of paragraph 34 may also have broader application to taxpayers who are seeking overpayment relief in relation to other taxes.

The decision can be viewed here.

• The Chartered Institute of Taxation (CIOT) has submitted a budget representation on repayment interest and commercial restitution for VAT, highlighting issues such as the imbalance between the rates of repayment and late payment interest.

The CIOT's representation can be viewed here.

• HMRC has updated its internal manual on VAT input tax to clarify when a late claim for input tax can be made.

The updated manual can be viewed here.

• HMRC has corrected an error in VAT cash receipts which has led to an upwards revision of VAT cash receipts by £2.4 billion (approximately 3% of year-to-date VAT receipts).

HMRC's monthly bulletin can be viewed here.

Case reports

The Prudential Assurance Company Ltd v HMRC [2025] UKSC 34

The Supreme Court considered whether a performance-based “success fee” payable by Prudential Assurance Company Ltd (Prudential) to its former group company, Silverfleet Capital (Silverfleet), was subject to VAT.

Silverfleet provided investment management services to Prudential. A success fee was payable to Silverfleet when the value of the funds exceeded a threshold fixed in a services supply contract.  When those services were supplied, both companies belonged to the same VAT group, and therefore supplies between them were disregarded for VAT purposes, under section 43, Value Added Tax Act 1994 (VATA).

Several years later, after Silverfleet left the VAT group, the success fee became payable. Silverfleet issued an invoice to Prudential for the fee plus VAT. HMRC accepted that VAT was properly chargeable, but Prudential contended that no VAT should apply because the underlying services were rendered while both parties were in the same VAT group, and therefore the supply was outside the scope of VAT.

The key issue for determination was whether VAT-grouping rules under section 43 displaced the ordinary “time of supply” rules, given that the underlying investment management services had been performed while both companies were in the same VAT group.

The Supreme Court unanimously dismissed Prudential’s appeal, holding that the “time of supply” for VAT purposes occurred when the success fee became due and was invoiced. As Silverfleet’s invoice was issued after Prudential's departure from the VAT group, the success fee was not an intra-group supply, and VAT was properly due. The Court further held that section 43 does not displace the ordinary time-of-supply rules. VAT grouping is not a “self-contained code” but operates within the broader framework of VAT law.

Why it matters:

This decision clarifies the interaction between VAT grouping and time of supply rules. Deferred or performance-linked payments may attract VAT if invoiced after a party leaves a VAT group, even where the underlying services were performed earlier. Businesses with group structures and contingent fee arrangements should review their contracts and VAT accounting practices to ensure proper treatment when group membership changes.

The judgment can be viewed here.

Isle of Wight NHS Trust v HMRC [2025] UKFTT 1114 (TC)

The Isle of Wight NHS Trust (the Trust) appealed HMRC’s decision that the supply of locum medical practitioners to the Trust did not qualify for VAT exemption under Item 5, Group 7, Schedule 9, VATA. HMRC determined that such supplies were taxable supplies of staff rather than exempt supplies of medical care.

The key issue before the First-tier Tribunal (FTT) was the correct interpretation of Item 5, which exempts “the provision of a deputy for a person registered in the register of medical practitioners.” HMRC argued for a narrow reading consistent with EU law, that the exemption applies only where medical care is directly supplied to patients. The Trust contended that the natural meaning of “provision of a deputy” was broader and covered the supply of locum doctors acting as substitutes for registered practitioners.

The FTT also considered whether certain documents, including internal HMRC policy papers and Hansard extracts, could be used to interpret Item 5. The FTT held that such materials were inadmissible, except for public explanatory documents, reaffirming that non-public internal HMRC files cannot be relied upon as an aid to statutory interpretation.

The FTT accepted the Trust’s interpretation, finding that Item 5 should be given its ordinary meaning. It held that the supply of locum doctors constituted the provision of deputies for registered medical practitioners and therefore fell within the VAT exemption. The FTT rejected HMRC’s argument that the provision should be limited to supplies of medical care in a narrow sense, noting that to do so would contradict the clear statutory wording. The appeal was therefore allowed.

Why it matters:

This decision has significant implications for NHS bodies and locum agencies. It may mean that many locum doctor supplies are VAT exempt, potentially leading to substantial VAT recovery claims. The case also reinforces that where statutory language is clear, tax tribunals will apply its ordinary meaning, and internal HMRC policy documents cannot be used to interpret legislation.

The decision can be viewed here.

Bottled Science Ltd v HMRC [2025] UKUT 00313 (TCC)

Bottled Science Ltd (Bottled Science) sought permission from the Upper Tribunal (UT) to appeal the FTT's decision that its collagen-infused drink, Skinade, was not zero-rated for VAT as food under Item 1, Group 1, Schedule 8, VATA.

The key issue determined by the FTT was the correct interpretation of the term “food” in the VAT context and whether a collagen drink qualifies as “food of a kind used for human consumption”. The FTT determined that Skinade does not fall into this category and should be treated as a standard-rated product, on the basis that it was marketed and consumed primarily for cosmetic or health purposes, rather than as food.

Bottled Science argued that the FTT had erred in law by:

1. not applying the principle that “food includes drink” under Note 1 to Group 1, Schedule 8, VATA;

2. placing too much emphasis on marketing and promotional material rather than on the product’s ingredients, nutritional content, and regulatory classification; and

3. wrongly conflating the purpose of consumption with nutritional function, applying an overly narrow test for “food”.

The UT granted permission to appeal the FTT's decision on all three grounds, concluding that the grounds raised arguable errors of law with a realistic prospect of success. The case is to proceed to a substantive appeal hearing before the UT.

Why it matters:

The case is significant for companies producing borderline food and drink products with cosmetic or health claims, as it may clarify how the VAT zero-rating rules apply to functional beverages. It also highlights that the classification of products for VAT purposes depends on the ordinary meaning of statutory language and a balanced assessment of all relevant factors, and should not be based solely on marketing or promotional material.

The decision can be viewed here.

Ms Annette Tonkin was the sole director of, and shareholder in, Resource (Marketing Research) Ltd (RMS), a market research company. In 2012, Ms Tonkin was advised to enter into a tax avoidance arrangement that was intended to enable her to receive a bonus free from income tax and national insurance contributions (NICs).

At a high level, the arrangement involved the following steps:

1. A Guernsey-resident trust was set up, with RMS as settlor and its employees as beneficiaries.
2. RMS made an initial contribution to the trust of £100.
3. RMS then borrowed £740,000 from a separate company called Havelet Finance Ltd (HFL).
4. RMS transferred the £740,000, and the trust transferred the £100, to a separate company called International Employment Services Ltd (IES).
5. IES used the money it received to buy gold which it held as nominee for Ms Tonkin.
6. IES immediately sold the gold and transferred the £740,000 to HFL and the £100 to Ms Tonkin.
7. Ms Tonkin promised to pay £740,100 to the trust within 10 years.

The purported result of this arrangement was that Ms Tonkin had repaid RMS's debt to HFL and, as such, RMS now owed Ms Tonkin £740,000. This amount was credited to her director's loan account, and she was able to draw down from it free from income tax and NICs. 

HMRC opened an enquiry into RMS's tax return and subsequently issued closure notices on the basis that the arrangement should properly be construed as the payment of earnings to Ms Tonkin in the form of gold (i.e. money's worth), such that income tax and NICs were due.

HMRC also determined that the arrangement created an IHT liability under section 94, IHTA 1984.

The effect of section 94 is that where a close company makes a transfer of value, IHT is charged as if that transfer of value was made by the participators in the close company. For these purposes, the value transferred is apportioned between the participators according to their respective rights and interests in the company. As a result of section 3A(6), IHTA 1984, this deemed transfer of value is not a potentially exempt transfer and gives rise to an immediate charge to IHT.

Ms Tonkin accepted the income tax and NICs liability but appealed the IHT determination. 

FTT's decision

The appeal was allowed.

The FTT considered two issues:

1. Whether the transfer of value was "attributable to a payment or transfer of assets to any person which falls to be taken into account in computing that person’s profits or gains or losses for the purposes of income tax or corporation tax” (section 94(2)(a), IHTA 1984). If it was, then the transfer of value would not be apportioned to Ms Tonkin.
2. Whether the recipient of the transfer of value was Ms Tonkin (as she contended) or the trust (as HMRC contended).

On the first issue, the FTT held that the term "profits or gains" should include a payment of employment income. By virtue of the transfer being deemed employment income, for the purpose of the income tax charge, it should not also give rise to an IHT charge.

With regard to the second issue, the FTT again agreed with Ms Tonkin and highlighted the inconsistency in HMRC's position, which appeared to view the transfer as a payment of earnings to an employee for income tax purposes, but as a transfer to the trust for IHT purposes.

Comment

This is a significant victory for the taxpayer. The decision considers fundamental issues of double taxation and the ability of HMRC to take different approaches in the context of different taxes. The decision is likely to be welcomed by the large number of taxpayers who implemented EBT arrangements and in respect of which HMRC wish to impose an IHT liability. 

The decision can be viewed here.

The Ingenious litigation is one of the most high value and protracted tax disputes in recent years. It centred on film investment partnerships and the availability of sideways loss relief and the tax treatment of certain film rights. The litigation encompassed appeal hearings before the FTT, the Upper Tribunal and the Court of Appeal.

In Ingenious Games LLP & Others v HMRC [2021] EWCA Civ 1180, the Court of Appeal settled many of the main issues in dispute, ruling in favour of the taxpayers on issues such as whether the LLPs were carrying on a trade and whether that trade was with a view to profit.

Following the Court of Appeal's judgment, the parties engaged in detailed negotiations in respect of the tax consequences of the ruling for Inside Track 3 LLP and Ingenious Film Partners 2 LLP (the LLPs). One outstanding question was the classification of the film rights acquired by the LLPs: were they intangible fixed assets for the purposes of Part 8 of the CTA? That classification is material for the availability of amortisation / depreciation, impairment, and related reliefs for the corporate partners.

The LLPs contended that the FTT's earlier decision had already decided that the rights were intangible fixed assets, and because HMRC did not appeal that aspect of the FTT's decision, the issue was res judicata (or at least final) and should not be reopened. HMRC argued that the FTT's earlier decision did not decide the point, and that it remained open to be argued. 

As the parties were unable to reach agreement, this discrete issue came before the FTT for determination.  

FTT's decision

The FTT concluded that its earlier decision had decided that the relevant rights were intangible fixed assets. 

In the view of the FTT, the language, structure and reasoning of its earlier decision demonstrated that classification was addressed and resolved in that appeal. As HMRC did not appeal that issue at the relevant time, HMRC was precluded from arguing it now. The failure to appeal meant HMRC could not treat the earlier decision on this issue as tentative or unfinished.

Further, the FTT concluded that interpretation of its earlier decision must rely on its textual content, it was not permissible for a party to refer to external materials such as transcripts, expert reports, or pleadings. Barring ambiguity, auxiliary material should not be used to undermine what the earlier decision said on its face. The FTT should not reopen the factual or expert evidence and arguments that were before the FTT when arriving at its earlier decision. The FTT said that what was necessary was to ascertain what was decided previously, not to re-decide it.

Comment

For HMRC and taxpayers alike, this decision reinforces the importance of paying attention at every stay of the appeal process, especially with regard to appeal deadlines in complex and multi-faceted tax litigation. Points left unappealed cannot be revisited. When appealing a decision of the tax tribunals, it is important to ensure that all issues are carefully considered and taken on appeal if necessary, in order to avoid any later ambiguity arising. In complex multi-stage disputes, tax advisers need to be alert to which points have been expressly, or implicitly, decided and which issues remain to be determined. 

This decision enhances the principle of finality and certainty in tax litigation. Once an issue is decided and unchallenged on appeal, it should no longer be vulnerable to fresh attack.

The FTT's decision can be viewed here.

Setting the table: a recipe for dispute  

For many years, HMRC accepted that alcoholic products intended exclusively for culinary use – such as cooking wines and fortified stocks – could be classified as 'foodstuffs' for the purposes of the alcohol duty exemptions under the relevant Finance Acts and EU directives, namely, Article 27(1)(f) of Council Directive 92/83/EEC of 19 October 1992 on the harmonization of the structures of excise duties on alcohol and alcoholic beverages (the Directive), which was transposed into UK law under section 4(2)(c), Finance Act 1995 (FA 1995) (repealed and now found in section 75(3), Finance (No 2) Act 2023). Specifically, under HMRC's Excise Notice 41, manufacturers could rely on Alcoholic Ingredients Relief (AIR). Under AIR, excise duty would not apply to products that met the definition of 'eligible article'. The definition of eligible article was based on the wording in section 4(2)(c), FA 1995, and included 'other foods for human consumption (excluding beverages) containing no more than 5 litres of alcohol per 100kg of the final product'. As such, excise duty charged on cooking wine (as well as spirits, beer, cider, etc) could be reclaimed.

At the start of its business in 1998, GCL liaised with HMRC to get clarity and certainty on its excise duty position and reached an agreement with HMRC which allowed it to follow a simpler approach by not having to pay excise duty on its cooking alcohol products and thereby avoided the need to have to reclaim the duty at a later date, provided the products were clearly labelled, denatured where required, and supplied for use in food production.

However, in 2017, HMRC initiated a significant policy reassessment. It   took the view that cooking wines – despite being intended solely for use in food preparation – did not automatically qualify as 'foodstuffs' and insisted that there had to be clear evidence that they had been used as an ingredient in a prepared food. In practical terms, under this interpretation, AIR could only be claimed by the person using the cooking alcohol in their food product. This marked a significant departure from HMRC's previous practice and reflected a narrow interpretation of the exemption under Article 27(1)(f) of the Directive.

On the back of this reinterpretation, HMRC raised assessments against GCL between 2019 and 2022, in the amount of £9,236,153. The basis of the assessments was that GCL had not paid excise duty on cooking alcohols that, in HMRC’s view, were not eligible for AIR or, alternatively, remained dutiable unless and until proof could be provided that they had been used in food manufacturing. HMRC argued that cooking alcohols were not 'foodstuffs' and, if they were, the exemption did not apply at the point of production or distribution, but only after the final use had been verified.

This approach created a significant administrative burden and legal uncertainty for GCL and similar food sector businesses. If HMRC's position was accepted, cooking alcohol manufacturers would have to consider either absorbing the excise duty cost or implement a new,  complex system for verifying and evidencing customer end-use. This change in position also raised broader questions about the consistency and fairness of HMRC’s policy-making, particularly when compared with long-standing interpretations of both EU and domestic law. These issues and GCL's interpretation that it was rightfully exempt from excise duty, led to it appealing the assessments to the FTT.

The main course: FTT decision and the meaning of 'foodstuff'

In the appeal before the FTT, the legal issues centred on Article 27(1)(f) of the Directive, which provides a mandatory exemption from excise duty for products 'used directly or as a constituent of semi-finished products for the production of foodstuffs provided that the alcoholic content does not exceed 5 litres per 100kg' for products other than chocolate, and the UK's version of this in section 4(2)(c), FA 1995.

HMRC argued that the exemption from excise duty under the section 4(2)(c) did not apply. In its view, cooking alcohol was not a food and the word 'foodstuffs' in Article 27(1)(f), excluded products that are liquid, and only included solid or semi-solid foodstuffs. HMRC also argued that if the cooking alcohols met the conditions for the exemption, they would only become exempt when actually used in the cooking of food.

GCL argued that the cooking alcohol products were exempt from excise duty and met the conditions in section 4(2)(c). GCL argued its products, which were rendered unfit for drinking and classified under Combined Nomenclature (CN) code 2103, were 'foodstuffs' and were exempt at the point of manufacture. In GCL's view, the word 'foodstuffs', in Article 27(1)(f), excluded beverages, but not liquid foodstuffs.

The FTT allowed GCL's appeal and quashed the assessments. The FTT found that the cooking alcohol products were 'foodstuffs' and 'food for human consumption', and that they were therefore exempt from excise duty at the time of their manufacture.

In reaching its decision, the FTT considered that the Directive did not define 'foodstuffs', nor did it refer in this respect to the national law of the Member States. In the circumstances, the term 'foodstuffs' was to be interpreted in accordance with the usual meaning of the word in everyday language, taking into account the legislative context in which it occurs and the purposes of the rules of which it is part.

In its analysis of the meaning of 'foodstuffs', the FTT considered the object and purpose of the Directive. Notably, it commented that the overall purpose of the Directive was not to combat evasion or abuse, as was suggested by HMRC, but rather to achieve harmonisation by having common definitions for all products concerned, to achieve the free movement of goods and to neutralise the impact of excise duties on alcohol used as an intermediate product in other commercial or industrial products. The FTT also considered the text of the Directive as a whole and the evidence of the legislative history of the Directive and found no support for HMRC's interpretation. Further, HMRC's interpretation was not supported by the UK's own domestic legislation and the FTT pointed out that there is no reference to 'liquids' or 'solids' in the relevant provisions of the FA 1995 while, on the other hand, there is wording in section 4(8), FA 1995, which supported GCL because it stated that 'references in this section to chocolates or food do not include references to any beverages', suggesting that the relevant exclusion was in relation to beverages. Crucially, the FTT found that GCL's interpretation of 'foodstuffs' was supported by the Directive and rejected HMRC's argument that the word 'foodstuffs' in Article 27(1)(f), excluded products that are liquid and only included solid or semi-solid foodstuffs.

In allowing the appeal, the FTT also considered the case law of the Court of Justice of the European Union (CJEU) applying Article 27(1)(f) of the Directive, the relevant UK domestic case law, and Skatteverket v Gourmet Classic Ltd (Case C‑458/06), a decision of the Swedish Supreme Administrative Court, relevant to the appeal.

In Skatteverket, the issue was whether the alcohol contained in cooking wine was to be classified as ethyl alcohol, as referred to in Article 20 of the relevant Directive (92/83). The CJEU said that the answer to the question that had been referred to it was that 'the alcohol contained in cooking wine is, if it has an alcoholic strength exceeding 1.2% by volume, to be classified as ethyl alcohol …'. While this was not directly relevant in determining the issue in GCL's appeal, the FTT considered that the case and the Advocate General's (AG) opinion provided helpful analysis. The AG recorded that the alcoholic strength of the appellant’s cooking wine in issue in that case was 4.5 litres of pure alcohol per 100 kilograms of finished product, that is to say, within the range to qualify for the exemption under Article 27(1)(f) and that the position of the Swedish tax administration was that no excise duty was to be levied on the cooking wine because it fell within the exemption in the provision of the Swedish legislation transposing Article 27(1)(f). Additionally, it was clearly recorded in the judgment itself that the 'Skatterättsnämnden came to the conclusion that although cooking wine is, in principle, subject to excise duty, since it is a foodstuff it is exempt from such duty under Article 27(1)(f) of Directive 92/83'.

Turning to the domestic case law, the FTT considered the Répertoire Culinaire Ltd v Revenue & Customs line of cases and the related preliminary reference to the CJEU. While the cases dealt with matters that were not directly relevant to GCL, they provided helpful observations. The cases illustrated HMRC's previous approach was that it accepted that cooking wines with a strength of 5% abv or less fell within the exemption in Article 27(1)(f) of the Directive. The FTT observed that the line of cases also did not assist HMRC in its interpretation because it was unlikely that the cases sought to address the situation of cooking wines with a strength of 5% abv or less, which was relevant to GCL, as these cases concerned cooking alcohols with a strength greater than 5%. Further, according to the FTT, if it were possible to infer any opinion on the issues concerning GCL, it would be that cooking wines are 'foodstuffs' for the purposes of Article 27(1)(f). The FTT also dismissed HMRC's reliance on Revenue & Customs v Asiana Ltd [2014] UKUT 489 (TCC), on the basis that it dealt with cooking wine with an alcoholic content in excess of 5 litres per 100 kilograms, which was not relevant to GCL's appeal.

The FTT held that the cooking alcohol products in issue were foodstuffs because they are not beverages - they are unsuitable for consumption as beverages – and are not intended for such consumption. Further, they contain nutrients and are used as an ingredient in the preparation of final food items, which are consumed by humans for the purpose of obtaining the nutrients in the final food item, including the nutrients in the cooking alcohol products.

HMRC has chosen not to appeal the FTT's decision. 

Sweet dessert: HMRC's policy response

In the wake of the FTT's decision, HMRC published, on 30 June 2025, a new Brief and revised Excise Notice 41. The updated guidance now explicitly recognises that cooking alcohols, provided they do not exceed 5% abv, are 'food' and qualify for exemption at the point of manufacture and import.

Excise Notice 41, concerning AIR, makes it clear that cooking alcohols fall within the definition of 'eligible article' benefitting from relief from excise duty and states that:

'Cooking alcohols are treated as food and will therefore qualify as an eligible article if their strength does not exceed 5% ABV. These alcohols are produced for use in cooking and consist of an alcoholic product to which salt, or a combination of several seasonings has been added, rendering the product unsuitable for consumption as a beverage. These products generally contain at least 5 grams of salt per litre of product and are labelled for use in cooking.'

This provides clarity and reflects the concept of foodstuffs, in the context of excise duty, which is consistent with the Directive and its intended object and purpose. In addition to cooking alcohol manufacturers, this guidance may be relevant to other businesses in the food industry that need to consider the meaning of 'foodstuffs'.   

Comment

The case highlights the importance of scrutinising, and where appropriate, challenging HMRC's interpretation of the law, especially in circumstances where HMRC has changed its position without a sound legal basis. The FTT's decision highlights the flaws with HMRC's narrow interpretation of the word foodstuffs, which excluded liquid products, and the legal uncertainty its interpretation would create for businesses in applying the Directive. A key takeaway for taxpayers is to closely analyse the relevant legislation in classification cases, including the potential application of any reliefs or exemptions. 

The decision can be viewed here.

CIS-Pay Ltd's (the Appellant) disclosure application related to HMRC's decision to deny input tax totalling £8,192,686, in relation to supplies connected with a mini-umbrella company arrangement (the VAT Issue) and a related penalty of £2,457,805, issued under section 69C, Value Added Tax Act 1994 (VATA) (the Penalty Issue). 

HMRC relied on Axel Kittel v Belgian State and Belgian State v Recolta Recyling SPRL (C-439/04 and C440/04), in which the court confirmed that where a taxable person knew, or should have known, that it was participating in a transaction connected with fraudulent evasion of VAT, that taxable person's right to deduct input tax should be refused. 

The Appellant applied to the FTT, seeking disclosure of all material within HMRC's possession that might assist the Appellant's case or undermine HMRC's case, rather than the ordinary disclosure applicable in FTT proceedings (i.e. a party is normally only required to disclose documents that it intends to rely upon in accordance with Rule 27 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009).  

FTT decision 

The application was granted.  

In determining the application, the FTT noted that it was common ground between the parties that the Penalty Issue related to a criminal charge, within the meaning of Article 6 of the European Convention on Human Rights (Article 6). Article 6 provides for the right to a fair trial, of which disclosure of evidence is an integral part. 

The FTT confirmed that Article 6 rights are fundamental rights to be enjoyed by all those who are the subject of a criminal charge and that such rights cannot be removed or diminished simply because another matter, in this case the VAT Issue, does not have Article 6 protection and is being heard concurrently. The FTT also rejected HMRC's suggestion that where there is overlap between criminal charges and other matters, Article 6 does not apply to the areas of overlap. 

With regard to the fairness between the parties, the FTT considered whether the disclosure would give the Appellant an advantage in relation to the VAT Issue. The FTT agreed with the Appellant that if there was such a collateral benefit, then so be it.  

The FTT also considered whether granting the application would cause prejudice to HMRC in other ways such as the time and expense that might be involved with the additional level of disclosure as well as whether the ordinary FTT procedure and disclosure under Rule 27 was sufficient. Overall, the FTT concluded that it would be in the interests of justice to grant the application.   

Comment 

This decision highlights the importance that the FTT attaches to protecting procedural fairness in hearings involving penalties that are considered criminal charges due to their severity and punitive nature.

The FTT recognised that although the underlying tax appeal (the VAT Issue) fell outside Article 6 protections, the Penalty Issue constituted a criminal charge engaging Article 6 rights, including disclosure obligations. It rejected HMRC's argument that Article 6 rights are limited only to penalty specific conditions and do not extend to overlapping issues with the substantive appeal.   

The decision can be viewed here.

HMRC has published Guidance on what to do if you owe money to HMRC

HMRC has published Guidance on the steps taxpayers should take if they owe tax or penalties. 

The online tool provides guidance, support, and information on:

• checking if a letter received from HMRC is genuine;
• getting extra support due to health or personal circumstances;
• making a payment;
• disagreeing with a tax decision or penalty;
• getting help with signing in to HMRC online services;
• what help is available if a taxpayer cannot pay their tax on time; and
• what will happen if a taxpayer does not pay their tax bill.

HMRC has published Guidance on reporting Pillar 2 Top-up Taxes in the UK 

HMRC has published Guidance explaining the reporting requirements for Pillar 2 Top-up Taxes in the UK (the Domestic Top-up Tax and Multinational Top-up Tax).

A group must register for Pillar 2 Top-up Taxes if it has:

• at least one entity located in the UK; and
• a consolidated group annual revenue of 750 million euros or more, in at least two of the previous four accounting periods. 

If these criteria are met, the group needs to register with the service regardless of whether any Top-up Tax is payable. 

Further practical guidance on registering to report Pillar 2 Top-up Taxes is available here. 

HMRC has published guidelines that assist in ensuring documents filed with HMRC are correct and complete

HMRC has published guidelines outlining what steps should be taken to ensure that documents submitted to HMRC are correct and complete. 

The guidelines can be found here and cover: 

• HMRC’s view on how to choose an interpretation of the law that is, on balance, most likely correct;
• the importance of all facts and views of the law being correct and complete to the best of a taxpayer's knowledge;
• recommended approaches when taking professional advice;
• help to resolve any remaining uncertainty;
• HMRC’s expectations of advisers; and
• practical examples of how to handle tax uncertainty.

HMRC has published Guidance and an online tool in respect of overpayment relief for Corporation Tax

HMRC has published Guidance and an on-line tool to assist taxpayers in deciding whether to apply for Corporation Tax overpayment relief.

The online tool enables taxpayers to ascertain if they should make a claim for Corporation Tax overpayment relief. It also outlines how to make a claim and explains reasons why a claim may not be successful. The time limit for making a claim is four years from the end of the relevant accounting period.

Case reports

Tribunal refuses HMRC permission to appeal to the Upper Tribunal against two case management decisions

In BGC Services Holdings LLP v HMRC [2025] UKFTT 700 (TC), the First-tier Tribunal (FTT) refused HMRC permission to appeal against its earlier decisions whereby it refused HMRC's application seeking further and better particulars from the taxpayer and granted the taxpayer's application that HMRC properly particularise its case.

Given HMRC's failure to provide reasons, it is surprising that HMRC sought further and better particulars from BGC and maintained this position in its application to the FTT for permission to appeal. HMRC are expected to make an application to the Upper Tribunal (UT), which was acknowledged by the FTT, for permission to appeal to the UT. It will be interesting to see whether HMRC proceed with such an application and if it does, whether it will receive a more sympathetic hearing before the UT. Given the circumstances, one would hope not.

You can read our commentary on the decision here.

Tribunal allows taxpayers’ appeals in principle private residence and trading dispute

In R Eyre and another v HMRC [2025] UKFTT 461 (TC), the FTT allowed the taxpayers' appeals against HMRC’s decision to assess income tax on the sale of a residential property. The FTT rejected HMRC’s argument that the transaction was an 'adventure in the nature of trade' and found that the property qualified for principal private residence (PPR) relief.

This decision provides useful guidance on two recurring issues in property tax cases, namely, whether a transaction amounts to trading and whether short-term occupation can attract PPR relief. The decision reinforces the principle that:

• PPR relief is available where a property is genuinely occupied as a main residence, even for a relatively short period of time; and
• the redevelopment and resale of a property, even at a substantial gain, does not necessarily imply the existence of a trade.

This case also highlights the importance of contemporaneous evidence demonstrating residential intention and use. It illustrates the challenges HMRC can face when attempting to re-characterise property transactions as income-generating trades. Taxpayers engaged in high-value property development or refurbishment should ensure that the nature of their use and intentions are well documented and consistent with their tax position.

You can read our commentary on the decision here.

Upper Tribunal allows taxpayers' appeals in EIS case

In Hugh Edward Mark Osmond and Matthew Charles Allen v HMRC [2025] UKUT 00183 (TCC), the UT allowed the taxpayers' appeals, concluding that the FTT had erred in law and that the main purpose of crystallising Enterprise Investment Scheme (EIS) relief was not the obtaining of an income tax advantage, even though this may have been its effect.

This decision has prevented HMRC from extending the scope of the Transactions in Securities regime beyond its intended purpose and reinforces the importance of examining a taxpayer's actual subjective intention - something the UT noted aligns with how practitioners have long understood the rules to operate.

The decision also serves as a reminder that taxpayers should clearly document their commercial intentions at the time the relevant transaction is entered into. It will be interesting to see if HMRC seek to appeal this decision to the Court of Appeal. 

You can read our commentary on the decision here.

And finally …

In collaboration with Temple Tax Chambers, our latest Tax Take webinar series explores the UK tax landscape and key considerations for professionals and business leaders seeking insights into the often-complex world of tax.

Through a series of webinars hosted by tax experts from RPC and Temple Tax Chambers, we will be exploring the following topics:

Research & Development tax reliefs | Thursday, 2 October, 1200–1300
Hosted by: Stephen Morse, Barrister at Temple Tax Chambers and Alexis Armitage, Senior Associate at RPC

HMRC's information powers | Wednesday, 5 November, 1200–1300
Hosted by: Keith Gordon, Barrister at Temple Tax Chambers and Daniel Williams, Associate at RPC

Register here

Roger Joye and David Sumners filed self assessment tax returns (SATRs) for tax years 2016/17 and 2017/18, respectively, each claiming TSR, which applies when an individual realises the benefit of a life assurance policy. It recognises that the accumulated growth of the policy has taken place over several years and it would be unfair to tax the whole gain in one year because it may push the individual into the higher rate or additional rate tax bands for that year. The amount of TSR is broadly the difference between the tax payable on the full gain and the grossed-up tax payable on annualised 'slices' of the gain.

Mr Joye and Mr Sumners had used HMRC's tax calculator program to calculate the available TSR, but subsequently realised that the calculations were incorrect. They made overpayment relief claims in the amounts of £55,201.63, for Mr Joyce, and £40,758, for Mr Sumners.

HMRC opened enquiries into the overpayment relief claims and subsequently issued closure notices to Mr Joyce and Mr Sumners, denying entitlement to the increased relief. The closure notices were appealed to the FTT.

FTT's decision

The appeals were allowed.

HMRC accepted that its tax calculator program was incorrect. In fact, it had been determined by the FTT in Marina Silver v HMRC [2019] UKFTT 0263 (TC), that HMRC's calculations were not in accordance with the legislation due to the use of a shortcut which, in some instances, did not take into account the taxpayer's personal allowance. Rather than apply the personal allowance to each annualised slice of the gain, HMRC's calculator assumed that, if the taxpayer's income in the year the gain was realised meant the personal allowance was reduced or removed, that should follow for every year the TSR applied.

HMRC sought to argue that, even if its calculation methodology was incorrect, it was the "practice generally prevailing" (PGP) at the time the taxpayers' SATRs were filed and therefore HMRC was not liable to give effect to the overpayment relief claims. The FTT confirmed that, as HMRC was seeking to rely on a PGP argument, the burden of proof was on it to establish that a PGP existed.

In HMRC v Household Estate Agents Ltd [2007] EWHC 1684 (CH), Henderson J summarised PGP as a practice that is: "relatively long-established, readily ascertainable by interested parties, and accepted by HMRC and taxpayers' advisers alike".

Mr Joyce and Mr Sumners were able to provide a significant amount of evidence which showed that HMRC's methodology was not accepted by taxpayers' advisers and the FTT therefore rejected HMRC's PGP argument.

Comment

This decision provides helpful guidance as to how the FTT is likely to approach the concept of PGP, a concept which is referred to in several places in the tax legislation. 

The taxpayers were successful on this occasion because they were able to provide the FTT with both publicly available articles criticising HMRC's practice, and contemporary correspondence, to demonstrate that this criticism was widespread among professional advisers.

The decision can be viewed here.

Hugh Edward Mark Osmond and Matthew Charles Allen (the Appellants) were entrepreneurs who had made various investments over a number of years. In particular, they had subscribed for shares in  Xercise Ltd (XL), in 1996 and 1998 under the EIS (which enables investors to sell their EIS shares free of Capital Gains Tax (CGT) provided certain conditions are met, including that the shares have been held for at least three years).

The business of XL was unsuccessful and was sold in 2002, but XL itself was retained by the Appellants because the shares they held in the company qualified for EIS relief. The company was then subsequently used to invest in another business, the Pearl Life Assurance and Pension Group. All of these transactions were carefully structured because the Appellants wanted to retain the CGT relief that attached to their shares in XL. The Pearl business was successful and  by the mid-2010s, the Appellants were holding CGT-exempt shares that had increased substantially in value.

The Appellants became concerned that the benefit of EIS relief might be removed and they would not then be able to obtain relief on their gains. Accordingly, in order to crystallise their gains, the Appellants entered into a share buyback transaction, for consideration no greater than a return of capital, in order to crystallise the EIS disposal relief on their shares. As a result, no income tax was payable, and no CGT was payable owing to the EIS disposal relief. The disposals were included on their 2014/15 tax returns, and EIS disposal relief claimed.

HMRC opened enquiries into the Appellants' tax returns in January 2017 and closed them without amendment in September 2017.

On 31 March 2021, HMRC issued counteraction notices and assessments under the Transactions in Securities (TiS) legislation, contained in Income Tax Act 2007 (ITA 2007).

The Appellants appealed to the FTT. 

FTT's decision

The appeals were dismissed

Central to the case was the determination that one of the main purposes of the Appellants being party to TiS, was to obtain an income tax advantage. The reasoning of the FTT was surprising to most observers, as it applied the main purpose test in a way that effectively ignored the subjective intentions of the parties. 

The FTT concluded that although the transaction was not driven by a desire to avoid income tax, the primary purpose was to crystallise the EIS relief, which, under the legislation, amounted to a main purpose of obtaining an income tax advantage. Therefore, the TiS provisions applied, and the amounts received were taxable as income.

In light of these findings, the FTT dismissed the Appellants' appeals, upholding HMRC’s position that the TiS legislation applied and that the amounts received should be taxed as income rather than exempt capital gains. The Appellants appealed to the UT. 

The FTT's decision can be viewed here. 

UT's decision 

The appeal was allowed.

The unallowable purpose element of the FTT's decision was the only point for determination before the UT.

In the view of the UT, the FTT had erred in law by treating the Appellants' intention to crystallise EIS relief as equivalent to having a main purpose of obtaining an income tax advantage under the TiS rules.

The UT confirmed that there is a critical legal distinction between a purpose and an effect. While the share buyback in question clearly resulted in an income tax advantage (as the gain was exempt from CGT), this did not mean that securing that advantage was a main purpose of the transaction. The UT relied on the principles established by the Court of Appeal in BlackRock HoldCo 5 v HMRC [2024] STC 740, which explicitly recognised that purpose should be distinguished from effect, emphasising that even when a tax outcome is inevitable, it does not follow that it was deliberately sought. In the instant case, the Appellants' aim was to "bank" the CGT relief available under EIS, not to extract profits in a tax-efficient way.

Importantly, the UT rejected HMRC’s argument that the TiS rules should treat any CGT exemption as a proxy for an income tax motive. The UT highlighted that section 687, ITA 2007, does not create a deeming provision that would automatically treat a capital-focused transaction as one with an income tax avoidance purpose. The UT noted that HMRC’s own consultation documents during the 2010 legislative changes, suggested that the TiS rules were not intended to apply where only capital gains reliefs were involved.

The UT also agreed with the FTT that the Appellants were motivated solely by a desire to crystallise EIS relief before any potential legislative changes. The UT agreed that the evidence pointed to a capital motive, not an income extraction strategy.

In conclusion, the UT found that the TiS rules did not apply because the Appellants’ main purpose was to secure a CGT relief, not to obtain an income tax advantage. 

Comment

This decision has prevented HMRC from extending the scope of the TiS regime beyond its intended purpose and reinforces the importance of examining a taxpayer's actual subjective intention - something the UT noted aligns with how practitioners have long understood the rules to operate.

The decision also serves as a reminder that taxpayers should clearly document their commercial intentions at the time the relevant transaction is entered into.

It will be interesting to see if HMRC seek to appeal this decision to the Court of Appeal. 

The UT's decision can be viewed here.

• Chancellor, Rachel Reeves, has confirmed she will present her Autumn Budget on 26 November 2025. Labour pledged in their manifesto not to increase VAT for 'working people' but there has been some speculation around imposing higher rates of VAT for luxury goods or adjusting the VAT threshold.
  
  The Chancellor's press release can be viewed here.

• HMRC has updated VAT Notice 700/45, which explains how to correct VAT errors and make adjustments or claims.
  
  The updated Notice can be viewed here.

• HMRC has published new guidelines aimed at helping taxpayers ensure that the documents and returns they submit are correct and complete. The guidelines also explain what taxpayers should do if they are uncertain about their tax affairs or are considering novel interpretations of the law.
  
  HMRC's guidelines can be viewed here.

Case reports

Motorplus Ltd v HMRC [2025] UKFTT 931 (TC)

Motorplus Ltd (Motorplus) submitted an error correction notice to HMRC to recover input VAT on payments made to two of its suppliers. The suppliers believed their supplies to be VAT exempt and so did not charge VAT separately or provide Motorplus with a VAT invoice. Motorplus argued that the supplies were properly subject to VAT and so the price paid should be deemed to include VAT.

HMRC rejected the error correction notice on the basis that "at the time the supplies took place, both the supplier and the customer accepted that the supplies were exempt from VAT". HMRC relied on the Supreme Court's decision in Zipfit v HMRC [2022] UKSC 12, in which HMRC's refusal to allow a deduction for VAT was upheld, even though the supplies in question were subsequently found to be standard rated, because both parties believed they were exempt at the time of supply.

Motorplus appealed to the First-tier Tribunal (FTT). HMRC applied for the appeal to be struck out on the basis that it had no prospect of success.

The FTT noted that, contrary to the statement in HMRC's decision, both parties did not agree that the supplies were VAT exempt. Motorplus had always been of the opinion that the supplies were standard rated. The FTT dismissed HMRC's strike out application and held that Motorplus had a reasonable prospect of success. The key issue which remains to be determined at the substantive hearing, is whether the supplies were in fact exempt, and whether an amount equal to VAT formed part of the purchase price.

The decision can be viewed here.

Why it matters:

This case emphasises the importance of analysing HMRC's reasoning as well as its conclusion. The FTT criticised HMRC for not taking the time to consider whether the supplies were exempt, and proceeding to make their decision (and apply for the appeal to be struck out) solely on the mistaken basis that both parties agreed the supply was exempt at the time it was made.

Airline Placement Ltd v HMRC [2025] UKFTT 00894 (TC)

Airline Placement Ltd (APL) sponsored, i.e. paid for, training for trainee pilots and placed them with commercial airlines on qualification. The commercial airlines (British Airways, Virgin, and EasyJet) paid APL a placement fee equal to the cost of that training and accounted for VAT.

Separately, trainee pilots were asked to provide APL with a 'bond' also equal to the cost of the training. Upon placement, APL would pass the bond on to the commercial airline and the newly qualified pilot would agree to a salary sacrifice, over several years, equal to the amount of the bond.

HMRC argued that, when viewing the contractual position as a whole, it was the trainee pilot who actually paid for the training and therefore the payment of the bond to APL should be viewed as consideration for the supply of training, and subject to VAT. APL argued that the consideration for the training was the placement fee, and the purpose of the bond was simply to ensure trainees remained committed to the airline.

The FTT rejected APL's arguments and dismissed its appeal, highlighting the continuity between the trainee pilot's payments and the training received. However, the FTT did allow the appeal in part, recognising that HMRC had previously agreed the VAT liability should exclude services provided outside the UK.

The decision can be viewed here.

Why it matters:

This case clarifies the VAT treatment of training schemes involving multiple parties and complex payment structures. The case highlights the importance of properly identifying the recipient of the training and the consideration for that training. The FTT held that the trainee pilots, rather than the airlines, were ultimately the ones financing the training, and thus, the bond payment was considered part of the consideration for the training services and subject to VAT.

Colchester Institute Corporation v HMRC [2025] UKFTT 1017 (TC)

Colchester Institute Corporation (CIC) provides vocational further educational courses to students. The courses are provided free of charge and are partially funded by government grants.

In 2008, CIC embarked on a major building project. It initially recovered VAT on costs incurred on the building project and accounted for output VAT pursuant to the rule in Lennartz. That rule allows a taxpayer to deduct input tax up front and then account for deemed output tax on the provision of education and vocational services, which were thought to be non-business supplies and attract a tax charge.

CIC subsequently concluded that the grants received from the government should properly be construed as consideration for an exempt supply, on the basis it related to further education, with the result being that output tax was not due.

CIC applied to HMRC for the overdeclared output VAT to be repaid but HMRC rejected the claim on the basis that education and vocational training was a non-business activity when government-funded. CIC appealed to the FTT.

The FTT agreed with HMRC's interpretation and dismissed CIC's appeal.

CIC appealed to the Upper Tribunal (UT), who overturned the FTT's decision and allowed CIC's appeal. In its view, the government grants were consideration for an exempt supply.

The decision can be viewed here.

Why it matters:

There are several other sets of proceedings before the tax tribunals which deal with materially the same facts and issues. HMRC has reserved its arguments on the key issues for the Court of Appeal hearing set to take place in June 2026 (the Court of Appeal case concerns CIC but is a separate appeal concerning different tax years).  

The underlying legal issue in this litigation will have a significant impact on the education sector and organisations which receive government agency grants.

Who can use the voluntary repayment scheme?

The scheme can be used by anyone who received financial support during the pandemic, including through the Coronavirus Job Retention Scheme, Bounce Back Loan Scheme, Self-Employment Income Support Scheme, Coronavirus Business Interruption Loan Scheme or sector-specific funding. It is particularly relevant for individuals or businesses that may have misunderstood the eligibility criteria at the time, or who now believe that some of the support was wrongly claimed or retained. Company directors should also take note, especially where support was accessed on behalf of their business.

Why this matters 

This window offers a critical opportunity to proactively manage and reduce risk. Failure to act before the December 2025 deadline could result in serious consequences. From 2026 onwards, HMRC and other government bodies are expected to intensify scrutiny and enforcement efforts across all COVID-related support schemes.

Those businesses and individuals found to have made improper claims may face civil or criminal investigations, recovery actions, director disqualification and potential personal liability for directors. Beyond the legal implications, there is also a significant risk of reputational harm, particularly if enforcement actions become public.

What you should do now

• Review all COVID-related support received - consider the full range of schemes accessed by your business or personally.
• Revisit the eligibility criteria - assess whether claims were validly made at the time based on the original criteria.
• Quantify any potential exposure – calculate how much might need to be repaid, and what the cost of inaction could be.
• Seek early legal and tax advice - if you are unsure, professional input can help frame your options and prepare your position.
• Prepare for disclosure - if repayment is appropriate, ensure full disclosure is made and the process is handled correctly and documented clearly.

How we can help

This window is likely to be the final opportunity to come forward on your own terms, without sanction. In our experience, early action and voluntary engagement tend to result in significantly better outcomes, both financially and reputationally.

If you are concerned about any COVID-related claims made by you or your business, please get in touch with our team.

We can assist by reviewing the eligibility of claims made under COVID support schemes to help determine whether they were appropriate based on the original criteria. If repayment is necessary, we can prepare and submit voluntary disclosures on your behalf and manage all communications with the relevant authorities to ensure the process is handled correctly and efficiently. If you are already facing investigation or enforcement action, we can advise and represent you throughout the process.  

HMRC wrote to BGC Services Holdings LLP (BGC) in July 2016, setting out the effects of the provisions introduced by Finance Act 2014, relating to salaried members of limited liability partnerships, known as the Salaried Member Rules (SMR), and requesting details of the work undertaken to determine the application of SMR to its members. BGC co-operated with HMRC, responding to many questions and providing over 1,000 pages of documentary evidence.  

In March 2024, HMRC issued determinations to BGC totalling some £96 million for the tax years 2017/18 to 2019/20, inclusive, without any reasons being provided in the determinations themselves or covering correspondence (the Determinations). The Determinations were based on the application of the SMR. BGC appealed the Determinations to the FTT. 

HMRC made an application to the FTT for BGC to provide further and better particulars of its grounds of appeal which the FTT refused on 5 March 2025 (the First Decision). The FTT concluded that HMRC was required to provide reasons for its decisions, as a matter of public law, and it was not sufficient for HMRC to simply argue that once it had made an assessment, the burden rests on the appellant taxpayer. The FTT referred to Rule 25 of the Tribunal Procedure (First-tier Tribunal) (Tax Chambers) Rules 2009 (the Tribunal Rules), which requires HMRC to provide a Statement of Case (SoC), and confirmed that it was for HMRC to set out its position in compliance with Rule 25(2)(b). 

After HMRC issued its SoC, BGC made an application to the FTT for HMRC to properly particularise its SoC, which the FTT granted on 17 April 2025 (the Second Decision). The FTT concluded that HMRC had failed to set out key parts of its legal and factual case in its SoC and further particularisation was therefore necessary.  

HMRC made an application to the FTT for permission to appeal against both the First Decision and the Second Decision. 

FTT decision 

The application for permission to appeal was refused.  

In refusing HMRC's application, the FTT said that it was satisfied that both the First Decision and the Second Decision did not contain any errors of law and, significantly, none of HMRC's grounds of appeal had a reasonable prospect of success. 

The FTT said that it was clear that, neither BGC, nor the FTT could move forward to a hearing until HMRC explained the basis on which it had decided that BGC was liable to pay £96 million. 

Comment 

Given HMRC's failure to provide reasons in the Determinations themselves or the covering correspondence, it is surprising that HMRC sought further and better particulars from BGC and maintained this position in its application to the FTT for permission to appeal.

HMRC are expected to make an application to the Upper Tribunal, which was acknowledged by the FTT, for permission to appeal to the Upper Tribunal. It will be interesting to see whether HMRC proceed with such an application and if it does, whether it will receive a more sympathetic hearing before the Upper Tribunal. Given the circumstances, one would hope not.

The decision can be viewed here.

In September 2010, Mr Raymond Charles Eyre and his wife, Mrs Diana Eyre, purchased a property on Burnsall Street, Chelsea, for £9.75 million. The existing building was demolished and replaced with a new residential dwelling, which was completed in July 2013. Mr and Mrs Eyre moved into the property that month and sold it, in February 2014, for £27.15 million.

Mr and Mrs Eyre claimed full PPR relief on the basis that Burnsall Street was their only or main residence during their period of ownership. HMRC issued income tax assessments totalling over £3 million, contending that:

1. the purchase, redevelopment, and sale of the property constituted an adventure in the nature of trade; or
2. alternatively, the property did not qualify for PPR relief as it was never genuinely occupied as a main residence.

Mr and Mrs Eyre appealed the assessments to the FTT.

FTT’s decision

Their appeals were allowed.

Adventure in the nature of trade

With regard to HMRC's first argument, the FTT concluded that the Mr and Mrs Eyre were not engaged in a trading activity. Applying the well-established 'badges of trade' principles set out in Marson v Morton [1986] STC 463, the FTT was satisfied that the property was acquired and redeveloped with the intention of creating a family home, not for resale at a profit. In reaching this conclusion, the FTT noted that:

• there was no pattern of similar transactions which would indicate an on-going trade or business;
• the property transaction was unrelated to the appellants' business of aircraft leasing;
• the financing of the property involved considerable use of personal funds; although it did involve an element of borrowed money, such was common with the majority of property transactions, so this provided no weight to the argument that it indicated the purchase was an 'adventure in the nature of trade';
• the length of ownership and time and energy spent on redevelopment and personalisation of the house was consistent with long-term residential use.

PPR relief

Having weighed up all of the evidence before it, the FTT concluded that Mr and Mrs Eyre occupied Burnsall Street as their main residence from July 2013 until its sale in February 2014, having been able to evidence a "degree of permanence and continuity sufficient to turn mere occupation to residence". Although the period of occupation was relatively short, the FTT accepted the appellants' evidence that they had intended to reside in the property permanently, and that their occupation was both genuine and substantial.

In rejecting HMRC’s challenge to PPR relief, the FTT was persuaded by evidence of domestic living arrangements, including the presence of personal possessions, family use of the property, and integration into local life, as well as evidence that a previous residence owned by Mr and Mrs Eyre was on the market for sale. 

Notably, HMRC did not rely on section 224(3), Taxation of Chargeable Gains Act 1992, which allows it to deny tax relief in circumstances where a property is purchased in order to realise a gain. 

Comment

This decision provides useful guidance on two recurring issues in property tax cases, namely, whether a transaction amounts to trading and whether short-term occupation can attract PPR relief.

The decision reinforces the principle that:

• PPR relief is available where a property is genuinely occupied as a main residence, even for a relatively short period of time; and
• the redevelopment and resale of a property, even at a substantial gain, does not necessarily imply the existence of a trade.

This case also highlights the importance of contemporaneous evidence demonstrating residential intention and use. It illustrates the challenges HMRC can face when attempting to re-characterise property transactions as income-generating trades.

Taxpayers engaged in high-value property development or refurbishment should ensure that the nature of their use and intentions are well documented and consistent with their tax position.

The decision can be viewed here. 

OECD provides further guidance on the application of the crypto-asset reporting framework

The OECD has published updated FAQ documents to provide clarity on the application of the crypto-asset reporting framework and amended Common Reporting Standard. The FAQ documents can be viewed here and here.

The implementing legislation (Reporting Cryptoasset Service Providers (Due Diligence and Reporting Requirements) Regulations 2025 (SI 2025/744)) comes into force on 1 January 2026, at which point reporting crypto-asset service providers will be required to collect certain information from customers and pass this on to HMRC for exchange with other implementing jurisdictions.

HMRC updates mini-umbrella fraud guidance

HMRC has updated its mini-umbrella company fraud guidance to reference the Upper Tribunal's decision in Elphysic Limited & Ors v HMRC [2025] UKUT 236 (TCC).

In Elphysic, the Upper Tribunal held that the Ablessio principle, which allows HMRC to deregister a company from VAT where that company has used its VAT registration number for fraudulent purposes, applies even in circumstances where the directors of the company were not aware of the fraud.

HMRC publishes new manual on multi-national and domestic top-up taxes

HMRC has updated its internal manual on the Multi-national Top-up Tax (MTT) and Domestic Top-Up Tax (DTT). MTT is the UK's implementation of the income inclusion rule and undertaxed profits rule. These are widely known as the GloBE rules, as set out in the OECD's Pillar Two Model Rules. DTT is the UK's implementation of a qualifying domestic minimum top-up tax, which applies the Pillar Two rules to UK entities.

The new manual is based on previously published draft guidance and responses to consultations on those drafts.

HMRC publishes response to its call for evidence on how offshore anti-avoidance legislation could be improved

HMRC has published a summary of responses it has received to its call for evidence on the operation of personal tax offshore anti-avoidance legislation. Respondents agreed that the existing 'patchwork' of rules was no longer reflective of the modern world and created uncertainty for taxpayers and HMRC alike. Areas for alignment and simplification were highlighted, particularly in relation to avoiding double taxation and resolving inconsistencies surrounding the treatment of income and capital losses.

Case reports

Tribunal allows trustee's appeal in inheritance tax case

In Accuro Trust (Switzerland) SA v HMRC [2025] UKFTT 464 (TC), the First-tier Tribunal (FTT) held that when a non-UK domiciled individual added assets to an offshore trust and later became UK-domiciled, assets deposited after becoming UK domiciled remained 'excluded property', for the purposes of inheritance tax.

Although the law was changed in July 2020 (by Finance Act 2019 amending section 48(3), Inheritance Tax Act 1984), to provide that the excluded property test is the domicile of the settlor at the time the property became comprised in the settlement, this decision provides some clarity for trustees considering pre-July 2020 cases. It is surprising that HMRC chose to fight this case and it will be interesting to see if HMRC seek permission to appeal the FTT's decision to the Upper Tribunal. 

You can read our commentary on the decision here.

Tribunal allows taxpayer's R&D appeal

In Realbuzz Group Ltd v HMRC [2025] UKFTT 493 (TC), the FTT allowed the taxpayer's research and development (R&D) appeal confirming that HMRC could not issue a discovery assessment because the information provided by the taxpayer to HMRC before the enquiry window closed was sufficient to enable a hypothetical HMRC officer to realise that tax had been under assessed.

This case reinforces the importance of proper disclosure by taxpayers to HMRC. Where sufficient information has been provided within the enquiry window to alert a hypothetical officer to a potential tax loss, HMRC cannot rely on its discovery powers contained in paragraph 41, Schedule 18, Finance Act 1998, as a fallback. This decision also highlights the value of well-structured R&D reports that demonstrate engagement with the R&D qualifying criteria.

You can read our commentary on the decision here.

And finally …

In collaboration with Temple Tax Chambers, our latest Tax Take webinar series explores the UK tax landscape and key considerations for professionals and business leaders seeking insights into the often-complex world of tax.

Through a series of webinars hosted by tax experts from RPC and Temple Tax Chambers, we will be exploring the following topics:

• Research & Development tax reliefs | Thursday, 2 October, 1200–1300
Hosted by: Stephen Morse, Barrister at Temple Tax Chambers and Alexis Armitage, Senior Associate at RPC

• HMRC's information powers | Wednesday, 5 November, 1200–1300
Hosted by: Keith Gordon, Barrister at Temple Tax Chambers and Daniel Williams, Associate at RPC

Register here.

Care homes should be particularly wary of the issues raised in HMRC's Spotlight 70. It is clear that HMRC is actively targeting VAT group structures designed to convert VAT exempt welfare services into taxable supplies in order to reclaim input VAT - especially on high-cost items like catering or property. These arrangements typically involve shifting contracts to an unregulated entity within a VAT group, which then subcontracts the welfare services back to the regulated provider.

While this may appear to unlock VAT recovery, HMRC considers such an arrangement to constitute tax avoidance and is using its powers to refuse or dismantle such arrangements. Care providers engaging in or considering these arrangements risk VAT assessments and financial penalties and as well as reputational damage and future restrictions on VAT group participation.

Key VAT considerations

1. Exempt supplies: care services provided in registered care homes are typically VAT exempt under Schedule 9, Group 7 of the Value Added Tax Act 1994. While this benefits residents, it restricts the ability to recover input VAT on related purchases and services.
   
   
2. Partial exemption complexity: care homes often engage in some taxable activities (eg letting rooms to staff, catering for visitors, or providing hairdressing services). This results in partial exemption status, requiring detailed input VAT apportionment and regular calculations to ensure compliance.
   
   
3. Capital expenditure: construction and refurbishment projects are major VAT risk areas. New builds may be zero-rated if they qualify as dwellings, but most care home facilities do not meet the required tests. Irrecoverable VAT on construction or fit-out costs can be significant without careful planning.
   
   
4. Third-party services: outsourcing functions such as catering, housekeeping, or agency staffing can lead to additional VAT costs, especially when the care home cannot recover input VAT on these standard-rated services.
   
   
5. Incorrect VAT treatment: misclassifying income or failing to recognise mixed supplies can result in VAT liabilities, penalties, or lost recovery opportunities. Examples include charging VAT on exempt care fees or failing to apply VAT where required on ancillary services.

Top tips for managing VAT in care homes

• Plan early for capital projects: engage VAT specialists during the design and procurement phase of building works to assess potential zero-rating and avoid costly errors.

• Review all income streams: assess whether any services are taxable (eg beauty treatments and staff accommodation) and ensure correct VAT treatment.

• Maintain robust records: good documentation supports input VAT recovery and protects against HMRC challenges, especially under partial exemption rules.

• Conduct partial exemption reviews: monitor and adjust apportionment methods annually to maximise VAT recovery and comply with HMRC requirements.

• Train staff on VAT basics: ensure finance and operational teams understand the VAT implications of the services provided and purchased.

How we can help

Effective VAT management in the care home sector requires a proactive and informed approach. Seeking specialist advice where needed can reduce costs, enhance compliance, and safeguard the financial health of your organisation.

Whether you are facing a routine query or require assistance with a complex dispute, we have extensive experience of managing and resolving compliance issues and can provide the strategic support you need. Our team consists of experienced experts, some of whom have worked for HMRC, who can assist you to achieve a swift and effective outcome.

If you would like to discuss anything, please contact Michelle Sloane or Jasprit Singh. 

• HMRC has updated its list of VAT appeals which it has lost or partly lost which could have implications for other businesses. This includes four new additions in the latest update. 

HMRC's list can be viewed here. 

• HMRC interest rates for late payments has been revised following the Bank of England's recent interest rate cut to 4%.

HMRC's update can be viewed here. 

• HMRC has updated its guidance on reclaiming a repayment of import duty that has been repaid. HMRC has clarified that individuals will need an EORI number from the importer or their agent when completing the C285 online form to do this.

HMRC's guidance can be viewed here.

Case reports

United Carpets (Franchisor) Ltd v HMRC [2025] UKFTT 895 (TC)

The First‑tier Tribunal (FTT) considered whether United Carpets (Franchisor) Ltd's (UC) arrangements constituted a single composite supply of flooring and fitting services, or two separate supplies of goods (flooring) by UC, and services (fitting) by independent fitters.

In allowing UC's appeal, the FTT considered the economic realities, contractual documents, and legal relationships and concluded that there were three distinct agreements: one between UC and the customer, one between UC and the fitters, and one between the fitters and the customer. The independent fitters retained full control over their tools, charges, scheduling, and liability, and customers paid them directly. On this basis, the FTT concluded that there were separate supplies, not a single composite supply.

UC also raised a public law argument, claiming it had a legitimate expectation that HMRC would not pursue retrospective VAT assessments, based on communications it had had with HMRC during HMRC's enquiry. In the view of the FTT, any indication from HMRC was qualified, and merely indicated that HMRC would take no further action at that time, which was not sufficiently clear or unambiguous to give rise to a legitimate expectation. As a result, the FTT allowed the appeal on the supply issue and declined to quash the assessments on legitimate expectation grounds.

The decision can be viewed here.

Why it matters:

This case reemphasises the importance of undertaking a proper analysis of the factual position when conducting litigation. HMRC seemingly failed to do this in this instance and disregarded the economic reality and as a consequence UC's appeal was successful.

Elphysic Ltd & Ors v HMRC [2025] UKUT 236 (TCC)

This appeal concerned “mini‑umbrella companies” (MUCs). HMRC deregistered the appellants from VAT and denied their use of the VAT Flat Rate Scheme (FRS) and Employment Allowance (EA), having concluded that VAT numbers were being used for fraudulent purposes in a contrived structure.

The FTT dismissed the appellants' appeal finding that they were liable to be deregistered and were not entitled to use the FRS or EA. However, the FTT concluded that HMRC could not de-register any of the appellants, in reliance on C-527/11 Valsts ienemumu dienests v Ablessio SIA (the Ablessio principle allows HMRC to deregister a company from VAT where that company has been using its VAT registration number for fraudulent purposes), unless it could be shown that the directors of the appellants knew that they were facilitating (or enabling) the fraud of another.

The appellants' appealed to the Upper Tribunal (UT) and HMRC cross-appealed in relation to the Ablessio principle.

The UT dismissed the appellants' appeal and allowed HMRC's cross-appeal. The UT said that a determination by HMRC that a VAT number will be used fraudulently can be made on the basis of the evidence, regardless of "whether or not any given person could be said to be fraudulent and whether or not any knowledge or act or omission of a particular person […] could be attributed to a MUC". The UT upheld HMRC’s VAT de-registrations and denial of FRS and EA eligibility.

The decision can be viewed here.

Why it matters:

This decision highlights the ways HMRC can challenge abusive VAT schemes, affirming that structural design and objective evidence suffice in establishing fraud, and defines the scope for deregistration and denial of tax relief without needing to prove personal blame.

The new changes being introduced from April 2026 (as outlined in the Draft Finance Bill 2026), will mean that recruitment agencies will be responsible for ensuring that the correct tax is paid on workers' wages when using umbrella companies.

H Ripley & Co Ltd v HMRC [2025] UKUT 210 (TCC)

H Ripley & Co Ltd (HR) exported scrap metal to a VAT registered buyer in Belgium in 2016, claiming zero‑rating under VAT Notice 725, on the basis that the goods were removed from the UK. HMRC challenged these claims in 2017, on the basis that HR had not provided sufficient evidence of removal within the strict three‑month timeframe set out in VAT Notice 725. HR presented a range of documents including sale invoices, bank statements, weighbridge tickets, CMR consignment notes, AnnexVII forms, ferry boarding passes, emails, and WhatsApp messages.

HR appealed to the FTT.

The FTT dismissed HR's appeal. It was of the view that the evidence provided by HR to HMRC was deficient, particularly as key documents were incomplete, contained inaccuracies, or were obtained after the statutory period.

HR appealed to the UT.

The UT dismissed HR's appeal and upheld the FTT’s findings, emphasising that there were significant gaps in the documents that did not support that the goods were exported and HR had failed to provide valid proof within three months of supply, as required under VAT Notice 725. The UT concluded that the imported documents failed to meet the evidential threshold as the ferry boarding cards were produced too late and could not be matched to specific shipments and the CMRs and Annex VII forms were deficient. HR therefore failed to satisfy the conditions for zero-rating and HMRC’s assessments were upheld.

The decision can be viewed here.

Why it matters:

This case reinforces the strict evidential and timing requirements under VAT Notice 725 and underscores the necessity for contemporaneous, complete documentation to support zero‑rated exports.

UK Government announces new trade strategy to protect and boost British business

The UK Government has launched its first post-Brexit Trade Strategy, aimed at strengthening the UK’s global trade presence and supporting British exporters. The strategy sets out a goal to make the UK the “most connected trading nation in the world,” through a combination of market access initiatives, export support, and defensive trade measures.

The strategy acknowledges that free trade agreements are not the only means of boosting international trade. Key features include the creation of a new "Ricardo Fund" to remove regulatory barriers and shape global standards, and a £20bn expansion of UK Export Finance, alongside a new Small Export Builder scheme targeted at SMEs. The UK will also strengthen its trade defence tools to protect domestic industries from unfair practices and invest in services exports.

The strategy commits to supporting green growth through clean energy trade partnerships and confirms the UK’s participation in the Multi-Party Interim Appeal Arbitration Arrangement as an alternative to the WTO’s stalled appellate body.

You can view the official press release here.

Department for Business and Trade announce Improved Trade Rules

On 15 July 2025, the Department for Business and Trade introduced reforms to the UK Internal Market Act, aimed at smoothing trade across England, Scotland, Wales, and Northern Ireland. These changes reflect business feedback and are part of the government’s Plan for Change, designed to stimulate investment, job creation, and economic growth.

Key measures

• Greater clarity and consistency: trade rules between the nations will become more transparent and streamlined, reducing risk of friction and unexpected costs.

• Enhanced devolved flexibility: devolved administrations can now set locally tailored rules, provided these respect the integrity of the internal market.

• Simplified process for low-impact rules: proposed regulatory exclusions with limited economic effect can be approved via a faster, streamlined mechanism.

• Improved collaboration: the reforms foster better coordination between UK and devolved governments, particularly in areas like chemicals and pesticides.

You can view the full press release here.

HMRC releases overseas trade statistics for May 2025

Data published by HMRC for May 2025 shows £30.4bn total exports of goods, down £1.8bn or 5% from same time last year. The number of total goods imports for the month stand at £57.4bn, up 14% from May 2024. The statistics also include a breakdown of data across the UK's trade in goods at both country and product level, covering over 9,000 commodities and 200 partner countries.

The full report can be found here.

Case reports

DHL Air (UK) Ltd v Revenue and Customs Commissioners [2025] UKUT 176 (TCC)

DHL Air (UK) Ltd (DHL) was unsuccessful in its appeal to the Upper Tribunal against a part of the First-tier Tribunal's (FTT) decision concerning the retroactive authorisation of end-use relief for seven civil aircraft imported between June 2016 and February 2017.

DHL imported seven civil aircraft between June 2016 and February 2017 under an expired end-use authorisation. DHL applied in April 2017 for a retrospective end-use authorisation under the Union Customs Code (UCC) (the 2017 Application). HMRC refused and issued a post-clearance demand note for approximately £3m in customs duty. DHL appealed to the FTT, which directed HMRC to conduct a further review. The matter proceeded to the Upper Tribunal (UT). DHL argued that its 2017 Application should have been considered as a renewal of its previous authorisation, which would mean that it could be made retroactive.

UT decision

The UT upheld the FTT’s conclusion that the 2017 Application did not qualify as a renewal of the earlier end-use authorisation, because the earlier authorisation was made under the old Community Customs Code, and the 2017 Application was made under the UCC and had a materially different geographic scope. Therefore, the 2017 Application could not benefit from retroactive effect.

The UT also upheld the FTT’s findings regarding what could potentially constitute "exceptional circumstances" under Article 172 of the UCC Delegated Regulation justifying retroactive authorisation.

Finally, the UT found no error in the FTT’s refusal to require HMRC to treat DHL’s application in the same way as other operators, noting a lack of evidence of discriminatory treatment.

As a result, DHL’s appeal was dismissed, maintaining that the FTT’s decision and directions were correct in law.

Why it matters

This case is significant as it clarifies the legal boundaries and practical limitations surrounding retroactive end-use relief authorisations under the transition from the CCC to the UCC. The UT's decision also provides important guidance on what may constitute "exceptional circumstances" for granting retroactive relief, while affirming that fairness arguments based on the treatment of other operators will require clear, substantiated evidence. The case underscores the importance of maintaining up-to-date authorisations and ensuring strict compliance with procedural requirements.

A copy of the decision can be found here.

FTU Pod Trans v Revenue and Customs Commissioners [2025] UKFTT 753 (TC)

FTU Pod Trans (FTU), a Polish haulage company, was unsuccessful in its appeal to the First-tier Tribunal (FTT) in respect of HMRC's excise duty and penalty assessments.

On 20 January 2020, FTU's vehicle was intercepted by UK Border Force at Coquelles, France. The vehicle was found to be carrying 1,583,500 of cigarettes concealed within cable reels. The load's paperwork falsely identified the consignor and the consignee, both legitimate companies whose details had been hijacked without their involvement. The driver, an employee of FTU, had received anti-smuggling training and had checked the load and documents prior to departure, but was not permitted under Polish law to open the cable reels.

HMRC subsequently issued an excise duty assessment for £472,378 and a wrongdoing penalty of £307,045, alleging that FTU had acted deliberately and concealed its involvement. FTU appealed to the FTT.

FTU had accepted the transportation job via an online portal, dealing with an individual whose identity and credentials were not fully verified.

The FTT was asked to determine several key issues including:

• whether FTU was “holding” excise goods for the purposes of Regulation 13 of the Excise Goods (Holding, Movement and Duty Point) Regulations 2010 (HMDP)

• whether FTU was liable for a wrongdoing penalty under Schedule 41 of the Finance Act 2008

• whether FTU had a reasonable excuse for its conduct

• whether the penalty should be reduced for the quality of disclosure or for special circumstances.

FTT decision

The FTT upheld the excise duty assessment. In reaching its decision, the FTT applied the Court of Justice of the European Union's ruling in HMRC v WR (C-279/19) and the Upper Tribunal’s decision in Agniezska Hartleb v HMRC [2024] UKUT 034 (TCC), both of which establish that “holding” excise goods can encompass de facto or legal control, not merely physical possession. The FTT found that FTU, as the employer and owner of the vehicle, exercised de facto control over the goods by directing its employee, the driver, and was therefore liable for the duty.

In relation to the wrongdoing penalty, the FTT affirmed the penalty but varied its quantum. The FTT concluded that FTU's behaviour was “prompted but not deliberate”. There was no evidence that FTU had actual or blind-eye knowledge of the smuggling, but it had failed to conduct sufficient due diligence given the unusual and suspicious circumstances. The FTT rejected the argument that FTU was an “innocent agent” with a reasonable excuse, noting that, objectively, it should have made further enquiries about the intermediary that placed the transport order and the nature of the arrangements.

The FTT also considered the quality of disclosure made by FTU. It found that it had partially “told” HMRC about its version of events in correspondence, and accordingly applied an 85% reduction to the penalty. No special circumstances were identified to warrant any further reduction.

Why it matters

This decision reinforces the broad interpretation of “holding” excise goods under both UK and EU law, confirming that logistics companies may be liable for excise duty even when physical possession rests with an employee, provided they exercise de facto or legal control. The FTT’s approach to penalties and reasonable excuse highlights the expectation that businesses must undertake robust due diligence, particularly where arrangements are unusual, or parties are not known to them. The decision also demonstrates the FTT’s willingness to scrutinise the quality of disclosure and adjust penalties accordingly.

A copy of the decision can be found here.

Canmi Limited v HMRC [2025] UKFTT 890 (TC)

Canmi Limited, a customs clearance broker, was unsuccessful in its appeal to the First-tier Tribunal (FTT) in respect of a notice of joint and several liability issued by HMRC in the sum of £13,972 in unpaid excise duty. The notice related to an assessment made against Miss Miram Bumah on the same date.

The case concerned beer imported from Nigeria using tax code 443 (reduced duty rate for small breweries), which HMRC later determined was inapplicable. The correct code - 473 - would have triggered a higher rate of duty. The goods were declared by Miss Bumah, with Canmi acting as her direct representative in the customs process.

The central issue between the parties concerns the level of involvement required for Canmi to be jointly and severally liable for Miss Bumah’s irregular imports of beer. HMRC's position is that any involvement in the importation is sufficient to establish liability under excise duty rules, and that customs duty rules are irrelevant in this context. In contrast, Canmi argues that a direct representative cannot be held liable, and even if that is incorrect, liability would still require knowledge of the irregularity.

FTT decision
The FTT upheld HMRC’s assessment.

The FTT considered whether Canmi was “a person involved in the importation” under Regulation 12(2) of the Excise Goods (Holding, Movement and Duty Point) Regulations 2010. It found that Canmi was indeed involved in the importation, irrespective of whether it acted as a direct representative or whether it had knowledge of the irregularity, and was therefore liable for the duty.

The FTT rejected Canmi’s attempt to distinguish between excise and customs liability and dismissed its late request to amend grounds to argue that HMRC should first pursue Miss Bumah.

The FTT also rejected arguments from Canmi that a higher burden of proof (such as the criminal standard) apply, confirming that the burden is upon Canmi and the standard of proof is only the balance of probabilities.

Why it matters
This decision clarifies that under excise law, any party involved in an irregular importation - regardless of their role or intent - may be held liable for unpaid duty. The FTT confirmed that liability is not restricted to those acting knowingly or fraudulently. For customs agents and customs representatives, this underscores the importance of due diligence when handling imports, as the use of incorrect codes or assumptions about reliefs can result in significant financial exposure.

A copy of the decision can be found here.

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Navigating customs and excise compliance in the logistics sector

Logistics companies and customs agents operate in a fast-moving, high-volume and significant value industry. They are heavily regulated by UK authorities, such as HMRC and Border Force, who remain determined in their scrutiny of this area, and businesses therefore must ensure they operate lawfully and in compliance with UK laws.

Non‑compliance can lead to serious consequences such as a substantial tax liability, forfeiture, significant penalties, shipment delays, or even criminal sanctions.

Stay ahead by understanding the most pressing tax and customs compliance challenges that your business could face and take steps to mitigate against these risks. Some common issues you might face and key considerations for your business are summarised here.

HMRC initially declined to confirm or deny the usage of AI, arguing that disclosure could aid fraudulent claimants. The Information Commissioner’s Office (ICO) supported that refusal. However, the tribunal overturned this decision, concluding that the public interest in transparency outweighed HMRC’s objections. Judge Alexandra Marks found Mr Elsbury’s arguments “compelling” and set a compliance deadline of 18 September 2025 for HMRC to confirm its position in respect of the usage of AI in rejecting the relevant R&D tax credit claims. The ICO has confirmed that it will not be appealing the decision, while HMRC said it is reviewing the tribunal's decision and considering its position.

The tribunal's decision arrives amid increased scrutiny of HMRC’s R&D tax relief regime, including concerns over perceived overzealous compliance on the part of HMRC leading to the dismissal of legitimate R&D claims. The decision also comes just weeks after HMRC published its Transformation Roadmap, which commits HMRC to deploying AI-powered tools in its compliance work. The roadmap sets a target for 90% of customer interactions to be digital by 2030, and highlights expanded use of “intelligent nudges” and pre-populated forms to help close the £46.8 bn tax gap. Against that backdrop, questions over the extent and oversight of AI in HMRC's decision-making are likely to grow ever more acute.

Implications for tax disputes strategy

1. Enhanced scrutiny of AI use and transparency: If HMRC discloses AI deployment, taxpayers' focus will likely shift to the fairness, accuracy, and validation of such AI systems - especially in high-value or technologically sensitive claims.
2. Rebuilding trust in the R&D regime: The tribunal underscored that HMRC’s “failure either to confirm or deny” reinforces taxpayer distrust, potentially deterring legitimate R&D claims. Greater transparency will improve the legitimacy and credibility of HMRC’s decision-making process, offering a foundation for more constructive engagement between taxpayers, their advisers, and the tax authority.
3. Defensive litigation and risk management: Should AI tools have contributed to rejections or imposed penalties, practitioners may challenge decisions based on lack of explanation, inadequate human oversight, or data protection concerns. The roadmap’s stated expansion of AI-driven case management systems makes it easier to frame such challenges as part of a broader systemic practice rather than isolated cases.

Top tips for R&D claimants and their advisers:

• Request disclosure: where claims are rejected, ask whether AI was used in the decision-making process.
• Scrutinise decision quality: look for signs of templated or generic reasoning, which might indicate an automated determination.
• Preserve evidence: keep all correspondence, timestamps, and metadata from HMRC correspondence, which might assist in an AI-related challenge.
• Challenge procedural fairness: if AI use is confirmed, assess whether sufficient human oversight was in place.
• Factor in the roadmap: HMRC’s stated intent to expand AI in compliance, suggests these issues will become more common place – it might be appropriate to build AI-related enquiries into your dispute strategy.

Future impact 

This decision is more than an R&D tax credit story - it highlights the importance of transparency in AI-driven tax administration and more generally in relation to HMRC decision making. For tax dispute resolution advisors, it opens a fresh line of attack where decisions appear formulaic, automated or unreasoned. HMRC’s Transformation Roadmap suggests the AI debate is only just beginning.

The tribunal's decision can be read in here.

By 2029/30, HMRC wants 90% of interactions to be fully digital. Its online accounts, mobile app and AI-driven assistants will become the default gateway for most taxpayers. Tools for PAYE taxpayers, NIC refunds, and self-assessment registration are among the near-term changes.

For many, this shift may feel like progress. But it also means, the potential for:

• increased risk of automated error or action, especially in complex compliance scenarios
• a reduction in face-to-face engagement, which historically helped resolve nuance in grey areas
• more system-driven assumptions and notices, which may be harder to challenge early without proactive intervention.

Disclosure and correction: a new landscape?

HMRC’s proposed digital disclosure service (expected before 2029) is designed to allow taxpayers to correct errors and pay liabilities voluntarily - without triggering formal enquiries. At the same time, it is:

• likely to standardise the disclosure process, with limited room for tailoring or negotiation
• set to integrate with AI and third-party data sources, increasing the chances of detection before voluntary disclosure
• expected to automate penalty calculations, raising questions about proportionality and exercise of discretion to ensure a fair outcome.

The voluntary disclosure space may soon become less flexible - requiring advisers to act more swiftly and with greater precision when engaging with HMRC.

Legal interpretation: new approaches to guidance and legislation

 HMRC's roadmap hints at a firmer stance on disputes relating to the correct interpretation of the law, with HMRC pledging “clearer expectations” in guidance and signalling a willingness to pursue legislative changes in contentious areas.

This shift raises the following potential risks:

• administrative guidance may be used more aggressively, potentially cutting across judicial decisions or settled practice
• advisers may need to engage earlier in the dispute resolution process, to avoid retrospective enforcement
• disputes over interpretation may escalate more quickly, particularly where HMRC officers feels emboldened by policy support.

What it means for tax advisers

Tax advisers, particularly those involved in contentious or high-risk tax matters, will need to adapt quickly to the evolving digital enforcement environment.

Some key themes

• Digital engagement will be unavoidable: the adviser interface is due for overhaul in 2026/27. Logging in, accessing client data, and submitting documents will all happen through redesigned digital portals.
• Faster timelines and less discretion: with more automated systems and set workflows, there may be less room to negotiate deadlines, extend response times, or explore informal resolution with HMRC before formal challenge.
• Increased compliance support burden: as more clients interact digitally (or fail to), advisers will become the de facto translators of HMRC’s evolving systems - especially for digitally excluded taxpayers or those taxpayers whose affairs are complex.
• New areas of risk management: advisers will need to monitor how AI and third-party data use impact risk profiling, disclosure, and information gathering, particularly in relation to taxpayers whose affairs are complex or involve an offshore element.

In short, the tax adviser role will become more digital, more proactive, and potentially more defensive, as HMRC’s compliance model develops and accelerates.

Tax Tribunal and disputes process modernisation

HMRC’s ambition to integrate its case management systems with the First-tier Tribunal raises questions about the structure and flow of disputes. If delivered well, it could reduce delays and increase consistency, but:

• the proximity of HMRC systems to Tribunal processes may blur separation of functionality lines, especially if data flows are poorly managed;
• there may be new challenges around procedural fairness, particularly where automated decisions form the basis of appeals;
• the Tribunal may need to adapt to more digitally produced evidence - from AI risk assessments to machine-led disclosures.

Closing the tax gap: a more assertive HMRC?

Alongside the roadmap sits a renewed emphasis on enforcement. HMRC is:

• investing heavily in offshore avoidance and evasion detection
• increasing its use of real-time third-party data
• preparing to publish a tax debt strategy by 2026
• committing to standardised identity verification before 2031.

Combined, these measures suggest a more assertive (and some might say, aggressive) HMRC, equipped with more effective tools and enhanced detection of non-compliance - with less reliance on traditional enquiry pathways.

A new era for tax disputes and adviser strategy?

HMRC’s transformation roadmap is not just about technology - it is about shifting how tax compliance, correction, and enforcement are approached. For tax disputes lawyers and advisers, the key is to anticipate and manage the procedural, interpretative, and strategic consequences of a more automated, less negotiable system.

Taxpayers will increasingly look to their advisers, not just for technical tax advice, but also for guidance on navigating a rapidly digitalising enforcement authority, ensuring their rights are protected, and pushing back where automation meets ambiguity.

The Transformation Roadmap can be viewed here. 

Recent procedural decisions

There have been a number of recent procedural decisions that are worthy of note.

Costs 

In Advanced Hair Technology Ltd v HMRC [2025] UKFTT 599 (TC), the taxpayer applied for a costs order on the basis that HMRC had acted unreasonably in the course of conducting an appeal. The application was unusual in that it had been made at the invitation of the First-tier Tribunal (FTT) itself. The taxpayer had appealed against HMRC's decision that the majority of its supplies of hair transplant services were standard rated for VAT and not exempt supplies of medical care, and a penalty for failing to register for VAT at the correct time. 

The substantive appeal was heard by the FTT over four days, and HMRC was ultimately successful on the substantive issue. However, HMRC abandoned its pursuit of the penalty during the course of the hearing. On the first day of the hearing it became apparent, during cross-examination of the taxpayer's witness, that the taxpayer had received professional advice that its services were exempt from VAT, such that it had a reasonable excuse for its failure to register for VAT. Accordingly, on the second day of the hearing, the FTT asked HMRC to consider whether it still wished to pursue the penalty. HMRC's counsel was unable to obtain instructions, which required the FTT to reconvene on day four to hear evidence on the penalty appeal. However, and following the late arrival of HMRC's witness, HMRC confirmed that it would no longer pursue the penalty. The FTT was clearly irritated by HMRC's conduct and invited the taxpayer to consider whether it wished to make an application for costs incurred in consequence of the failure of HMRC to notify its intention to withdraw the penalty assessment until day four of the hearing. The taxpayer duly made an application for costs, arguing that it was unreasonable for HMRC to fail to provide instructions to its representatives to withdraw the penalty assessment until the late arrival of its witness at the hearing, immediately before he was due to give his evidence. 

Perhaps not surprisingly, the FTT granted the application. The FTT observed that once the cross-examination of the taxpayer's witness had concluded, it was very clear that the taxpayer had been neither careless nor negligent in its decision to treat its supplies as exempt, and that it had a reasonable excuse for its actions. Accordingly, the FTT found that, from the conclusion of the cross-examination, it was obvious that the taxpayer had a reasonable excuse and, while HMRC was entitled to a reasonable period of time after the conclusion of the cross-examination to consider whether to continue to pursue the penalty, after the expiry of that reasonable period, it was unreasonable for HMRC to continue to pursue the penalty assessment. The FTT determined that the reasonable period expired after the lunch adjournment on day three of the hearing, which allowed HMRC sufficient time to consider its position in light of the evidence.

Securing a costs award against HMRC remains a persistent challenge for taxpayers, with a high bar for establishing unreasonable conduct. The decision in Advanced Hair Technology highlights a particularly egregious example of such conduct which the FTT rightly criticised and penalised through a costs award in favour of the taxpayer. Whilst this was clearly the right outcome in this case, many practitioners will recognise the frustration of dealing with HMRC behaviour that, while falling short of the "unreasonable" threshold, still imposes unnecessary costs on taxpayers. 

Hardship

In Kearney Transport Ltd v HMRC [2025] UKFTT 593 (TC), the FTT considered whether the taxpayer’s appeal, which was in respect of excise duties, was entitled to proceed to a hearing without first paying the assessed duty on the grounds that to do so would cause the taxpayer hardship. The taxpayer had appealed an assessment of c.£70k and applied to HMRC for hardship. HMRC had requested extensive information to support the hardship application, including information relating to the taxpayer's financial position, following provision of its latest accounts, cash flow forecasts, bank account statements and information on debtors and creditors. In response, the taxpayer provided its accounts and explained that payment of the tax in advance of the appeal would mean that the potential for drawings to be taken from the business by the directors and shareholders would effectively be reduced by more than 50%, which would create a situation where the directors and shareholders would not be in position to meet their own personal living expenses and would impact the financial viability of the company. Following a request for further information from HMRC, the taxpayer advised that its financial status had been fully proven by its accounts and the other information provided to HMRC. HMRC refused the application for hardship, and the taxpayer appealed. 

In rejecting the taxpayer's application, the FTT noted that arguments about the level of profits available for distribution to shareholders was an argument about their hardship rather than the taxpayer's hardship. More importantly, and while accepting that the amount of disputed tax was significant, the FTT observed that the taxpayer's financial position was unclear given the only evidence it had been presented with was the company accounts and oral evidence from one of the company's directors. In that regard, the FTT observed that it may have had a better understanding of the position had the taxpayer's accountant given evidence. Accordingly, although the FTT accepted that there may well be hardship, the accounts and oral evidence did not, on a balance of probabilities, demonstrate that was the case.

As readers will be aware, taxpayers seeking to challenge HMRC decisions in respect of indirect taxes must pay the disputed tax before they can exercise their rights to appeal to the FTT - a requirement many view as inherently unfair. In today’s economic climate, such an up-front payment can be prohibitive. As a result, an increasing number of businesses are seeking to rely on 'hardship', which waives the payment requirement where it would cause serious financial difficulty to the business. However, pursuing hardship can be challenging as HMRC typically demands extensive financial evidence and the process can be both time-consuming and onerous. The decision in Kearney emphasises that: (1) the taxpayer bears the burden of proving hardship; and (2) meeting that burden typically demands a comprehensive and well-supported body of evidence, that goes beyond providing a minimal set of documents.

Late appeals and reasonable excuse

In Denise Howarth v HMRC [2025] UKFTT 499 (TC), the FTT considered an application by the taxpayer to bring a late appeal against penalties of £1,600 issued by HMRC for the late submission of her 2020/21 tax return. 

The taxpayer had been within self-assessment since 2004 and had filed her tax returns online for a number of years. The taxpayer's tax affairs were straightforward, and she had filed all of her previous tax returns on time. For the 2019/20 and 2020/21 tax years, the due dates for filing tax returns were effectively extended by 28 days due to the Covid-19 pandemic, and HMRC confirmed that no penalties would be charged for any return received by midnight on 28 February in the relevant year. 

HMRC’s computer records indicated that on 1 March 2021 the taxpayer opted-in to receive communications from HMRC electronically. The effect of this opt-in was that statutory notices would be sent by HMRC to the taxpayer’s electronic Personal Tax Account (PTA). When a notice was issued, HMRC would send the taxpayer a generic email advising her that a message was waiting on her PTA, which she could then access to view it. The FTT found that the taxpayer's opt-in was inadvertent and that the box for opting in was ticked (or not unticked) by the taxpayer in the course of the submission of her 2019/20 tax return and without her understanding the importance of her actions. She did not therefore consciously consent to it. 

It was common ground that the taxpayer and her husband sat down to complete their 2020/21 returns on 28 February 2022 and that, in the course of the evening, the taxpayer had filled in her return and accessed her computation showing that she had no tax to pay. HMRC’s computerised records showed that the taxpayer had reached the final stages of the submission process, but HMRC's case was that the taxpayer needed to take one further step to actually submit her return. Had she done so, the taxpayer would have received a 16-digit confirmation code. The taxpayer's position was that she had reached the end of the process as the screen gave no indication of there being a further step which needed to be carried out. Although she had received confirmation codes in earlier years, the taxpayer was not unduly surprised by the lack of a confirmation code as she had no reason to assume that the process would be identical to previous years. She had no tax to pay, and the images on her screen indicated to her that no further steps were required. As a precaution, the taxpayer took a screenshot to record what she believed to be confirmation that she had completed the process. The FTT accepted that the taxpayer reasonably believed that she had submitted her return on time and that her obligations in relation to her return were complete. However, the absence of a complete return on HMRC’s system led to a series of notifications being sent to the taxpayer’s PTA, each with a corresponding generic email to her email address. The first indication the taxpayer had that anything was amiss was a letter from HMRC's debt management team which was sent to her home address in March 2023, advising her that she owed £1,000. The taxpayer subsequently called HMRC, immediately submitted her return, and appealed the penalties that had been issued to her. The appeal was substantially out of time.

The FTT allowed the taxpayer's application to bring a late appeal and the substantive appeal itself. The FTT observed that the taxpayer's delay was serious and that she had, to some extent, been the author of her own misfortune by signing up to receive electronic communications from HMRC and then deleting genuine emails from HMRC that alerted her to check her PTA. However, the FTT also noted that, amongst other things, the taxpayer had conducted herself as someone who intended to comply with her tax obligations. Signing up to the electronic notification process was unintentional on her part and more likely to have been as a result of confusion in the course of the submission process and she reasonably believed that she had completed the process for submitting her return on time. In the circumstances, the FTT was satisfied that the taxpayer had a reasonable excuse for her failure. 

The FTT tends to adopt a strict approach to enforcing appeal deadlines and taxpayers face a high bar when seeking permission to appeal out of time. The decision in Howarth is therefore notable, not only because the taxpayer succeeded, but also because she succeeded in the face of what was a considerable delay.

Reallocation of appeals

Alexander Langsam v HMRC [2025] UKFTT 00404 (TC), concerned an application by the taxpayer for his appeal to be reallocated from a Basic to a Standard case. The taxpayer had appealed against an information notice issued by HMRC seeking information it asserted was reasonably necessary to check his tax position. The FTT allocated the appeal to the Basic category and advised the parties that it would be listed as a video hearing. The taxpayer applied for the appeal to be re-allocated as a Standard category case on the grounds that, because of complex legal issues (including matters of public law) and the need for “detailed and nuanced” witness evidence, it would be more appropriate for the case to be allocated to the Standard category. HMRC opposed the application on the basis the appeal was suitable for determination by way of a video hearing. 

In dismissing the application, the FTT noted that the allocation of an appeal against an information notice to the Basic category was consistent with Rule 23 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the FTT Rules) as well as the FTT's Practice Direction for the Allocation of Cases to Categories in the Tax Chamber. Accordingly, the FTT determined that it was not appropriate to allocate the appeal to a different category. In that regard, the FTT observed that there did not appear to be any material dispute of fact between the parties and the issues were clearly issues of law. As such, the FTT considered that a relatively short hearing would be sufficient to dispose of the appeal, and that a video hearing would be suitable. Accordingly, the FTT concluded that there was no reason to depart from the Practice Direction with regard to the category or format of the appeal.

The categorisation of cases plays a crucial role in enabling the FTT to allocate its resources efficiently, and ensuring that the level of judicial and administrative attention given to a case reflects the complexity of the issues in dispute. Although there are circumstances in which reallocation may be justified (judicial guidance on when a case should be categorised as Complex was provided by the FTT in Capital Air Services Ltd v HMRC [2010] UKFTT), the decision in Langsam illustrates the significant challenges taxpayers may face in seeking to have a case reclassified. 

Changes to Tribunal Procedure

Tribunal Procedure (Amendment) Rules 2025

The Tribunal Procedure (Amendment) Rules 2025, which came into force on 30 May 2025, introduce important changes to Rule 38 of the FTT Rules and Rule 43 of The Tribunal Procedure (Upper Tribunal) Rules 2008. Under the amended provisions, both the FTT and the Upper Tribunal now have the power to set aside a decision that disposes of proceedings on their own initiative. Previously, such decisions could only be set aside upon application by a party to the proceedings. Although not likely to be utilised on a regular basis, this is a practical and sensible amendment. 

Practice Statement on Alternative Dispute Resolution in Tax Disputes

The FTT has also published a new Practice Statement on Alternative Dispute Resolution (ADR). The purpose of the Practice Statement is to further the FTT's obligation, under Rule 3(1)(a) of the FTT Rules, to facilitate the use of ADR and provides general information on ADR and the process for applying to HMRC for ADR. The Practice Statement provides that the FTT will usually be willing to stay proceedings (for up to 150 days) in order to facilitate the use of ADR at any stage of the proceedings, including after HMRC has served its Statement of Case, or the parties have exchanged lists of documents, or witness statements. Where parties wish to use ADR, after a hearing date has been set, the FTT will only be willing to stay proceedings if satisfied that the hearing will be able to go ahead on the date set if ADR does not resolve the dispute. Importantly, the Practice Statement notes that an unreasonable failure to consider, or enter into, ADR may, in appropriate cases, result in costs being awarded against a party, or in a party recovering a lower proportion of their costs. Where an appeal has been allocated to the Complex category and is within the costs regime, the costs of ADR may be recoverable.

Updated Guidance on Taking Oral Evidence from Abroad

The FTT has also updated its guidance on the procedure to be followed when a party wishes to rely on oral evidence of a person (including the party themselves) given by video or telephone from a country other than the UK. The guidance provides that, subject to limited exceptions, oral evidence may only be taken from witnesses (including litigants in person presenting their own cases) who are physically in the UK to give that evidence. Where a party wishes to rely on live oral evidence by video from abroad, the person seeking to rely on that evidence will, in all cases, need permission from the FTT, and the guidance sets out the process for seeking such permission.

The growing complexity of tax appeals, especially those involving large corporates and high-net-worth individuals, means that evidence from individuals outside the UK, including expert witnesses, is increasingly common. Taxpayers should review the new guidance carefully, identify early on whether overseas evidence will be needed and make any necessary application to the FTT as soon as possible to facilitate its use.

Realbuzz Group Ltd was established in 2000. It focusses on the fitness, sports and running industries, providing online content, social networking and online entry systems for events such as the London Marathon and related charity fundraising programmes. It also enables participation in “virtual events” where the participants take part in, for example, a marathon or half marathon, running on their own in their own area rather than joining an organised mass participation event. 

Realbuzz filed its corporation tax return for the accounting period ending (APE) 30 April 2020 on 22 December 2020, submitting two subsequent amendments,  the final one on 31 March 2021. This final amendment included a claim for £335,452.57 R&D tax relief, supported by an R&D report prepared by the company’s accountants. The report was compiled by the accountants' R&D team in consultation with Realbuzz’s technical team and assessed each project’s eligibility based on the relevant tax legislation, the BIS Guidelines, and HMRC’s published guidance.

On 13 July 2021, Realbuzz filed its return for APE 30 April 2021, which also included an R&D claim. HMRC opened an enquiry into this return on 17 September 2021. The accountants responded to HMRC’s enquiries on 15 November 2021, providing a second R&D report that covered many of the same projects from the 2020 claim, some of which had commenced in 2019.

On 13 April 2022, the HMRC officer dealing with the enquiry, Mr Patel, advised that most of the claimed projects did not qualify as R&D for tax purposes, although he considered a few sub-projects might. He invited the accountants to provide further explanations and issued a questionnaire for specific projects, noting he would seek input from HMRC’s software specialists.

The last date on which HMRC could open an enquiry into Realbuzz’s 2020 return was 30 April 2022. In September 2022, Ms Martin took over the case from Mr Patel and on 8 March 2023, she issued a closure notice denying the APE 2021 R&D claim in full. She also indicated her intention to raise a discovery assessment for APE 2020. This was based on her view that similar inaccuracies existed in the earlier period, given that some projects spanned both accounting periods.

On 1 June 2023, HMRC issued a discovery assessment for APE 2020, pursuant to paragraph 41, Schedule 18, Finance Act 1998. Realbuzz appealed the assessment to the FTT.

FTT's decision

The appeal was allowed. 

Realbuzz argued that, for the purposes of paragraph 44(1), Schedule 18, Finance Act 1998, HMRC could have been reasonably expected, on the basis of "information made available" to it, to be aware of the situation referred to in paragraph 41. It also argued that additional information — specifically the 2021 R&D report — also amounted to "information made available" to HMRC, which further supported HMRC's awareness of the tax loss.

The FTT agreed with Realbuz. It held that a hypothetical HMRC officer, reviewing the 2020 return and accompanying report at the time, would have been reasonably expected to realise that the R&D claim was, at least in part, excessive. Importantly, the FTT rejected HMRC’s argument that the officer must be able to quantify the insufficiency in tax before a discovery could be valid. It confirmed that an awareness of an insufficiency is sufficient, even if the precise amount cannot be determined at that point.

Moreover, the FTT confirmed that the hypothetical officer is not assumed to have specialist technical knowledge (such as software development expertise). In this case, the FTT concluded that the 2020 report was sufficient to raise awareness of the likely over-claim, even without the benefit of expert analysis.

With regard to the 2021 report, the FTT made clear, in obiter comments, that it did not constitute "information made available" for the purposes of the 2020 period. The report related to a different accounting period and could not be inferred from the earlier return. While it may have supported HMRC’s suspicions, it did not provide a clear basis for awareness of an insufficiency in the 2020 return.

Comment

This case reinforces the importance of proper disclosure by taxpayers to HMRC and a timely response by HMRC. Where sufficient information has been provided within the enquiry window to alert a hypothetical officer to a potential tax loss, HMRC cannot rely on its discovery powers contained in paragraph 41, Schedule 18, Finance Act 1998, as a fallback. For advisers and taxpayers, the decision also highlights the value of well-structured R&D reports that demonstrate good faith engagement with the R&D qualifying criteria.

The decision can be viewed here. 

HMRC updates its International Manual regarding cost contribution arrangements within advance pricing agreements

HMRC has updated its International Manual regarding the use of advance pricing agreements (APAs) to confirm valid participation in cost contribution arrangements (CCAs). A new sample APA has also been published. The manual outlines when HMRC may accept unilateral APA applications to provide certainty that it will not challenge CCA participation on transfer pricing grounds, provided the arrangement is commercially viable. Longer APA terms may be allowed in “exceptional circumstances” and coverage may include open enquiry periods. Bilateral APAs remain available for broader pricing issues. Annual reporting on key assumptions will be required.

You can view the updated International Manual here.

UK implements updated Common Reporting Standard and new cryptoasset reporting rules

The UK has enacted two sets of regulations: the International Tax Compliance (Amendment) Regulations 2025, updating the Common Reporting Standard (CRS), and the Reporting Cryptoasset Service Providers Regulations 2025, implementing the OECD’s Cryptoasset Reporting Framework (CARF). The CRS changes include mandatory registration for financial institutions, updated penalty provisions and expanded reporting to cover e-money and central bank digital currencies. The CARF rules introduce due diligence and reporting duties for cryptoasset service providers, effective from 1 January 2026. These measures aim to ensure alignment between CRS and CARF, and to improve tax transparency in cryptoasset transactions.

You can view the International Tax Compliance Regulations here and the Cryptoasset Regulations here.

UK updates its Pillar 2 top‑up tax reporting service

HMRC has updated its “Report Pillar 2 top‑up taxes” guidance and clarified who must register and which entities the registration covers.

Groups that have at least one UK entity and annual consolidated revenues of €750 million or more, in at least two of the previous four years, must register, even if no tax is payable. Registration must occur within six months of the first accounting period beginning on or after 31 December 2023. Both domestic and multinational top‑up tax groups must register collectively via their filing member—usually the ultimate parent—using an organisation gateway ID.

The registration will cover all UK entities that are part of the group, so there is no need to register each entity individually.

You can view the updated guidance note here.

UK and G7 agree to exclude US groups from global minimum tax rules

The Treasury has announced a G7-wide common understanding to exclude US-parented groups from the income inclusion rule (IIR) and undertaxed profits rule (UTPR), under global minimum tax regimes, including the UK’s multinational top-up tax. This reflects the US 'side-by-side' system proposal and follows the US’s withdrawal of retaliatory measures. The understanding will be developed further within the OECD Inclusive Framework, with potential simplifications and a review of tax credit treatment. However, no implementation timeline has been provided and uncertainty remains over how this agreement will be finalised and whether it will preserve policy objectives.

You can view the government's press release here.

Case reports

HMRC directed to issue closure notices

In Refinitiv Ltd and others v HMRC [2025] UKFTT 415 (TC), the First-tier Tribunal (FTT) directed HMRC to issue closure notices on the basis it had failed to establish that there were "reasonable grounds" for not issuing such notices as ongoing judicial review proceedings did not constitute "reasonable grounds".

One of the keenest areas of contention between HMRC and taxpayers is the length of time that enquiries can take before they are concluded. Unfortunately, there is no time limit by which HMRC is required to conclude an enquiry and, sadly, it is not uncommon for enquiries to go on for many years, as was the position in this case. Increasingly, taxpayers are seeking an appropriate direction from the FTT requiring HMRC to issue a closure notice within a specified period of time and in appropriate cases the FTT has shown itself to be sympathetic to such applications, as in this instance.

You can read our commentary on the decision here.

Tribunal accepts taxpayers' Ramsay argument and allows their appeals

In The Vaccine Research Ltd Partnership & Anor v HMRC [2025] UKFTT 402 (TC), the FTT decided in favour of the taxpayers, concluding that licence fees received under a circular financing arrangement intended to generate income tax losses were neither annual payments nor income, for the purposes of sections 683 and 687, Income Tax (Trading & Other Income) Act 2005.

This case is noteworthy because it was the taxpayers, rather than HMRC, who successfully relied on the Ramsay principle of statutory interpretation by persuading the FTT that the scheme should be viewed as a composite transaction. The FTT's decision confirms that the Ramsay principle is not the exclusive preserve of HMRC. The key issue in this case was the economic reality of the transactions under consideration. Despite the appearance of licence fee payments, the circular flow of funds meant that no income had been generated.

The FTT’s approach in this case can be contrasted with its recent decision in Lynch v HMRC [2025] UKFTT 300 (TC), where the FTT found that part of a composite transaction could be taxed notwithstanding that the scheme, as a whole, was ineffective. While both decisions involve the application of the Ramsay principle, there are slight differences in the legal reasoning of the FTT and the application of the principle, in each case. Any taxpayer seeking to invoke the Ramsay principle as an aid to statutory interpretation, will no doubt wish to consider both decisions carefully.

You can read our commentary on the decision here.

Tribunal allows taxpayer's appeal in respect of overdrawn director's loan account

In Quillan v HMRC [2025] UKFTT 421 (TC), the FTT allowed the taxpayer's appeal against a closure notice issued under section 28A, Taxes Management Act 1970, for the 2018/19 tax year, assessing income tax under section 415(1), Income Tax (Trading & Other Income) Act 2005, in respect of an overdrawn director's loan account, as the director's loan was neither written off nor released, in the absence of a formal acknowledgment from the company's liquidator.

This decision confirms that a loan to a participator that is unlikely to be repaid at the time of liquidation is not necessarily written off, and attention must be paid to the formal processes available to the liquidator.

The decision runs contrary to HMRC's guidance (CTM61560), which currently states:

"Equally, where the liquidator does not write off or release the loan balance, but, on a balanced view of the facts, it is clear that the company and/or liquidator are not intending to pursue the outstanding loan, e.g. where they are not making any attempts to collect it or have given up any attempts to do so, then we should argue that the loan has been written off and that S415 ITTOIA05 should apply to the relevant amount..".

You can read our commentary on the decision here.

And finally …

The countdown to failure to prevent fraud is on

From 1 September 2025, the new failure to prevent fraud offence will come into effect under the Economic Crime and Corporate Transparency Act 2023. Statutory guidance issued by the Home Office sets out the framework that large organisations should implement by September 2025, to ensure they have in place reasonable fraud prevention procedures.

In a three-part special of RPC's Taxing Matters podcast, RPC's Tom Jenkins joins Alexis Armitage to discuss the new offence and its potential impact on businesses, and other developments relevant to the law of corporate criminal liability.

• Part 1: A recap on corporate criminal liability – Listen here

• Part 2: What is failure to prevent fraud? – Listen here

• Part 3: Looking ahead: further developments for corporate criminal liability – Listen here

 If you would like to discuss any of the topics covered in this update, please contact Adam Craggs or Daniel Williams.

A settlement known as the Tiodab Trust (the Settlement) was established in Switzerland in September 1992, by a settlor who was not domiciled in the UK. On the 6 April 2005, the settlor became deemed domiciled in the UK and, subsequent to this event, added a substantial amount of cash to the Settlement.

In 2012, Accuro Trust (Switzerland) SA (the Trustee) reviewed the trust's 'property' to pay a ten-year anniversary charge. Cash added to the Settlement after the Settlor became deemed UK domiciled, was considered 'relevant property' and not 'excluded property', due to section 48(3) (as it then was), Inheritance Tax Act 1984 (IHTA). A ten-year anniversary charge of £1.7m was paid to HMRC.

Two years later, after reviewing the payment, the Trustee changed its view and requested a repayment of the anniversary charge from HMRC, under section 241, IHTA, on the ground that the classification of the Settlement's funds as 'relevant property' was a mistake. HMRC relied on section 255, IHTA, to refuse the Trustee a repayment on the basis the Trustee had paid the tax 'on a view of the law then generally received or adopted in practice'. The Trustee appealed to the FTT.

FTT decision 

The appeal was allowed. 

In determining the appeal, the FTT considered the meaning of section 48(3), IHTA, and the interpretation of 'at the time the settlement was made'. If the property in question was part of the Settlement at the time it was made, then it would be subject to IHT. 

HMRC argued that 'at the time the settlement was made', includes both the time when a settlement is originally constituted and the time when it is further constituted when any further property is transferred to it i.e. in March and April of 2006, a year after the Settlor became deemed UK domiciled. 

The Trustee argued that the time the Settlement was made was the date when the Settlement was first created as a matter of trust law i.e. September 1992, 13 years before the Settlor became domiciled in the UK. 

In the view of the FTT, the words 'at the time the settlement was made' could not be understood to mean each and every time a settlor deposits property into a settlement.

The FTT also rejected HMRC's argument that the property should not qualify as excluded property on the basis that it was made and accepted on a view of the law then 'generally received or adopted in practice'. The FTT concluded that, taking into account practitioner evidence, HMRC's view of the law was not 'generally received or adopted in practice'. 

Comment 

Although the law was  changed in July 2020 (by Finance Act amending section 48(3), IHTA), to provide that the excluded property test is the domicile of the settlor at the time the property became comprised in the settlement, this decision provides some clarity for trustees considering pre-July 2020 cases. It is surprising that HMRC chose to fight this case and will be interesting to see if HMRC seek permission to appeal the FTT's decision to the Upper Tribunal. 

The decision can be viewed here.

• M&S have launched a new Strawberries and Creme Sandwich inspired by the Japanese fruit sando. The unusual combination is causing controversy amongst food enthusiasts and VAT practitioners as to its VAT treatment.

The ICAEW's article can be viewed here.

• Employers will be able to recover VAT incurred on the costs of the investment management of defined benefit funds as their own input tax.

HMRC's Policy paper can be viewed here. 

• HMRC have updated their internal manual on VAT fraud in relation to deregistering businesses that misuse their VAT number following the recent cases of Impact Contracting Services Ltd v HMRC [2025] EWCA Civ 623 and Elphysic and others v HMRC [2025] UKUT 236 (TCC).

HMRC's updated internal manual can be viewed here. 

• HMRC is intensifying scrutiny on VAT treatment for flapjacks, cereal bars, and similar products, following the Court of Appeal’s decision in HMRC v Innovative Bites Ltd [2025] EWCA Civ 293. HMRC is now writing to businesses, requiring them to review and, if necessary, correct VAT errors going back four years, and to provide product details and ingredient lists. While an appeal to the Supreme Court is pending, HMRC is actively enforcing the new interpretation to close the tax gap in this sector.

Case reports

R (on the application of ALR and others) v Chancellor of the Exchequer [2025] EWHC 1467 (Admin)

The removal of the VAT exemption for private school fees by sections 47- 49, Finance Act 2025, was challenged in three judicial review claims that were consolidated and heard together:

1. A claim brought by children and parents who argued that they require schooling in private schools either because they have special educational needs (SEN), practise a particular faith, have a need for single-sex education, or because they have a need for a foreign curriculum.
2. A claim brought by children who have SEN but do not have an Education, Health and Care Plan.
3. A claim brought by four Evangelical Christian schools providing low-cost private education for parents requiring Christian education.

All the claimants claimed they would be unable to afford the increased fees and sought declarations under section 4, Human Rights Act 1998, that the new legislation was incompatible with the European Convention on Human Rights (ECHR), in particular:

1. Article 2 of Protocol 1 (A2P1), which protects the right to education.
2. Article 14, which prohibits discrimination in the enjoyment of Convention rights.
3. Article 1 of Protocol 1 (A1P1), which protects the right to peaceful enjoyment of possessions.

A2P1

The Court considered EU and domestic case law relating to the right to education and drew two key strands and confirmed that states have a broad margin of discretion to regulate education, provided they do not "impair the very essence of the right". This essentially creates a minimum requirement which, if not respected, might result in the exclusion of children from the education system and thus full participation in society. However, unlike other rights which focus on precluding state intervention, the right to education requires the deployment of limited public resources. Courts have therefore consciously avoided creating an obligation for states to establish particular types of education.

Applying these principles, the Court held that charging VAT on private school fees did not "impair the very essence of the right" to education because an alternative schooling option exists which the state provides free of charge. The parents who cannot now afford private school fees were effectively put in the same position in which the majority of parents already find themselves.

Article 14

The Court considered whether charging VAT on private school fees had a particularly severe impact on certain groups (such as Caredi Jewish children or children with SEN) and therefore could be considered discriminatory under Article 14.

Although the Court agreed that those groups were disproportionately affected by the change in the VAT position, it considered that the decision not to exempt those groups from VAT fell within the government's broad discretion. The government highlighted the administrative burden of such exemptions and the need to balance the interests of those groups against the interests of the potential beneficiaries of increased state funding.

A1P1

Finally, the claimant schools argued that charging VAT would make their businesses unviable and therefore their right to peaceful enjoyment of possessions was infringed. The Court held that this concern only related to future income which is not a possession and therefore is not covered by A1P1.

Why it matters:

This case touches on a wide variety of key public law concepts and for practitioners in this area it is worth reading the judgment in full. The central theme of the decision is that the government has a broad margin of discretion on matters of taxation policy. At [86], the Court referred to the motivation of the policy as an important factor. The government considered the measure to be redistributive as it imposed a burden on one group (the 6% attending private schools) for the benefit of another group (the 94% relying on state educational provision). The Court reaffirmed that decisions of this kind should be reserved for a democratically elected Parliament rather than the judiciary.

The decision can be viewed here.

JPMorgan Chase Bank NA v HMRC [2025] UKUT 188 (TCC)

JPMorgan Chase Bank NA (CBNA), based in the US, supplied back-office, trading infrastructure, HR, legal and other services to its UK affiliate, JPMorgan Securities plc (SPLC). Both are in the same UK VAT group. Traditionally, such intra-group supplies are ignored for VAT purposes. However, HMRC relied on the carve-out in section 43(2A)–(2B), Value Added Tax Act 1994 (VATA), whereby VAT must be charged if an overseas group member resupplies bought-in services to a partly exempt UK member.

HMRC issued VAT assessments on this basis which CBNA appealed to the First-tier Tribunal (FTT). The issue for determination was whether the supply of intra-group services should be treated as a single composite taxable supply, or whether it constituted separate, individual supplies.

CBNA argued the services should qualify for VAT exemption under UK rules (Schedule 9, Group 5, VATA), as some of the services were securities-related. HMRC argued that CBNA made a single supply of support function services to SPLC, which was taxable, and pointed to the lack of separate invoices for distinct services in support of its argument.

The FTT dismissed the appeal and CBNA appealed to the Upper Tribunal (UT).

The UT dismissed CBNA's appeal.

The UT said that the appropriate starting point was to consider the linkage, indivisibility and artificial splitting of the contractual arrangements between the parties. Although the contractual framework had distinct terminology for different supplies being made, the substance and nature of the services remained undifferentiated and linked. In light of the clear links between the services, any distinctions as to definitions or groupings were artificial. To the typical consumer, the services would reasonably be regarded as a single supply of business operations support.

With regard to the securities exemption, in the view of the UT, the intra-group services were administrative rather than effecting a significant change in the legal or financial positions of the parties. Accordingly, the circumstances did not meet the threshold for the securities exemption to apply.

Why it matters:

Multinationals cannot rely on VAT group status alone to shield cross-border support services. Where services originate outside the UK and are provided to partly exempt UK members, VAT is likely to apply. It is important that contracts and invoicing arrangements reflect the real economic substance.

It is clear from this decision that when intra-group supplies involve bought-in services from abroad, the entire supply could become taxable under UK law, even if parts relate to financial activities. Businesses may wish to reassess their service agreements and reporting to avoid unwelcome VAT liabilities.

The decision can be viewed here.

Performance Leads Ltd v HMRC [2025] UKFTT 660 (TC)

Performance Leads Ltd (PLL) offered 'lead generation' services and operated two consumer-facing websites. Visitors to its websites could search for financial advice in areas such as pensions or investments. PLL reviewed each enquiry and applied filters to determine whether the enquiry was suitable for follow up. If the lead satisfied the set criteria, it was passed to an independent financial advisor (IFA) who would follow up. The IFAs paid a commission for each lead but the lead could be withdrawn if they failed to act.

Between May 2018 and February 2022, PLL accounted for VAT on the basis that the leads - were chargeable to VAT. However, PLL formed the view that most of those supplies were actually "intermediary services" in relation to financial services transactions within the proper meaning and effect of Schedule 9, Group 5, Item 5, VATA  and its agent submitted an Error Correction Notification seeking repayment of £247,407.92 of overpaid VAT.

HMRC refused PLL’s claim for overpaid VAT and it appealed to the FTT.

PLL claimed its service was exempt from VAT as it involved bringing together clients and advisers in connection with financial services. HMRC disagreed and argued that the company merely supplied advertising services or acted as a “mere conduit” for information, neither of which qualifies for exemption.

The FTT allowed PLL's appeal and rejected HMRC’s position. It held that the company was not simply advertising the services of IFAs. It did not promote specific firms or allow them to influence how or when they appeared to consumers. Rather, the company independently assessed enquiries before matching them to a suitable adviser. This filtering process added value and demonstrated that the company was more than a conduit for information.

The FTT noted that the exemption under Item 5 can apply where a supplier is involved in work “preparatory to the conclusion” of financial services contracts. It is not necessary for the intermediary to bring both parties together directly, or to be involved in the conclusion of the contract itself. The lead-vetting process satisfied this test and therefore  the exemption applied.

Why it matters:

This decision clarifies what does and does not qualify as financial intermediation for VAT purposes. Merely forwarding client details, or offering advertising space, will not attract exemption. But where a business plays an active role in preparing, or filtering, leads for regulated financial services, may be exempt.

The case is a reminder that context and functionality are important. Labels like such as 'advertising' or 'lead generation' are not decisive. What matters is how the service operates in practice.

The decision can be viewed here.

Background

Given the current economic climate and the government's drive to find more cash, reducing the tax gap, which is currently £46.8bn, is an obvious target, and incentivising individuals to report non-compliance wish financial rewards is an approach that has been successfully deployed in other jurisdictions.   Against this backdrop, it is perhaps not surprising that the government has recently announced that a new reward scheme will be established later this year to encourage informants to report tax fraud to HMRC.  

HMRC currently offers discretionary rewards to informants, but publicly available information on the criteria used to determine eligibility and calculate payments is limited. However, available data suggests that total payments of around £1m were made in the 2023/24 tax year. This is a relatively modest sum when contrasted with the US and Canadian schemes, which are significantly more generous and underpinned by clearly defined eligibility criteria and transparent operational policies. 

The US and Canadian schemes offer fixed-percentage rewards based on the amount of additional tax recovered as a result of information provided by the whistleblower. As a result, the financial incentives can be substantial. For example, in 2024, three US whistleblowers shared an award of $74m after their disclosures led to the recovery of $263m in unpaid tax. Whether the new UK scheme will be as generous remains to be seen, but the government has confirmed that rewards will be “significant”.       

While the proposed scheme promises to enhance compliance, such a scheme also introduces serious new risks for corporates and wealthy individuals, who may see a sharp uptick in HMRC scrutiny triggered by both external sources and insiders 'tipping-off' HMRC.

Whistleblowing policies

Even legitimate tax planning might be identified by would-be whistleblowers, diverting significant time and resources to managing HMRC investigations and responding to compliance checks.

To mitigate such risks, corporates and wealthy individuals will need to carefully consider their historical and future tax compliance, and ensure that they have robust policies and procedures in place to ensure that they comply with their tax obligations and, importantly, limit any public perception of non-compliance.

Tax planning, offshore structures and cross-border transactions may require particular attention given their complexity and the fact that they have become priority areas for HMRC scrutiny in recent years.

Taxpayers should ensure that their tax affairs in these areas are underpinned by robust professional advice and comprehensive contemporaneous documentation that evidences the commercial rationale for any transaction, or arrangement.

Careful consideration should also be given to disclosure strategies, recognising that HMRC may take a more lenient approach where a potential tax risk has been identified and voluntarily disclosed to HMRC. 

Finally, corporates should ensure that robust whistleblowing policies are in place and are fully up to date with all applicable legislation. Such policies should provide clear and confidential channels for staff to raise genuine concerns. They should also make explicit that such concerns will be taken seriously by senior leadership, with transparent processes for further investigation and resolution.

Fostering a culture in which issues are addressed internally rather than escalated directly to HMRC will be critical in managing reputational, financial, and regulatory risk.

Given the volume of sensitive information shared with external third-party advisers, it is equally important to understand the whistleblowing policies those firms have in place, to ensure their staff are also encouraged to report concerns they may have through a rigorous internal process.

While it may not be possible to prevent individuals from making a disclosure to HMRC, especially when a substantial financial reward is on offer, a well-designed whistleblowing policy should encourage individuals in the first instance to raise any concerns they may have internally  rather than contact HMRC directly. Such a policy will also demonstrate that the organisation takes its tax compliance obligations seriously.

The tax affairs of corporates and wealthy individuals are already subject to unprecedented levels of scrutiny by HMRC, which demand the commitment of substantial time and resources, and the introduction of the new whistleblower scheme is likely to result in increased scrutiny from HMRC. Staying informed, understanding the implications for complex tax transactions/arrangements, and taking proactive steps to mitigate risk, are more important than ever.

New legislation, outlined in the Draft Finance Bill 2026, which is intended to reduce non-compliance, will introduce far-reaching changes to the umbrella sector.

The existing legislation for agency workers (Part 2, Income Tax (Earnings and Pensions) Act 2003) provides for recruitment agencies to be responsible for the operation of PAYE in respect of payments to agency workers. However, if the recruitment agency uses an umbrella company to employ the worker and provide payroll services, this obligation is transferred to the umbrella company.

Whilst many umbrella companies comply with their tax obligations and provide valuable services to recruitment agencies, HMRC considers that some are used to facilitate tax avoidance and fraud. In 2022/23, HMRC data suggested that £500m was lost to the government due to disguised remuneration tax avoidance schemes, almost all of which was facilitated by umbrella companies. In addition, hundreds of millions of pounds were purportedly lost due to "mini umbrella company" fraud - the use of multiple small limited companies to exploit tax thresholds intended for small businesses. HMRC have struggled to use their existing enforcement powers because it is claimed that once HMRC start to investigate an umbrella company it is relatively easy for the individuals involved to establish a new company.

The new legislation

To address this issue, new legislation is to be introduced which will make recruitment agencies jointly and severally liable for PAYE and National Insurance Contribution (NIC) in respect of payments to agency workers, even when an umbrella company is used. This will allow HMRC to pursue a recruitment agency in the first instance for any PAYE and NIC that a non-compliant umbrella company fails to remit to HMRC.

In circumstances where the end client is in a direct relationship with an umbrella company, the end client can be held jointly and severally liable in the same way.

This legislation will be introduced in Finance Bill 2025-26 and will have effect from 6 April 2026.

In light of these changes, some agencies and end clients may decide to operate their own payroll which will increase costs and disproportionately affect smaller businesses.

In any event, companies and individuals operating in the temporary recruitment industry should familiarise themselves with the new legislation before it comes into effect. The draft legislation and background documents can be found here.

What can you do to prepare?

Recruitment agencies should:

1. carry out due diligence: conduct a detailed review on all umbrella companies with whom they have a business relationship. Carefully check the details provided by umbrella companies concerning their products. Ensure all umbrella companies used are PAYE-compliant and maintain clear, auditable, payroll records
2. review contracts: update and regularly review agreements with umbrella companies and ensure they include provisions that protect your business against non-compliance risks
3. verify credentials: request compliance certifications from umbrella companies to confirm compliance with all relevant UK tax legislation. Be cautious of working with umbrella companies that are offshore or offer financial incentives to the recruitment agency or the employees themselves
4. take independent advice: take independent professional advice if you are unsure as to whether or not an umbrella company you are utilising, or intend to engage with, is compliant
5. plan for cost increases: with rising employer NICs, reassess existing pay structures to avoid reduced take-home pay for workers
6. stay engaged: monitor government updates, including consultations, guidance and draft legislation, to ensure you are fully prepared when the new rules take effect.

By taking these steps now, businesses can safeguard their operations and ensure a smooth transition when these changes come into effect in April 2026. If you would like to discuss the coming changes or if you, or a company in your labour supply chain, are contacted by HMRC and require expert advice and assistance please contact Adam Craggs, Michelle Sloane or Daniel Williams.

Gary Quillan was the sole director of BOH Investments Ltd (BOH). On 16 January 2017, BOH passed a resolution for the voluntary winding up of the company and a liquidator was appointed. At that time, Mr Quillan had an outstanding director's loan account balance of £439,954.

The liquidator demanded payment of the outstanding balance. Mr Quillan provided a statement of means to show that he had insufficient assets and income to meet the demand. He offered to pay £57,500 to settle the claim and the liquidator accepted this offer but, importantly, reserved the right to continue making enquiries into Mr Quillan's financial position so that the outstanding balance could be recovered if Mr Quillan received a windfall.

The liquidator's final report noted "no further funds are expected into the Liquidation in this respect" but they confirmed in a letter to HMRC that the matter remained unresolved and the loan was not formally written off.

Despite this confirmation, HMRC considered that the loan should be treated as written off for the purposes of section 415, ITTOIA. That section provides for income tax to be charged on an outstanding loan to a participator when "the company releases or writes off the whole or part of the debt in respect of the loan". HMRC issued a closure notice on that basis, pursuant to section 28A, TMA.

Mr Quillan appealed the closure notice to the FTT, arguing that the loan had not been written off or released. 

FTT's decision

The appeal was allowed.

HMRC sought to convince the FTT that since "written off" is not given a statutory meaning, it should be interpreted in accordance with the Cambridge English dictionary definition of the phrase: "to accept that an amount of money has been lost or that a debt will not be paid". 

HMRC also relied on Collins v Addies (HM Inspector of Taxes) [1991] BTC 244, in which it was contemplated that "a debt which is written off may yet be recovered by a company if it discovers that the debtor’s circumstances have changed so that it is no longer unable to repay the creditor company".

The FTT was not persuaded by these arguments, primarily because there was a formal process available to the liquidator to write off or release the loan and they deliberately chose not to follow that process. The liquidator had expressly stated that the loan had not been written off and that Mr Quillan could be pursued at a later date. 

Comment

This decision confirms that a loan to a participator that is unlikely to be repaid at the time of liquidation is not necessarily written off, and attention must be paid to the formal processes available to the liquidator. 

The decision runs contrary to HMRC's guidance (CTM61560), which currently states:

"Equally, where the liquidator does not write off or release the loan balance, but, on a balanced view of the facts, it is clear that the company and/or liquidator are not intending to pursue the outstanding loan, e.g. where they are not making any attempts to collect it or have given up any attempts to do so, then we should argue that the loan has been written off and that S415 ITTOIA05 should apply to the relevant amount..

It will be interesting to see whether HMRC will revise its guidance, or perhaps more likely seek to appeal the FTT's decision to the Upper Tribunal. 

The decision can be viewed here. 

HMRC is targeting taxpayers who have claimed tax relief for interest paid, or other debits relating to loans, where they suspect that one of the taxpayer's "main purposes" for entering into the loan relationship was to avoid tax.

Unallowable purpose

The "unallowable purpose" rule prevents companies deducting interest and other debits for UK corporation tax purposes if one of the main purposes of entering into the underlying loan relationship is to reduce its corporation tax liability. The application of the rule has been the subject of substantial litigation and uncertainty because it is unclear to what extent it is acceptable to factor tax consequences into the design of financing arrangements.

The Court of Appeal recently considered the application of the unallowable purpose rule in three separate appeals: BlackRock Holdco 5 LLC v HMRC [2024] EWCA Civ 330; Kwik-Fit Group Ltd and other companies v HMRC [2024] EWCA Civ 434; and JTI Acquisitions Company (2011) Ltd v HMRC [2024] EWCA Civ 652. All three decisions emphasised the importance of reviewing contemporary documentary evidence to ascertain the subjective purpose of the company in entering into the loan relationship.

HMRC's latest nudge letters

HMRC has recently written to taxpayers with open enquiries into the application of the unallowable purpose rule. The letters request the recipient taxpayers to reconsider their position in light of the Court of Appeal's decisions in the above cases and try to resolve the matter through without prejudice discussions with HMRC.

The letter also indicates that HMRC are continuing to challenge cases where they believe the "facts, circumstances and evidence" show that a company has entered into a loan relationship and one of the main purposes for doing so was avoiding tax.

A copy of HMRC's letter has been published by the ICAEW and can be found here.

Further action

If you are contacted by HMRC in relation to the above (whether you have an open enquiry or not) and require expert advice and assistance in this complex area of the law, please contact Adam Craggs or Michelle Sloane.

This case concerned the tax treatment of guaranteed licence fees received by the Vaccine Research Ltd Partnership (the Partnership), as part of a complex, circular financing arrangement (the Scheme). Patrick Lionel Vaughan, an individual partner in the Partnership, and the Partnership, were the appellants (the Appellants).

The Scheme was designed to generate trading losses for income tax purposes through claimed research and development expenditure and associated capital allowances. While some qualifying expenditure was accepted (approximately £14 million out of £193 million claimed), the majority of the activity was found by the Upper Tribunal, in Vaccine Research Ltd Partnership and Anor v HMRC [2014] UKUT 359 (TC), to lack genuine trading substance and involved a circular flow of funds.

The earlier decisions dealt primarily with the partners' entitlement to loss relief and did not address whether the incoming licence fees were taxable (one feature of the Scheme was the guaranteed receipt of licence fees by the partners to fund the cost of repaying the loans taken out to fund the Scheme). This issue was considered in the present appeal, with HMRC contending that the fees were taxable under either section 683 (annual payments) or section 687 (income not otherwise charged), ITTOIA 2005.

FTT's decision

The appeals were allowed.

HMRC argued that the licence fees were taxable under sections 683 or 687, as they were payments made for the use of intellectual property and therefore should be treated as income.

The Appellants contended that the licence fees were not taxable for two primary reasons. Firstly, they argued that the funds borrowed to finance the Scheme were not used to acquire the licence fees. Instead, the money was returned to the bank as part of a circular arrangement, and thus no income had been generated in the transaction. This circular flow of funds meant that the licence fees should not be considered taxable income.

The FTT rejected this argument. Despite the circular nature of the arrangement, the FTT noted that the legal rights and obligations set out in the relevant documentation were clear and the original decision of the FTT had accepted these terms. Disregarding the rights and obligations outlined in the documents would be inconsistent with the factual findings of the FTT and so this ground of appeal was rejected.

The Appellants' second argument was that, applying the Ramsay principle of statutory interpretation, the Scheme should be treated as a single composite self-contained transaction. Accordingly, the circular flow of funds did not create any income for tax purposes and therefore the licence fees were not taxable under sections 683 or 687, ITTOIA 2005.

The FTT agreed that it was bound to apply the Ramsay principle of statutory interpretation and it therefore adopted the requisite two two-step process of: (1) identifying the class of facts intended to be affected by the legislation interpreted purposively; and (2) determining whether the facts of the case fell within that class, namely, whether the licence fees were income.

The FTT noted that, in economic reality, the licence fee payments were simply part of a circular flow of funds. The borrowed money was returned to the lender to service the debt and nothing substantive had occurred to generate income in the traditional sense. Accordingly, the FTT concluded that the licence fees did not meet the definition of income and were not subject to tax under sections 683 or 687, ITTOIA 2005.

Comment

This case is noteworthy because it was the taxpayers, rather than HMRC, who successfully relied on the Ramsay principle of statutory interpretation by persuading the FTT that the Scheme should be viewed as a composite transaction. The FTT's decision confirms that the Ramsay principle is not the exclusive preserve of HMRC. The key issue in this case was the economic reality of the transactions under consideration. Despite the appearance of licence fee payments, the circular flow of funds meant that no income had been generated.

The FTT’s approach in this case can be contrasted with its recent decision in Lynch v HMRC [2025] UKFTT 300 (TC) (which was heard after The Vaccine Research case had been heard but in which the FTT delivered its decision before the FTT delivered its decision in the The Vaccine Research case), where the FTT found that part of a composite transaction could be taxed notwithstanding that the scheme, as a whole, was ineffective. While both decisions involve the application of the Ramsay principle, there are slight differences in the legal reasoning of the FTT and the application of the principle, in each case. Any taxpayer seeking to invoke the Ramsay principle as an aid to statutory interpretation, will no doubt wish to consider both decisions carefully.

The decision can be viewed here. 

The APA entities brought a JR claim against HMRC challenging HMRC's approach to the APA for 2018 (the JR claim). The JR claim was dismissed by the Upper Tribunal and the Court of Appeal, but an application was made for permission to appeal to the Supreme Court. 

HMRC kept its 2018 corporation tax enquiries into the Applicants open whilst this application for permission remained undecided. The Applicants wished for HMRC to close its enquiries and applied to the FTT, pursuant to paragraph 33, Schedule 18, Finance Act 1998, for a direction requiring HMRC to close its enquiries and issue closure notices (the Application). 

HMRC accepted that it had "no reasonable" grounds for not closing the enquiries in respect of the four non-APA entities. The Applicants argued that HMRC was in receipt of all relevant information and had come to an "informed judgment" in respect of the APA Entities, and that the enquiries had continued unnecessarily. HMRC resisted the Application, claiming the outcome of the pending application for permission to appeal before the Supreme Court in the JR claim could affect its enquiries.

FTT decision 

The Application was granted

The FTT found that HMRC had failed to meet the burden which was on it to show that there were reasonable grounds for it not issuing the closure notices sought and directed HMRC to issue closure notices to each of the Applicants for 2018, within specific timeframes.

Whilst the FTT acknowledged it could be considered reasonable for HMRC to want to know the outcome of the JR claim and its impact on the relevant APA and transfer pricing dispute, in its view, ongoing JR proceedings do not justify or present reasonable grounds for keeping enquiries open. The basis for this was that HMRC had sufficient information to issue closure notices wide enough to capture any changes that might arise following the Supreme Court's decision in the JR claim. In addition, the FTT had the power to make any consequential adjustments to the quantum referred to in closure notices.

The FTT also noted that:

• HMRC had no outstanding information requests, and the Applicants had been fully cooperative and compliant with HMRC's requests for information for over 10 years;

• further delay would risk evidence deteriorating and/or witnesses being unavailable; and

• HMRC was holding over £300m of the Applicants’ money which could not be repaid unless and until the FTT ruled in their favour. 

Comment 

One of the keenest areas of contention between HMRC and taxpayers is the length of time that enquiries can take before they are concluded. 

Unfortunately, there is no time limit by which HMRC is required to conclude an enquiry and, sadly, it is not uncommon for enquiries to go on for many years, as was the position in this case. Increasingly, taxpayers are seeking an appropriate direction from the FTT requiring HMRC to issue a closure notice within a specified period of time and in appropriate cases the FTT has shown itself to be sympathetic to such applications, as in this instance. 

The decision can be viewed here. 

UK government provides response to consultation on Carried Interest

The UK government has published its response to the consultation on conditions for carried interest to avoid income-based treatment, confirming no minimum co-investment or holding periods will be introduced. The amendments are intended to improve rules for credit, secondary, and fund structures. For non-UK residents territorial scope limits apply, for example, the rules will not apply if UK services are performed by someone who has neither been UK resident nor spent 60 workdays or more in the UK for three years. Carried interest will be apportioned, based on UK workdays, with prior year income tax and National Insurance Contributions considered in the calculation of payments on account. Draft legislation will be published before the summer recess for inclusion in Finance Bill 2026.

The government's response can be read here.

HMRC concludes its consultation on multinational and domestic top-up taxes guidance 

HMRC has announced the conclusion of its consultation on draft multinational and domestic top-up tax guidance issued between June 2023 and January 2025. While HMRC will not publish a summary of responses, it confirms that feedback has been reviewed and, where appropriate, incorporated into a forthcoming HMRC guidance manual. The manual is expected to be published later this year, providing finalised guidance on these top-up tax rules.

 The consultation outcome can be read here.

HMRC publishes Spotlight 71 warning agency workers and contractors who are moved between umbrella companies

HMRC has published Spotlight 71, alerting agency workers and contractors to the risks of being moved between umbrella companies operating tax avoidance schemes which can lead to unexpected tax liabilities.

HMRC advises workers to be cautious of sudden transfers with minimal paperwork, multiple employment contracts, or payments from unfamiliar entities. It also advises workers to review employment contracts and payslips carefully and report any suspicious arrangements.

Workers may receive letters from HMRC if they are identified as potentially involved in such arrangements.

 The Guidance can be read here.

HMRC updates its Guidance on making a subject access request

HMRC has updated its Guidance on how to make a subject access request (SAR). Taxpayers can make a SAR to HMRC for personal information not already available in their personal tax account. To do so, they will need to set out the information they require, the reason for the request, as well as provide their name, NI number, date of birth and address over the last 5 years.

 The Guidance can be read here. 

Case reports

Court of Appeal confirms pre-construction costs qualify for capital allowances

In Orsted West of Duddon Sands (UK) Ltd and others v HMRC [2025] EWCA Civ 279, the Court of Appeal held that expenditure incurred in designing windfarms and on studies informing their installation, qualify for capital allowances.

Questions raised in this appeal are becoming more acute as very large infrastructure projects require extensive and costly preparatory work. This decision provides much needed clarification and guidance on the types of preparatory work that can qualify for capital allowances. Large infrastructure projects often involve many years of planning and investigation and this decision is likely to be closely scrutinised by businesses involved in such projects.

Unsurprisingly given the amount of tax at stake, HMRC has applied to the Supreme Court for permission to appeal.

You can read our commentary on this decision here.

Upper Tribunal dismisses IR 35 challenge

In George Mantides Ltd v HMRC [2025] UKUT 00124 (TCC), the Upper Tribunal (UT) dismissed the company's appeal against an income tax determination and national insurance decision. Whilst the UT set aside the decision of the First-tier Tribunal on the basis that there were errors in the assessment of the hypothetical contract, ultimately it came to the same conclusion that the hypothetical contract was one of employment resulting in income tax and national insurance liability.

The UT’s decision confirms that the Supreme Court’s guidance in HMRC v Professional Game Match Officials Ltd [2020] UKUT 147 (TCC) (PGMOL), on what constitutes an employment relationship, is pertinent to the application of IR35 and it demonstrates the way that the tax tribunals are likely to direct themselves following PGMOL.

Contractors and engagers should ensure that they have reviewed and updated, where necessary, their contracts following the decision in PGMOL decision. What may have been reliable in terms of mutuality of obligations and control, may no longer provide a robust defence to a challenge by HMRC.

You can read our commentary on this decision here.

And finally...

RPC's Taxing Matters podcast will be releasing an exciting new mini-series in July, delving into the world of corporate criminal liability and helping professionals navigate this complex and ever-changing area – watch this space...

If you would like to discuss any of the topics covered in this update, please contact Adam Craggs or Daniel Williams.

George Mantides Ltd (GML) received income in connection with locum services provided by Mr George Mantides, a doctor specialising in urology and also sole director and shareholder of GML, to the Royal Berkshire Hospital (RBH) and Medway Maritime Hospital (MMH). 

HMRC determined that the income was liable to income tax and national insurance contributions on the basis of the application of the "intermediaries legislation" in sections 48-61, Income Tax (Earnings and Pensions) Act 2003 and equivalent provisions in the Social Security Contributions (Intermediaries) Regulations 2000, commonly known as IR35. 

GML appealed to the FTT against HMRC's determinations regarding income tax and national insurance contributions. 

The FTT allowed the appeal in relation to the services provided by Mr Mantides to MMH but not in relation to the services he provided to RBH. 

The FTT applied the well-known legal test set out in Ready Mixed Concrete v Minister of Pensions and National Insurance [1967] 2 QB 497, in relation to the necessary conditions for a contract of service and considered associated authorities. Under this test, the FTT considered the following:

1. The mutuality test – the servant agrees that in consideration of a wage or other remuneration, he will provide his own work in the performance of some service for his master.
2. The control test – the servant agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master.
3. The inconsistency test – the other provisions of the contract are consistent with it being a contract of service. 

The FTT reached different conclusions in relation to materially similar arrangements. With regard to RBH, the FTT held that the circumstances were such that if Mr Mantides' services had been provided under a contract directly between RBH and Mr Mantides, then he would be regarded, for income tax purposes, as an employee of RBH. In relation to the services provided to MMH, the FTT held that the circumstances were such that if the services of Mr Mantides had been provided under a contract directly between MMH and Mr Mantides, then he would not be regarded, for income tax purposes, as an employee of MMH. 

GML appealed the FTT's decision in relation to RBH to the UT, on the following grounds:

1. the FTT made an error of law in finding that the hypothetical contract between RBH and Mr Mantides would have contained a provision that RBH would have to give at least a week's notice to terminate early (the First Ground);
2. the FTT made an error of law in finding that in the hypothetical contract RBH would have been under an obligation to use reasonable endeavours to provide 10 half day sessions in a week (the Second Ground); and
3. as a result of these errors, the FTT erroneously concluded that the notional contract would be one of employment (the Third Ground). 

UT decision

The appeal was heard, in part, by the UT in July 2021 and its decision released in August 2021. The UT concluding that GML had established the errors of law set out in the First Ground and Second Ground. However, the UT deferred consideration of the Third Ground until after the final determination of HMRC v Professional Game Match Officials Ltd [2020] UKUT 147 (TCC) (PGMOL).

In April 2025, following the final determination of PGMOL and further submissions from the parties, the UT dismissed GML's appeal. This was even though the UT accepted that the FTT had made material errors of law as argued by GML in relation to the First Ground and Second Ground. 

The UT was satisfied that, on balance, having considered all the terms of the RBH hypothetical contract, all the circumstances, the errors made by the FTT and the FTT's other findings which were not challenged, the RBH hypothetical contract was a contract of employment. Accordingly, the FTT came to the right conclusion.

Significantly, in reaching its decision on the Third Ground, the UT found that even though GML argued that the MMH contract was indistinguishable from the RBH contract, it was not appropriate to simply compare the position in relation to the MMH hypothetical contract. 

Comment 

The UT’s decision confirms that the Supreme Court’s guidance in PGMOL, on what constitutes an employment relationship, is pertinent to the application of IR35 and it demonstrates the way that the tax tribunals are likely to direct themselves following PGMOL.

Contractors and engagers should ensure that they have reviewed and updated, where necessary, their contracts following the PGMOL decision. What may have been reliable in terms of mutuality of obligations and control, may no longer provide a robust defence to a challenge by HMRC.

The decision can be viewed here. 

• The Chancellor of the Exchequer has presented her Spending Review 2025 to Parliament. The Review set out details of departmental (including HMRC) budgets, for day-to-day spending until 2028-29, and capital investment until 2029-30.

The Spending Review 2025 can be viewed here.

• HMRC has published a policy paper entitled: Tax Policy Making Principles. This sets out the principles, such as, predictability and stability, underpinning the government's approach to delivering tax policy changes through the single major fiscal event cycle and how it will engage with stakeholders during tax policy development.

HMRC's policy paper can be viewed here.

• HMRC has published Brief 3, providing an update on the VAT treatment of income received from charity fundraising events, following the Upper Tribunal decision in Yorkshire Agricultural Society v HMRC [2025] UKUT 00004.

HMRC's Brief can be viewed here.

Case reports

Get a Drip Ltd v HMRC [2025] UKFTT 00500 (TC)

Get a Drip Ltd (GAD) is a company that supplies intravenous vitamin drips and injectable booster shots to customers. The services are provided by registered medical practitioners.

GAD registered for VAT and submitted a repayment return on the basis that its supplies were zero rated because they fell within Item 1, Group 12, Schedule 8, Value Added Tax Act 1994 (VATA) – which zero rates supplies of goods designed for use in connection with medical treatment, if the goods are dispensed to an individual for that individual's personal use.

HMRC challenged GAD's VAT return and, although they adopted varying positions throughout the enquiry, ultimately decided that the supplies were standard rated.

GAD appealed to the First-tier Tribunal (FTT) but no longer sought to argue that its supplies were zero-rated. Instead, GAD considered that its supplies were exempt from VAT because they were supplies "consisting in the provision of medical care by a registered medical practitioner" and so fell within Item 1, Group 7, Schedule 9, VATA.

The only issue for the FTT to determine was whether the supplies fell within the 'medical care' exemption. The parties agreed that the legal test to apply is whether the supplies were "medical interventions, the principal purpose of which is diagnosing, treating or, in so far as possible, curing diseases or health disorders, or to protect, maintain or restore human health".

HMRC argued that GAD's supplies promoted general wellness and wellbeing but did not aim to diagnose, treat, or cure diseases.

GAD provided evidence of 11 customer cases in which a health disorder had been diagnosed and treatments (intravenous vitamin drips) were prescribed. An expert medical witness confirmed that the treatments in each case were reasonable to treat the diagnosed health disorders.

The FTT accepted the expert evidence and held that the supplies fell within the 'medical care' exemption because their principal purpose was to treat disorders or protect/maintain human health.

Why it matters

HMRC often challenge a taxpayer's reliance on the medical care exemption, particularly in relation to services they consider to be cosmetic, or relating only to wellbeing.

GAD's success can be attributed, in part at least, to it being able to provide well-documented files to support its position, which may not always be possible for medical service providers due to patient confidentiality issues, and to the expert evidence it relied on in support of its case. Notably, HMRC did not adduce its own expert evidence.

The decision can be viewed here.

Walkers Snack Foods Ltd v HMRC [2025] UKUT 155 (TCC)

Walkers Snack Foods Ltd (Walkers) initially appealed to the FTT against HMRC's decision that its product, Sensations Poppadoms, should be treated as standard-rated for VAT purposes. The FTT found that, because this product is similar to potato crisps and contains potato granules (i.e. is made from potato), it should be standard-rated for VAT purposes. Walkers appealed to the Upper Tribunal (UT).

Group 1, Schedule 8, VATA, sets out which foods are zero rated for VAT. There are also excepted items within this Group, including "potato crisps, potato sticks, potato puffs, and similar products made from the potato, or from potato flour, or from potato starch …" when packaged for human consumption without further preparation (Excepted Item 5).

The UT identified Proctor & Gamble UK v HMRC [2009] EWCA Civ 407,  as the key authority on the application of Excepted Item 5. In Proctor & Gamble, the Court of Appeal (CoA) found that a product made using at least 40% potato content, and similar to potato crisps, did fall within Excepted Item 5. In line with this case, the UT considered:

1. whether Sensations Poppadoms were made from potato or a derivative of potato; and
2. whether Sensations Poppadoms are "similar" to potato crisps.

Sensations Poppadoms' ingredients include approximately 18% potato granules, 18% potato starch and 4% modified potato starch. They also contain gram flour and rice flour. Walkers argued that potato granules are not potato content and so the product did not fall within Excepted Item 5. It also argued that the FTT had failed to give sufficient weight to elements such as the product’s name, the gram flour content, distinct flavours, and the manufacturing process in its multifactorial assessment on similarity.

The UT dismissed Walkers' appeal, confirming that Sensations Poppadoms should be standard-rated. The UT's basis for this was that "potato" includes potato granules, and therefore the product's potato content was significant at 39-40%. The UT rejected Walkers' argument that sliced potato can be considered as potato, but potato granules cannot, as the granules ceased to be potato at a certain point in the manufacturing process.

Moreover, the UT concluded that the FTT's multifactorial assessment and conclusions, as to whether the product is similar to potato crisps, to have been reasonable. The UT noted that it was possible to disagree with the weight given by the FTT to individual elements in its multifactorial assessment, but the impact of this would not have materially affected the overall assessment and decision, which was reasonable on the basis of the evidence before it. 

Why it matters

This decision reinforces the guidance provided by the CoA in Proctor & Gamble and is important for those who manufacture similar products. Products with approximately 40% potato or potato derived ingredients, and crisp like features, are likely to continue to fall within Excepted Item 5, regardless of any marketing or manufacturing variances.

The decision can be viewed here.

Rushby Dance and Fitness Centre and others v HMRC [2025] UKFTT 594 (TC)

This case involved appeals from four separate dance tutors. The FTT considered whether private dance tuition provided by the dance tutors qualified for VAT exemption under Group 6, Item 2, Schedule 9, VATA.

The dance tutors argued that their respective dance classes fell within the exemption as they provided private tuition as individuals, rather than in their capacity as an employee of a company. They argued that the subject of dance generally was something "ordinarily taught in school or university". HMRC argued that the specific classes being taught, such as ballroom, yoga and exercise, were not ordinarily taught in school or university and so did not meet the requirements to benefit from the VAT exemption.

The FTT followed HMRC v Cook [2021] UKUT 15 (TCC), in which the UT held that a subject is “ordinarily taught in a school or university" if it is commonly taught in a school or university. In Cook, the UT found that private Ceroc dance lessons were not commonly taught in schools, leading to the conclusion that the supplies in that case were not exempt.

Although dance may be commonly taught in schools and universities, the FTT required evidence that the specific classes being provided by the dance tutors in this case were also commonly being taught in schools and universities. The dance tutors presented evidence of the educational aspects of the classes, including structured lesson plans and progression pathways, no evidence as to the specific types of dance classes being commonly taught was provided. Consequently, the FTT found that the dance tutors' supplies did not fall within the exemption.

Why it matters

This decision illustrates the high evidential threshold that needs to be met in cases of this nature. The dance tutors needed to provide appropriate evidence that the specific lessons in question are commonly taught in schools and universities, in order for the FTT to be in a position to evaluate whether the exemption applied or not.

The decision can be viewed here.

Background

The government has recently announced a consultation on modernising and improving HMRC’s approach to dispute resolution. The consultation follows an HMRC call for evidence in February 2024, that sought views on aspects of the tax administration framework relating to tax compliance, including dispute resolution. A summary of responses to the call for evidence was published at the 2024 Autumn Budget, and the government committed to consulting on how to raise awareness of the dispute resolution processes, improve access to alternative dispute resolution (ADR) and statutory review, and improve taxpayers’ knowledge to help them make the right choices for their circumstances.

The consultation is open until 7 July 2025, and seeks views on options for simplifying, modernising and reforming HMRC’s approach to dispute resolution, focussing on the ease of access and use of HMRC’s ADR and statutory review processes.

The consultation

The consultation explains that, wherever possible, HMRC will look to resolve disagreements without it being necessary to use formal dispute resolution mechanisms and observes that the vast majority of tax compliance interventions conclude without dispute. 

Respondents to the 2024 call for evidence widely agreed that improving access to ADR and statutory review is essential. Those mechanisms are currently underutilised, largely due to limited public awareness and concerns about their independence. As a result, many taxpayers opt to escalate disputes to the First-tier Tribunal (FTT), which is a more costly and time-consuming route for both parties. External research, referred to in the consultation document, also highlighted key barriers to the uptake of statutory review, including a lack of understanding of the process and its advantages, as well as a perception that it is not impartial.

A majority of respondents to the 2024 call for evidence, also supported aligning appeal processes across direct and indirect taxes. In that regard, respondents favoured the approach used in direct taxes, including the ability to apply to HMRC to postpone the payment of the tax owed (as opposed to the indirect tax approach, which requires upfront payment in order to appeal to the FTT, unless hardship can be established).

In light of the above, the consultation highlights two key objectives:

1. to make it easier to resolve disagreements before the end of a compliance intervention, supporting taxpayers to pay the right tax, through simplification and alignment of processes across different taxes; and
2. to make it easier for taxpayers to understand their options once an enquiry has concluded so that, if a dispute does remain, taxpayers can identify and access the quickest and most appropriate method of dispute resolution for their circumstances.

To that end, the consultation is focussed on opportunities for improvement at various points in the "taxpayer journey", both during and after a compliance intervention has closed. 

Potential reforms

The consultation proposes, and seeks stakeholder views on potential reforms to HMRC's dispute resolution process in the following areas. 

Improving support and guidance

HMRC is considering a number of improvements to the support and guidance for taxpayers during a compliance intervention, noting that taxpayers may not have prior knowledge of their rights and obligations, especially where they do not have access to professional representation. To that end, in 2023 HMRC published the Compliance Professional Standards, which set out how HMRC should apply its Charter and the Civil Service Code in its compliance activity and which the consultation notes will be a key component of HMRC’s approach to improving dispute resolution.

As part of the consultation, HMRC is exploring the scope for streamlining the online process for applying for dispute resolution, such as ADR or statutory review, to make it more accessible. The consultation notes that streamlining the online application process and integrating it with digital systems, such as customer tax accounts, could improve taxpayer trust, increase transparency in the system, and lead to better user engagement.

Simplifying and aligning processes

The consultation is also exploring the benefits of a more simplified and aligned approach for appeals that would combine the benefits of both indirect and direct taxes approaches. At present, the direct tax process generally requires the taxpayer to have appealed an appealable decision to HMRC, before the statutory review process can be engaged. For indirect taxes, HMRC can provide an initial "pre-decision" letter to explain its position before issuing a formal decision which can then be appealed.  

The majority of respondents to the 2024 call for evidence supported aligning the direct and indirect appeals processes, specifically favouring the approach used in direct taxes, as it allowed for more opportunities to use ADR before and after an appealable decision was issued. Accordingly, the consultation suggests that the direct and indirect tax processes could be aligned into a single model as follows:

• If appropriate, HMRC issues a pre-decision letter prior to the formal decision letter. This would allow a taxpayer to query or clarify any details prior to a formal decision being issued, and provide an opportunity to reach a settlement that is compliant with HMRC's Litigation and Settlement Strategy (LSS). ADR could be used at this stage, if appropriate.
• If an early settlement is not reached, HMRC would issue its formal decision and make an offer of statutory review.
• The taxpayer could accept the formal decision. Alternatively, the taxpayer would have 30 days to accept or decline the offer of a statutory review, in line with current statutory time limits, or they could choose to appeal to the FTT instead.
• ADR would continue to be available after receiving an appealable decision.
• After the statutory review or ADR is concluded, the right to appeal to the FTT would remain in line with current statutory time limits.
• Currently, a taxpayer can appeal to the FTT without considering ADR. However, the consultation notes that HMRC could implement a requirement for the taxpayer to consider ADR for suitable cases, prior to an FTT appeal.

A number of legislative changes would be required to implement the above model, most notably the removal of the requirement for an initial appeal to HMRC in direct tax cases. The consultation notes that a simplified and aligned model of this nature could be helpful in improving understanding of the appeals process and reduce the possibility for error, with a focus on suitable resolutions that provide taxpayers with certainty.

However, the consultation also recognises that there are a number of challenges in aligning the appeals processes. In particular:

• A risk of oversimplification.
• Potential impacts on the ability to access appropriate resource and level of technical input within HMRC noting, for example, that pre-decision letters can require the input of technical leads with s sufficient level of expertise.
• For automated decisions, there would continue to be no opportunity for early dispute resolution prior to statutory review. However, HMRC is interested in views on whether a more informal consideration stage might be appropriate in these circumstances to allow for a taxpayer to provide additional information or ask questions.

Improving access to ADR

The consultation recognises that ADR can be of significant benefit in resolving disputes with HMRC (noting that 84% of cases entering ADR in 2023-2024 were resolved) but acknowledges that a significant number of applications for ADR are rejected (approximately 61% of applications in 2023-2024). Part of the reason ADR applications can be rejected is the requirement for appeals to the FTT to be acknowledged and categorised before they can be accepted into the ADR process, and the exclusion of "paper" and "basic" appeals from ADR.

The consultation states that feedback from a recent HMRC review of its ADR exclusion list has highlighted that the current list is too restrictive and creates barriers in accessing ADR. As a result, HMRC is developing a "principle-based approach" for cases entering the ADR process to widen the scope of cases accepted into ADR and help resolve more disputes at the appropriate stage. The consultation proposes the following reforms:

• More active promotion of ADR by HMRC during a compliance intervention.
• Potentially making it a requirement for both taxpayers and HMRC to have considered ADR prior to appealing to the FTT. This would not be a requirement to have participated in ADR where it was not suitable, but rather a requirement for both parties to have given it due consideration prior to an appeal.

Next Steps

The consultation is being conducted in accordance with the Tax Consultation Framework and is open until 7 July 2027. A list of the specific questions being considered by the consultation can be found here and interested stakeholders can submit their views by way of email to tafrcompliance@hmrc.gov.uk. 

While there are no timeframes given beyond the consultation, in accordance with the Tax Consultation Framework, the next steps will be:

• Stage 2: Determining the best option and developing a framework for implementation, including detailed policy design.
• Stage 3: Drafting legislation to effect the proposed change.
• Stage 4: Implementing and monitoring the change.
• Stage 5: Reviewing and evaluating the change.

Comment

Tax practitioners will be familiar with the challenges of resolving disputes with HMRC and the considerable strain the current process places on their clients. Long delays, difficulty in reaching suitably skilled HMRC personnel, a lack of transparency in explaining decisions, frequent personnel changes, and the growing scope and complexity of tax legislation and policy, all create major obstacles to resolving even the most straightforward disputes in a timely and cost-effective way. These issues not only frustrate taxpayers but also lead to significant financial and emotional cost. While the consultation falls short of addressing all of these problems, any steps to improve the dispute resolution process are to be welcomed.

In terms of the specific proposals, efforts to streamline processes and increase the availability of information for taxpayers are undoubtedly positive. While the ADR application process is relatively straightforward and not overly burdensome, our experience suggests that many taxpayers are unaware of its existence, or are sceptical of its effectiveness. Providing clearer, more accessible information about taxpayer rights and the available options, is likely to enhance both awareness and participation in the ADR process as a means of resolving disputes with HMRC.

Similarly, aligning the appeal processes for direct and indirect taxes is also a logical and long overdue step. Taxpayers are often tripped up by unnecessary differences between the two processes, despite there being no sound policy rationale for treating direct and indirect taxes differently. One of the most significant and long-standing concerns is the requirement to pay disputed tax upfront in indirect tax cases – which can act as a barrier to access to justice. It is difficult to justify a system where, for example, a billionaire contesting an income tax assessment can appeal to the FTT without paying a penny of the tax claimed in advance of their appeal, while a small business owner disputing a VAT demand must pay the disputed VAT first in order to be able to exercise their right to have their appeal determined by an independent tribunal. This disparity is not only unfair, it undermines confidence in the accessibility and equality of the tax system.

The proposal to introduce pre-decision letters is also potentially a step in the right direction. While HMRC enquiries can drag on for substantial periods of time, decisions, once made, often trigger a rapid escalation that can force taxpayers into premature litigation simply in order to preserve their position. Allowing for a pause to consider HMRC's position, free from the pressure of litigation deadlines, is a sensible step that could lead to more disputes being resolved without recourse to the FTT. However, in order for the pre-decision process to be effective, HMRC must commit to greater transparency. Taxpayers need sufficient detail to understand the case against them and the underlying legal analysis before they can make informed decisions about their position. This would mark a significant shift in HMRC’s usual approach, and practitioners will recognise HMRC’s general reluctance to fully disclose its reasoning, which can impede constructive dialogue and early resolution of a dispute. In this context, the consultation is also correct to emphasise the importance of involving technical leads with the appropriate specialist expertise early in the process. Their input will be essential in ensuring that HMRC’s position is clearly and accurately set out in pre-decision letters. Given the variable quality of HMRC correspondence in recent years, there may be understandable scepticism about whether HMRC can meet this challenge in practice.

However, while proposals to enhance taxpayer information and streamline the appeals processes are commendable, the expansion of access to ADR is likely to attract the most attention from tax practitioners. With litigation becoming increasingly costly and time-consuming – further compounded by mounting pressure on tribunal and court resources – there is a pressing need for more effective and accessible alternatives for resolving tax disputes. In that regard, the revised Practice Statement on Alternative Dispute Resolution in Tax Disputes, recently issued by the FTT, confirms the judiciary’s recognition of ADR as an effective tool for resolving tax disputes.   

The consultation rightly recognises that while taxpayers generally welcome the option of engaging in ADR with HMRC, the current system has too often limited access to ADR rather than promote it. This has been to the detriment of both taxpayers and HMRC, frequently leading to avoidable and time-consuming litigation. Proposals to expand access to ADR are therefore positive and a much-needed development.

A central concern for both taxpayers and practitioners alike, and one acknowledged by the consultation, is the perceived lack of independence in HMRC’s current ADR process. Beyond the initial decision to engage in ADR, the process remains entirely within HMRC’s control. HMRC determines which cases qualify, who gains access, how the process is conducted, and even appoints the mediator, who will be an HMRC employee. In effect, HMRC acts as both gatekeeper and judge, setting the rules and overseeing disputes relating to its own decisions. This arrangement undermines confidence in the process and raises serious concerns about impartiality and fairness. Crucially, the consultation’s failure to explore how greater independence could be introduced into the ADR process, including by the use of independent external mediators, represents a missed opportunity to enhance confidence in the system and ensure a more balanced approach to tax dispute resolution.

Overall, the consultation offers a valuable opportunity for practitioners, taxpayers, and other stakeholders to influence how HMRC might approach dispute resolution in the future and to help shape a fairer and more effective system. Practitioners, in particular, are well positioned to contribute meaningful insights, drawing on their day-to-day experience and deep understanding of the current system’s strengths and weaknesses. Their contribution is likely to be critical in ensuring that any reforms address the real-world challenges faced by many taxpayers when a dispute arises with HMRC. It is therefore important that there is meaningful engagement in this consultation process, especially by those on the front line who deal with tax disputes on a regular basis.

Copyright 2025 Bloomberg Industry Group, Inc. (800-372-1033) www.bloombergindustry.com. Reproduced with permission.

Introduction

The Trump administration's flood-the-zone strategy has shaken the foundations of the global economy. 'Liberation Day' tariffs recently imposed - and then paused - signalled an uncompromising stance on trade, and the so-called special relationship between the US and the UK seemed to offer the UK little protection.

Against that backdrop, and with the UK government eager to avoid the fallout of a trade war while chasing the prize of a lucrative trade deal, speculation that Downing Street might be rethinking the Digital Services Tax (DST) to keep Washington onside felt less like rumour and more like realpolitik. But that speculation was short-lived.

DST

DST was introduced to address what the UK government viewed as a fundamental misalignment in the international tax system - the disconnect between where profits are taxed and where value is actually created in the digital economy. Policymakers argued that the existing global framework allowed major multinational tech companies to avoid contributing their 'fair share' in markets where their users played a key role in generating value.

The DST was designed to close this perceived gap, ensuring such companies paid taxes that better reflected their economic footprint in each country. Crucially, the tax was positioned as a temporary measure - a bridge to more comprehensive, long-term international tax reform.

Businesses that operate social media platforms, search engines, or online marketplaces for UK users become liable for DST if their group's global revenues from those activities exceed £500 million ($637.3 million), with more than £25 million generated from UK users. Once those thresholds are met, DST applies a 2% tax on revenues attributable to UK users, with an exemption for the first £25 million.

DST is reportable and payable annually, and liability is assessed at the group level, although DST itself is levied on the specific entities within the group that earn the relevant revenues. For DST purposes, the group includes all entities consolidated in the group's financial accounts, which means that even entities with no UK corporate tax presence may contribute to DST thresholds.

DST and US trade negotiations

It is not difficult to see how DST, and the financial burden it imposes on US tech companies, might be seen as being incompatible with President Trump's America-first agenda, making it a potential sticking point in US-UK trade relations. Commentators were therefore extremely interested in how the UK government would negotiate that tension. Indeed, reports suggested the UK might be prepared to reduce the headline rate while broadening DST, to bring more companies within its ambit. That would have delivered a tax break to large, primarily US, tech companies, while ensuring that overall DST revenues did not decline.

As with all things Trump-related, opinion was sharply divided. In principle, there would be nothing objectionable with the government adjusting  DST in pursuit of broader, more economically significant gains. In an era of increasingly complex trade dynamics, pragmatism is important and a prudent government, acting in the national interest, would be wise to keep all options on the table.

In that context, changing DST was considered by some to be a price worth paying in order to secure an attractive trade deal for the UK - particularly one that delivered long-term benefits for the UK economy. Few would criticise a government that adopted a commercially pragmatic approach that prioritised economic stability, particularly when the UK economy, while showing signs of growth, faces some serious challenges, including persistent inflation and a recent contraction in gross domestic product.

However, such a decision would still risk controversy. For those advocating greater corporate accountability and tax transparency, especially for powerful multinational enterprises, reducing or scrapping DST altogether risked being seen as a retrograde step that would raise difficult questions on the influence of geopolitics over tax policy and compliance. In that regard, a deal involving DST could have been seen as an indication that UK tax policy can be bought and traded, which would run counter to HMRC's campaign in recent years for more taxpayers to pay their 'fair share' of tax and for greater corporate transparency in the tax system.

Given that DST generates over £800 million a year for the UK Treasury, and with public finances under considerable strain, it was always unlikely that the government would relinquish such revenue lightly. Indeed, clearly alive to those sensitivities, following the Spring Statement, the Chancellor was at pains to reiterate that the integrity of the tax system depended on multinational enterprises paying tax where they operate. She also made clear that the UK would retain full control over its tax policy, including decisions relating to DST.

On 8 May 2025, the US and UK announced the general terms for a bilateral trade agreement known as the Economic Prosperity Deal (EPD). Under the EPD, tariffs on UK-manufactured cars were immediately reduced to 10%, while tariffs on UK steel and aluminium were removed entirely. The US and the UK also agreed to immediately begin the corresponding negotiations concerning the initial proposals of EPD which, in the future, may be extended to other areas. Notably, the EPD made no mention of DST, suggesting that the UK has resisted pressure to compromise on its tax policy, at least for now.

The future of DST

The Trump administration has made no secret of its intention to prioritise the interests of US industry and business in both domestic and international policymaking. That approach, combined with the administration's deal-making style, has disrupted the longstanding norms of international trade and the established rules of diplomacy, forcing other governments to adopt more flexible, and at times unconventional, strategies in their dealings with the US. The UK is no exception.

While tax policy has traditionally been considered independently of trade negotiations, tax and trade now appear to be increasingly intertwined, even if they remain uneasy partners at times. The challenge for the UK government lies in identifying which adjustments to its tax policies, if any, would satisfy US demands without alienating UK and non-US foreign businesses, or undermining the integrity of the UK tax system.

Although DST has survived for now, it is clear that Washington still views it as incompatible with its America first policy. Pressure on the UK government to make concessions may well resurface in the not too distant future. Balancing the UK’s established tax policy principles with the volatile dynamics of Trump-era economic diplomacy, will be no easy task. The UK is not alone in facing this dilemma, it is a challenge facing many governments around the globe.

Orsted West of Duddon Sands (UK) Ltd, Gunfleet Sands II Ltd, Gunfleet Sands Ltd and Walney (UK) Offshore Windfarms Ltd (the Appellants) owned and operated windfarms for the generation and sale of electricity. In 2000 and 2003 the Crown Estate invited tenders to develop certain areas of sea bed as windfarms. The Appellants made successful bids and secured the contracts.

The Appellants claimed capital allowances for expenditure incurred in the construction of the wind farms. HMRC disputed the capital allowances claims arguing that certain pre-construction development expenditure on preliminary studies, such as environmental impact studies, water level studies and geophysical studies, did not qualify for capital allowances under section 11, Capital Allowances Act 2001 (CAA 2001).

Section 11, CAA 2001, provides that expenditure is qualifying expenditure if: "it is capital expenditure on the provision of plant or machinery … ". HMRC argued that section 11 should be construed narrowly and only apply to the acquisition, transportation and installation of plant or machinery, as opposed to design and preliminary studies.

HMRC therefore issued closure notices denying the capital allowances in respect of expenditure on the various studies. The Appellants appealed to the First-tier Tribunal (FTT).

The FTT held that some of the expenditure qualified for capital allowances, but not all. Both parties appealed to the Upper Tribunal (UT). The UT considered that the FTT had erred in its interpretation of the phrase "on the provision of". It agreed with HMRC that it should be construed narrowly and concluded that none of the studies qualified for capital allowances.

The Appellants appealed to the CoA, primarily on the issue of the meaning of the phrase "on the provision of".

 CoA's judgment

The CoA disagreed with the UT's narrow interpretation and held that where the relevant plant and machinery was bespoke, expenditure on design costs and costs of studies informing the design, should qualify for capital allowances. 

The CoA concluded that capital allowances can be claimed where: 

(a) the taxpayer can demonstrate that, looking at matters objectively and with the benefit of hindsight, expenditure informed the design of plant or machinery, or how it was to be installed; 

(b) the expenditure related to plant or machinery which was in fact acquired or constructed; and 

(c) the expenditure did not arise from characteristics or circumstances particular to the specific taxpayer.

Comment

Questions such as were raised in this appeal are becoming more acute as very large infrastructure projects require extensive and costly preparatory work and this decision provides much needed clarification and guidance on the types of preparatory work that can qualify for capital allowances. Large infrastructure projects often involve many years of planning and investigation and this decision is likely to be closely scrutinised by businesses involved in such projects. 

Unsurprisingly given the amount of tax at stake, HMRC has applied to the Supreme Court for permission to appeal. 

The judgment can be viewed here. 

HMRC consults on reforms to transfer pricing

HMRC has launched a consultation on restricting the SME exemption from transfer pricing to small enterprises and introducing a new International Controlled Transactions Schedule (ICTS). The proposals aim to align UK rules more closely with international standards and protect the tax base. Key issues include re-defining small enterprises, replacing euro-denominated thresholds, and designing ICTS reporting for cross-border related-party transactions exceeding £1 million. HMRC is seeking views on minimising compliance burdens, with implementation dependent on future fiscal events.

A further consultation also included reforms to permanent establishment (PE), and diverted profits tax (DPT), including aligning PE rules with OECD standards, introducing an intra-UK transaction exemption for transfer pricing, and repealing DPT in favour of a new corporation tax provision for unassessed profits.

The respective consultations can be viewed here and here and close at 11.59pm on 7 July 2025.

HMRC updates its Corporate Finance Manual in relation to loan relationships and  “unallowable purpose” 

HMRC has updated its Corporate Finance Manual to reflect recent case law on the “unallowable purpose” rule for loan relationships. The revised guidance incorporates principles from key 2024 Court of Appeal decisions, including BlackRock, Kwik-Fit, and JTI Acquisition Co. It provides expanded views on identifying a loan's main purpose, the relevance of group motives, and assessing whether securing a tax advantage was a significant purpose.

The updated manual can be viewed here.

HMRC updates its Guidance on disclosure of tax avoidance schemes 

HMRC has updated its Guidance on disclosure of tax avoidance schemes to HMRC. Various sections have been amended in light of recent case law, including the sections dealing with when HMRC will consider a person to be  a promoter or introducer.

The updated Guidance can be viewed here.

HMRC updates its Guidance on deemed domicile rules

HMRC has updated its Guidance on the deemed domicile rules to reflect that, from 6 April 2025, the designation of a deemed domicile is no longer available. The concept has been replaced with a tax residence system. To accommodate this transition, a Temporary Repatriation Facility has been set up, allowing users to pay a reduced tax charge.

The updated Guidance can be viewed here.

Case reports

Former England captain's IR35 battle with HMRC ends in a score draw

In Bryan Robson Ltd v HMRC [2025] TC09408, the First-tier Tribunal (FTT) held that income received by former Manchester United and England captain Bryan Robson, in respect of his ambassadorial role for Manchester United Football Club, was within the scope of the intermediaries legislation, but payments made for the exploitation of his image rights were not.

This case adds to the growing body of IR35 case law, which has seen a sharp increase in disputes in recent years over whether individuals working through intermediaries, such as personal service companies, should be treated as employees for tax purposes. The key issue in these cases is whether the working arrangement has the characteristics of employment, even if the individual is technically engaged through a company. In short, it revolves around whether the individual would be considered an employee if they were directly engaged by the client, rather than through the intermediary and the answer to that question very much depends on the facts of the case under consideration.

Although HMRC succeeded in arguing that the ambassadorial work was subject to IR35, a reminder that even high-profile, non-executive roles, can fall within the scope of the legislation where mutual obligations and sufficient control are present, the appellant successfully argued that the image rights payments were not caught by IR35. The FTT’s endorsement of this distinction provides some reassurance for other professional sports people and entertainers with similar arrangements in place, provided the image rights are genuinely commercial and not simply a disguise for employment income.

You can read our commentary on this decision here.

High Court dismisses HMRC's strike out application in declaratory relief case

In Local Fuel Ltd v HMRC [2025] EWHC 390 (Ch), the High Court considered an application by HMRC to strike out Local Fuel Ltd's (LFL) Part 8, Civil Procedure Rules (CPR) claim, as an abuse of process, on the basis that HMRC's decision to enforce a debt constituted a public law decision which could only be challenged by way of judicial review proceedings, with the restrictive time limits and permission requirements that apply in such proceedings. The High Court dismissed HMRC's application and confirmed that a decision taken by a public body is only amenable to judicial review if it creates a liability, or alters a pre-existing liability. In the circumstances, there was no decision which LFL could have challenged by way of judicial review proceedings and it was therefore entitled to bring a claim under Part 8, CPR, for a declaration that the debt claimed by HMRC was unenforceable.

The key takeaway from this decision is that choosing the correct forum is an essential procedural step that should be carefully considered by taxpayers at the outset of proceedings. HMRC has demonstrated that it is not averse to taking procedural challenges which, in the case of Knibbs v Revenue and Customs Commissioners [2019] EWCA Civ 1719, Barklem v Revenue and Customs Commissioners [2024] EWHC 651 (Ch) and Austick v HMRC [2024] EWHC 2175 (Ch), proved fatal to the taxpayers' claims.

It should not be assumed that disputes involving HMRC are limited to statutory appeals and/or judicial review claims. Where there is no statutory right of appeal and no public law decision which alters or infringes on a person's rights, alternative forums should be considered.

Finally, it will come as no surprise to many readers to learn that HMRC's Debt Management team adopted an overly aggressive approach during the course of this dispute. At the outset, despite there being no contact for over two years, HMRC's Debt Management team sought to enforce a significant debt without providing sufficient detail regarding what the debt related to. Once the debt was disputed on substantive grounds, HMRC continued to refuse to engage with LFL and presented a winding-up petition in the High Court. Even though HMRC agreed to withdraw the petition on the condition that LFL issued a Part 7 or Part 8 claim, HMRC then proceeded to apply to strike out LFL's Part 8 claim.

You can read our commentary on this decision here.

And finally...

In a special Mental Health Awareness Week episode of Taxing Matters, hosted by Alexis Armitage of RPC's Tax, Investigations and Financial Crime team, Jo Maughan, career coach and former tax director, discusses how professionals can manage their critical inner voice and break down mental barriers in their mind. Listen here.

If you would like to discuss any of the topics covered in this update, please contact Adam Craggs or Daniel Williams.

Introduction

On 11 March 2025, the government issued a press release which included details of a number of initiatives, including plans for a new reward scheme to be launched later this year which is intended to encourage ‘whistleblowers’ to provide HMRC with details of suspected tax fraud. The stated aim is to "target serious non-compliance in large corporates, wealthy individuals, offshore and avoidance schemes".

The government has said that this initiative will complement the existing HMRC rewards scheme. Informants who tip-off HMRC could receive a significant amount of "compensation", which will be calculated as a portion of any sum HMRC is able to collect as a consequence of acting on that information. The government has said the new reward scheme will take inspiration from the US and Canadian whistleblower models and it is therefore helpful for us to consider those models.

The US model

The US tax fraud whistleblower programme was introduced in 2006 and is run by the Whistleblower Office, a separate office within the US Internal Revenue Service (IRS). It provides for mandatory percentage awards and an appeal system under which whistleblowers can appeal decisions against final determinations by the Whistleblower Office to the US Tax Court. Such appeals can be against the amount awarded, or denial of a claim, but there is no right of appeal against a decision by the Whistleblower Office not to pursue enforcement. The programme primarily targets tax evasion, but can also apply to tax avoidance where, in the view of the IRS, aggressive or abusive strategies have been implemented.

The programme uses specific, detailed forms (a single submission to the Whistleblower Office can be used to report multiple taxpayers) and there are a number of formal procedural rules which must be followed (governed by statute, regulations and internal procedural rules) which, for example, provide eligibility criteria, how awards are to be determined, and appeal rights and processes. Notably, non-US citizens are eligible to submit information, participate and receive awards. The Whistleblower Office will only determine quantum and make a payment to the whistleblower once a case has been finally resolved and the proceeds collected. Given the complexity involved in tax investigations and the possibility of litigation, this process can typically take between five and ten years before being concluded. The Whistleblower Office makes every effort to protect the identity of whistleblowers, but it does not guarantee full anonymity, especially in cases that proceed to litigation, or involve criminal proceedings.

The programme is available in cases where an individual taxpayer has a gross minimum income of at least $200,000 for the taxable year in question, or the proceeds in dispute exceed $2m. The IRS will pay whistleblowers 15% to 30% of any additional tax collected through investigations instigated as a consequence of information received from whistleblowers, with no cap on the total amount it will pay provided it is within the appropriate percentage. Accordingly, the financial payments made by the IRS can be, and often are, substantial. The percentage an individual will receive will depend on the extent to which they have "substantially contributed" to the additional tax recovered by the IRS and is dependent on a series of positive and negative factors which are set out in IRS manuals and guidance. Positive factors that may increase the award percentage include:

• the provision of original information;
• the degree of assistance provided to the IRS;
• the extent of any professional or personal risk taken;
• specificity and credibility;
• promptness; and
• the impact of the information.

Conversely, negative factors which may decrease the percentage include:

• the whistleblower’s own involvement in the wrongdoing;
• delayed reporting;
• any lack of co-operation with the IRS;
• the provision of information already known to the IRS; and
• vagueness or violation of the law in obtaining information.

There also exists a separate discretionary reward system operated by the IRS, under which a maximum of 10% of any additional tax can be paid to persons who have provided less substantial information which, for example, may have originated from a judicial or administrative hearing, a government report or the media. No appeal rights exist against decisions made by the IRS in respect of such discretionary awards.

The IRS’s Whistleblower Office’s 2023 annual report – its most recent – was released on 24 June 2024 and covers the 2022-23 fiscal year. The report provides details and analysis of the $88.8m of payments made, based on a collection of additional tax of $338m, as a consequence of the information and reports it received from whistleblowers. In this period, 6,455 submissions were received, 16,932 award claims were established (up 44% on the average number in the prior four years) and 121 awards were paid. The average percentage of tax recovered awarded to whistleblowers was 26.3%, a substantial increase from the 14.7% and 21.9% awarded in 2021 and 2022, respectively. The payment of $88.8m was more than double the amount paid in 2022, and is indicative of the ever-increasing popularity of this programme and the financial returns it provides to both whistleblowers and the IRS. In one settlement last year, an individual was obliged to pay $263m to the IRS and this enabled three anonymous whistleblowers to share $79m.

Since its first award to a whistleblower in 2007, the IRS has paid over $1.2bn to whistleblowers and collected an additional $7bn in tax as a consequence of the information it has received from whistleblowers.

The Canadian model

Canada has two whistleblower programmes.

The Leads Program

The Canada Revenue Agency (CRA) operates a Leads Program (the Program) for reporting suspected tax or benefit cheating. However, financial rewards are not offered for information submitted through the Program.

The Program is non-legislative and complements other CRA compliance activities such as audits and criminal investigations. Anonymity and the protection of personal information is central to the Program, but this cannot be guaranteed, especially if the person concerned is a key witness in litigation or criminal proceedings. Unlike the US model, the CRA does not keep an informant updated as to the status or outcome of any investigation conducted under the Program.

There is no officially stated minimum amount that must be at risk in order to make a submission under the Program, however the amount is important in forming the CRA’s approach in terms of prioritisation and investigative activity.

Details of the number of leads received, investigations initiated or outcomes resulting from the Program are not publicly disclosed by the CRA. However, the CRA has acknowledged that the Program plays a crucial role in identifying and addressing non-compliance within Canada’s tax system.

The Offshore Tax Information Program

For those who suspect Canadian taxpayers of tax fraud and/or aggressive tax avoidance facilitated by the use of offshore structures, a separate scheme, introduced in 2014, is available called the Offshore Tax Information Program (OTIP).

Through the OTIP, both Canadian and non-Canadian nationals can be paid between 5% and 15% of the amount collected by the CRA as a consequence of information they provide to the CRA that relates to tax evasion and/or aggressive tax avoidance. Such information is required to be sufficient, specific and credible, as well as related to international non-compliance and the federal tax evaded or avoided has to have been over $100,000 Canadian dollars (excluding interest and penalties). In order to be eligible to use the OTIP, informants must not have a conviction for tax evasion; be an employee of the CRA; be a government employee who has obtained the information through their position; or be reporting on their own non-compliance.

As with the IRS model, the CRA does not pay informants on receipt of information. Informants must wait until any appeal process has been exhausted, which means that informants may have to wait a considerable period of time before they receive payment from the CRA. Under the OTIP, the name of an informant will normally remain confidential although, as with the US model discussed above, it is possible that an informant’s identity may have to be disclosed where they are required as an essential witness in court proceedings.

With regard to quantum of reward, the quality, timeliness, relevance of information, level of cooperation and the informant’s role in any wrongdoing, are key considerations for the CRA when determining the amount to be paid to an informant.

The CRA has previously confirmed that since the inception of the OTIP in 2014 and as at 31 December 2019, it had received 5,500 calls (of which over 1,600 have been from potential informants); over 750 written submissions; and had entered into nearly 50 contracts with informants. As a consequence of information received, the CRA has completed in excess of 150 audits into taxpayers, and assessed almost $60m Canadian dollars in additional tax. The OTIP appears to have gained momentum as, interestingly, for the first two years following its introduction, no rewards had been paid to informants under the OTIP. Unfortunately, more up-to-date data is not publicly available, but the OTIP continues to offer financial rewards ranging from 5% to 15% of the additional federal tax assessed and collected as a result of information received from informants.

The current UK scheme

The current scheme operated by HMRC rewards informants who provide credible evidence of tax fraud to HMRC. This scheme is operated on a discretionary basis and with little formal structure or public transparency. Details of amounts paid by HMRC to informants are not readily available and historically have had to be obtained by means of requests made of HMRC under section 1 of the Freedom of Information Act 2000.

The scheme provides for limited financial rewards, especially when compared with the US model. Research carried out by RPC (see ‘Payments to whistleblowers increase in the past year’ published in Taxation, 23 August 2023), revealed that HMRC paid £509,000 to informants between March 2022 and March 2023, a small increase on the £495,000 it paid in 2021-22 and a further increase on the £400,000 it paid in 2020-21.

More recently, it has been reported by LexisNexis (see Law360, 12 March 2025) that HMRC received in excess of 150,000 reports of tax evasion in 2023-24 and paid out a record, but still relatively modest, £978,256 to informants. It would appear that as public awareness of the reward scheme operated by HMRC has grown, more people are offering information to HMRC regarding tax non-compliance.

The pressure on HMRC to increase the tax yield and close the tax gap is not likely to decrease in the near future, and the number of informants contacting HMRC is likely to increase substantially once the new whistleblower scheme is introduced later this year.

What can we expect from the new scheme?

Details of the new reward scheme are not currently available and are to be provided in due course, but the well-established schemes in the US and Canada provide an indication of the system the government is likely to introduce in the UK, especially as the press release confirms that the new reward scheme will take "inspiration" from the successful US and Canadian whistleblower models.

We do know that under the proposed scheme, informants will be paid a specific proportion of the tax recovered by HMRC as a result of the information provided to it by the whistleblower. Exactly what this percentage figure will be is still to be decided. HMRC has stated that the new scheme could potentially result in "significant" amounts being paid to informants and it has been reported in the general press (including The Times, 11 March 2025) that ministers are considering making payments to informants of between 10% and 25% of any additional tax collected.

Conclusion

In our view, the reporting systems by which information relating to suspected tax fraud can be conveyed to HMRC do need to be improved to make them more accessible and transparent. A formal system, providing greater financial rewards, similar to that operated in the US, would go some way to achieving that. Such a system is likely to encourage more people to contact HMRC with information relating to suspected tax fraud. HMRC has been making payments for information on an ad hoc basis for many years and the Exchequer is likely to benefit from a more generous and formal system. Under the proposed new scheme, HMRC can expect a significant increase in instances of whistleblowing, especially where the amount of additional tax recovered is substantial and the payments made to the whistleblower concerned is correspondingly greater than under the present system.

That said, although a more formal and certain system, along the lines of the US model, would be welcomed by many, the new scheme will need to have in place appropriate and robust safeguards to ensure quality and reliability assurance in relation to the information provided to HMRC. There is a risk, as with any system which provides potentially substantial financial rewards in return for the provision of information, that it will produce vexatious and opportunistic whistleblowing. The government wishes to encourage people to provide HMRC with credible and robust information on which it can then act to increase the tax yield and close the tax gap and the proposed new system, if properly implemented and monitored, can achieve that aim.

Finally, it is notable that, prior to the recent press release, the Serious Fraud Office had called for a similar system under which it would reward whistleblowers for information that assists it with its functions and the Financial Conduct Authority is also considering its position on incentivising whistleblowers. The direction of travel in this important area is clear.

UK publishes draft CBAM primary legislation for technical consultation

The government has published a technical consultation on draft primary legislation for the UK Carbon Border Adjustment Mechanism (CBAM), which is set to come into effect on 1 January 2027.

The CBAM will apply a carbon price to certain imports including aluminium, cement, fertilisers, hydrogen, and iron and steel, to address carbon leakage and align with the UK Emissions Trading System (ETS). Importers will pay a levy based on the embodied emissions in goods and the UK ETS price, calculated quarterly. Businesses importing over £50,000 worth of CBAM goods annually, must register with HMRC.

The draft legislation includes exemptions for UK-origin goods and non-business imports. Secondary legislation and further guidance will follow, alongside the launch of a CBAM industry working group.

Businesses should begin reviewing supply chains, emissions data, and their compliance obligations now in readiness for the 2027 rollout. Early engagement will be key to ensuring minimum disruption.

Details of the consultation, as well as a copy of the draft legislation, can be found here.

The consultation closes on 3 July 2025 and responses to the consultation can be sent to cbampolicyteam@hmrc.gov.uk.

Government backs British businesses to enhance trade

The Chancellor, Rachel Reeves, has unveiled measures to ensure a level playing field for UK businesses amid evolving global trade dynamics. The government is enhancing support for businesses to report unfair practices, improving trade data monitoring, and accelerating actions to counter import surges. Additionally, a review of the customs treatment of Low Value Imports, which allows goods valued at £135 or less to enter the UK duty-free, will be carried out, to address concerns from retailers about unfair competition. These steps align with the government's broader Plan for Change, which is intended to foster a fair and open global trade environment that benefits UK businesses.

Further details can be found here.

UK trade deal with India

The UK and India have concluded negotiations on a Free Trade Agreement (FTA) aimed at doubling bilateral trade to $120 billion by 2030. The agreement is expected to reduce tariffs on key British exports, including Scotch whisky and automobiles, and enhance market access for services such as intellectual property and telecommunications. Notably, the FTA is anticipated to create significant opportunities in sectors like logistics, retail, green energy, and premium consumer goods.

As the FTA progresses, UK businesses should closely monitor developments and assess the implications for any operations they have in India.

Further details on the FTA can be found here.

Case Reports

Uflex Europe Ltd v HMRC [2025] UKUT 00057 (TCC)

Uflex Europe Ltd (Uflex) was unsuccessful in its appeal to the Upper Tribunal (UT), regarding the late submission of a Generalised Scheme of Preferences Certificate of Origin (GSP Certificate) for imported pet food bags.

Upon importing the pet food bags, Uflex applied a customs classification, in good faith, which resulted in a 0% duty being due. As such, Uflex believed there was no need to submit "Proof of Origin" documentation, including a GSP Certificate. The customs classification was later determined to be incorrect. Uflex subsequently claimed it was entitled to a lower rate of duty retrospectively on the import of pet food bags because these events amounted to "exceptional circumstances" justifying the late submission of its Proof of Origin documentation.

HMRC disagreed and Uflex appealed to the First-tier Tribunal (FTT). The FTT concluded that no "exceptional circumstances" existed to justify the delay, resulting in the dismissal of Uflex's appeal. Uflex appealed to the UT.

UT decision

The UT upheld the FTT's decision that no "exceptional circumstances" existed to justify the delay.

The UT concurred with the FTT's findings that Uflex had failed to present the required GSP Certificate within the statutory period of ten months from the time of import.  The onus was on Uflex to ensure timely submission and the mere misclassification of the goods did not constitute "exceptional circumstances" under the relevant legislation. Consequently, the UT dismissed Uflex's appeal.

Why it matters

This case highlights the importance of strict adherence to customs documentation deadlines. It is unlikely that businesses will be able to successfully rely on administrative errors or misclassifications as a valid reason for missing statutory deadlines. The decision serves as a cautionary tale for importers to maintain diligent compliance with customs procedures if they wish to avoid financial penalties.

A copy of the decision can be found here.

Roseline Logistics Ltd v HMRC [2025] UKFTT 427 (TC)

Roseline Logistics Ltd (Roseline) was unsuccessful in its appeal to the FTT, regarding a post-clearance demand for import VAT.

Between 7 January and 11 May 2022, Roseline made 32 different import declarations of Postponed VAT Accounting (PVA), whilst purporting to act for QP Trading Ltd (QPTL) as their appointed customs agent.

The purpose of using valid PVA forms is to allow the payment of import VAT to be postponed from the moment goods are imported, to the date of the VAT return. HMRC alleged that QPTL was not VAT registered and therefore could not use the PVA system. Moreover, HMRC contended that Roseline knew, or ought to have known, that QPTL was ineligible to use the PVA system given the available guidance provided by HMRC. Consequently, Roseline, as the customs agent, was jointly and severally liable for the VAT.

Roseline appealed to the FTT.

FTT decision

The FTT dismissed Roseline's appeal and upheld HMRC's decision, finding Roseline jointly and severally liable for £1,126,249.64 in unpaid VAT due to invalid claims for PVA made on behalf of QPTL.

The FTT determined that Roseline, acting as a customs agent, was responsible for ensuring the accuracy of the PVA claims made on behalf of QPTL. Since QPTL was not entitled to use PVA at the time of the declarations, Roseline was found liable for the unpaid VAT under section 6(3)(b) and 6(3)(d) of the Taxation (Cross-border Trade) Act 2018. The FTT also considered whether this liability infringed Roseline's rights under the European Convention on Human Rights and concluded that the statutory provisions were compatible with those rights.

Why it matters

This case demonstrates the importance for customs agents to carefully verify the eligibility of their clients to use PVA before submitting import declarations. It also highlights the potential financial risks for agents who do not ensure compliance with VAT or other customs regulations, even when acting as a direct representative on behalf of clients.

A copy of the decision can be found here.

Turkish Food Supplies Ltd v HMRC [2025] UKFTT 496 (TC)

The FTT partially upheld an appeal by Turkish Food Supplies Ltd (TFS) against a demand for import VAT issued by HMRC. The FTT ruled that TFS was not liable for VAT on certain advance payments made to its Turkish supplier, Vitan Organik, but upheld HMRC’s assessment for a separate transaction involving bottled water imports.

FTT decision

The FTT examined two separate import transactions:

1. Advance Payments for Future Imports: TFS had made advance payments to Vitan Organik to secure better pricing for future imports. HMRC argued that these payments should be included in the customs value, thereby increasing the VAT liability. The FTT concluded that these payments were not for specific goods and did not meet the criteria for inclusion in the customs value. The FTT therefore allowed this aspect of TFS's appeal.
   
   
2. Under-Declared Import of Bottled Water: TFS did not provide any written or oral submissions to discharge its burden of proof as to whether VAT was paid on a particular import of bottled water. Accordingly, the FTT agreed with HMRC that TFS did not pay import VAT on a declared undervalue of this import. This aspect of TFS's appeal was therefore dismissed.

Why it matters

This case confirms the importance of accurately declaring the customs value of imported goods and maintaining clear documentation to support such declarations. It also highlights that advance payments for future imports, when not tied to specific goods, should not be subject to import VAT.

A copy of the decision can be found here.

• HMRC has published Spotlight 70, highlighting tax avoidance arrangements used by state-regulated care providers to reclaim VAT. The arrangements use a combination of VAT grouping and the application of different VAT liabilities, depending on whether welfare services are supplied by a state-regulated or unregulated care provider. HMRC consider these arrangements to be a form of tax avoidance and ineffective.
  
  Spotlight 70 can be viewed here. 
  
  
• HMRC has published Guidance on road fuel scale charges for VAT, which apply from 1 May 2025 to 30 April 2026.
  
  HMRC's Guidance can be viewed here.
  
  
• HMRC has updated its internal manual on VAT registration, including how to determine whether someone must or may register for VAT and changes to the details held on the VAT register.
  
  HMRC's updated internal manual can be viewed here. 

Case reports

Tony John Shepherd v HMRC [2025] UKFTT 00423 (TC)

Tony John Shepherd operated a taxi business between 2004 and 2019. He considered himself an agent for the drivers, retaining 50% of fares and accounting for income tax on that portion. Based on professional advice, he did not register for VAT, believing his turnover was below the registration threshold.

In January 2021, HMRC assessed Mr Shepherd for VAT liabilities totalling £139,456. HMRC's position was that Mr Shepherd acted as principal and should have accounted for VAT on 100% of the turnover (i.e. 100% of fares received).

On review, HMRC reduced the assessment to £33,885, covering the period from 1 August 2016 to 31 March 2019. Mr Shepherd appealed this reduced assessment to the First-tier Tribunal (FTT).

The FTT considered whether:

1. HMRC's assessment was made within the statutory time limits as provided for in the Value Added Tax Act 1994 (VATA); and
   
   
2. HMRC had sufficient evidence to justify the assessment under the 'best judgment' rule.

The best judgment rule, in section 73, VATA, allows HMRC to make assessments "to the best of their judgment", when, amongst other things, a person has failed to make a return.

The FTT allowed Mr Shepherd's appeal, concluding HMRC's assessment was invalid as it did not reach the 'best of judgment' standard.

HMRC failed to demonstrate that Mr Shepherd acted as principal rather than agent, lacking adequate evidence to support its position. The FTT highlighted that HMRC did not explain the weight given to the various factors relied on nor how the information, on which its decision was based, was processed to enable it to reach the conclusion it did.

Why it matters

This case highlights the need for HMRC to be able to provide clear evidence regarding the process by which it has issued a 'best of judgment' assessment. Where such evidence is lacking, the FTT is likely to allow a taxpayer's appeal when this is the issue to be determined.

The decision can be viewed here.

Roseline Logistics Ltd v HMRC [2025] UKFTT 427 (TC)

Roseline Logistics Ltd (Roseline) purportedly acted as a customs agent for QP Trading Ltd (QPTL) between January and May 2022, submitting 32 import declarations that utilised Postponed VAT Accounting (PVA). PVA allows VAT-registered traders to account for import VAT on their VAT returns instead of paying it at the point of import.

Unbeknown to Roseline, QPTL was not eligible for PVA during this period, having had their VAT registration cancelled. Roseline had no direct contact with QPTL and had not verified the position, preferring to  rely on the instructions of a third-party. When QPTL went out of business HMRC issued Roseline with a post-clearance demand for c.£1.1m in import VAT.

HMRC argued that Roseline was jointly liable under sections 6(3)(b) and 6(3)(d), Taxation (Cross-border Trade) Act 2018 (TCTA), due to its role as customs agent or otherwise involvement in the breach.

Roseline appealed to the FTT.

The FTT considered the following two primary questions:

1. was Roseline jointly and severally liable for QPTL's unpaid import VAT under the specified provisions of the TCTA, given it knew, or should have known, about this breach of customs obligations; and
   
   
2. would holding Roseline liable infringe its rights under Article 1 of Protocol 1 of the European Convention on Human Rights (A1P1), which protects the right to peaceful enjoyment of possessions?

The FTT considered whether Roseline was validly appointed and authorised to act as QPTL's customs agent. The FTT concluded that although Roseline had not actually been authorised to act as it did, it was nevertheless involved in the breach of customs law. This was because it acted as a declarant or person on whose behalf the declarations were made, failed to establish the availability of PVA to QPTL and submitted the relevant forms to HMRC nonetheless. In addition, it should have known of QPTL's ineligibility for PVA and its own responsibility for getting the goods through customs. The FTT therefore dismissed Roseline's appeal and held:

• Roseline was jointly and severally liable for the unpaid import VAT under sections 6(3)(d) and 6(4)(b), TCTA; and

• this liability did not violate Roseline's A1P1 rights, as the interference was lawful, pursued a legitimate aim (preventing tax loss), was proportionate and this was not a case involving a penalty regime.

Why it matters

This case underscores the importance of customs agents verifying the VAT status and PVA eligibility of their clients. Robust procedures need to be in place, as acting on behalf of clients can result in substantial VAT liabilities for an agent where there has been non-compliance. The decision also confirms that such liabilities do not necessarily breach human rights protections when they serve legitimate and proportionate aims.

The decision can be viewed here.

JD Wetherspoon PLC v HMRC [2025] (TC/2022/12962) 

Between 15 July 2020 and 31 March 2022, the UK implemented a temporary reduced VAT rate for hospitality services to support the sector during the COVID-19 pandemic. The legislation, including the Value Added Tax (Reduced Rate) (Hospitality and Tourism) (Coronavirus) Order 2020 and subsequent amendments, specified that certain supplies of food and drink were eligible for the reduced rate. However, the legislation excluded "alcoholic beverages" subject to excise duty, such as spirits, beer, wine, and made-wine, from this reduced rate.

JD Wetherspoon PLC (JDW) sought repayment of VAT on all supplies of cider on the basis that such supplies ought to have been subject to the reduced rate. HMRC was of the view that that cider fell within the exclusion for alcoholic beverages subject to excise duty and refused the claim. JDW appealed to the FTT.

The FTT examined the statutory language and concluded that the term "alcoholic beverages" in the legislation includes cider, although it was mistakenly left out. The FTT was of the view that Parliament clearly intended to define the scope of "alcoholic beverages" to encompass cider.

Applying the principle established in Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586, where courts have the power to correct obvious legislative drafting errors in certain circumstances, the FTT found that the conditions necessary for the Inco principle to apply were satisfied. The FTT therefore determined that the exclusion should be interpreted to include cider, consistent with the legislative intent to apply the reduced VAT rate to a broader range of alcoholic beverages served in hospitality settings.

Why it matters

This decision confirms that cider is excluded from the reduced VAT rate for hospitality services. Businesses in the hospitality sector should review their VAT practices to ensure compliance with this interpretation. The case is an example of the FTT being prepared to read words into legislation in order to give effect to the intention of Parliament when enacting the legislation. Taxpayers may not always be able to rely on a literal interpretation of statutory provisions.

The decision can be viewed here.

Recent procedural decisions

There have been a number of recent procedural decisions that are worthy of note.

Correct forum

In Local Fuel Ltd v HMRC [2025] EWHC 390 (Ch) (in which RPC was instructed on behalf of Local Fuel Ltd), the High Court considered an application by HMRC to strike out Local Fuel's Part 8 claim as an abuse of process. The claimant had sought a declaration that it did not owe an enforceable debt of c.£2m, representing allegedly unpaid fuel duty. HMRC presented a winding up petition based on the alleged debt, but subsequently agreed to withdraw the petition on terms that included that the claimant would bring the underlying issue before the court in a Part 7 or Part 8 claim. HMRC's position was that the claim raised an issue of public law that should have been pursued by way of judicial review relying on, amongst other things, the Court of Appeal's decision in Knibbs v HMRC [2019] EWCA Civ 1719.

In dismissing HMRC's application, the High Court observed that the claimant's claim was materially different to that in Knibbs because it was not seeking to have determined as unlawful, or ineffective, a decision or act of HMRC that created or altered any liability of the claimant or affected its rights. That was because no decision or action by HMRC gave rise to the debt disputed by the claimant, and there was no other decision or act of HMRC that could relevantly be challenged on grounds of unlawfulness.

Whether a claim has been filed in the appropriate forum is an important procedural consideration but one that taxpayers have often got wrong. The choice of forum can be critical,  sometimes proving fatal to a claim’s progress, and HMRC has demonstrated on numerous occasions that it is not averse to taking such procedural points. The Local Fuel decision is the latest example of a taxpayer successfully resisting HMRC’s attempt to strike out their claim on the grounds of incorrect forum. 

'Minded to transfer' Orders

In R (oao Aubrey Weis) v HMRC [2025] EWHC 249 (Admin), the High Court made a judicial determination on the papers as to where the taxpayer's judicial review claim should be administered and heard. The decision was unusual in that the court decided to give written reasons by way of a short judgment, which provides practitioners with some useful guidance on how the court will apply CPR PD 54C, which is intended to facilitate access to justice by enabling cases to be administered and determined in the most appropriate location.

The taxpayer sought judicial review of HMRC's decision to issue closure notices which concluded the taxpayer was domiciled in the UK and amended his self-assessment returns to impose income tax on income arising from a non-UK bank account. The taxpayer filed his claim in London, on the basis that it was the region with which he had the closest connection because he had significant business interests there, and both his and HMRC's legal representatives were London based. Following the issuing of a 'minded to transfer' order by a court lawyer indicating they were minded to transfer the claim to Manchester given the taxpayer resided in Salford, both parties made submissions to the court that the claim should remain in London. The taxpayer reiterated the presence of his substantial business interests in London, while HMRC's preference was for the case to remain in London for the convenience of the parties and their legal representatives, who were based in London. 

The court observed that the region with which the claim was “most closely connected” was the Northern region, being the region in which the taxpayer resided, noting that HMRC also had an office in Manchester. The court was also not persuaded by the parties’ desire for the claim to remain in London because they chose to instruct lawyers who were based in London. In that regard, the court noted that such choices could not drive the conclusion as to the appropriate venue, and that travel between London and Manchester could be conducted with ease and without requiring an overnight stay for a one-day hearing. Video hearing facilities were also available. The court commented that all of those factors, taken together, pointed in favour of the claim being administered and determined in the Northern region. However, on balance, the court considered it would be more appropriate for the claim to remain in London. That was mainly because, amongst other things, the taxpayer had applied for an order transferring his claim to the Upper Tribunal (UT) and the UT did not generally sit outside of London. In addition,  administrative oversight had meant that a decision on venue had been delayed for several months and transferring the claim to Manchester would cause further delay.

In the context of the resource pressures facing the courts, it will come as no surprise to practitioners that the courts are increasingly proactive in reallocating cases to regions outside of London. Taxpayers and their advisors cannot assume that proceedings will be heard in London simply because London-based counsel and solicitors have been instructed. To avoid delays and unnecessary costs, it will be necessary to assess, at the outset, whether a case is likely to be transferred and to prepare accordingly. 

Disclosure in judicial review proceedings

In Airedale Chemical Company Ltd v HMRC [2025] UKUT 00065 (TCC), the UT considered the taxpayer's application for specific disclosure against HMRC for the purposes of its judicial review claim. That claim challenged the lawfulness of HMRC’s decision to refuse the claimant’s requests for repayment under the Disguised Remuneration Repayment Scheme (the Scheme), on the basis of irrationality, unreasonableness and error of law. The repayments sought by the taxpayer related to sums previously settled by agreement with HMRC to avoid the application of the Loan Charge legislation in the Finance (No. 2) Act 2017.

The claimant contended that HMRC had failed to comply with its duty of candour, such that further disclosure was required for the fair and just resolution of the issues in dispute. In particular, the claimant sought disclosure of documents relating to the drafting and formulation of HMRC's guidance on the Scheme, HMRC's policy and internal communications in respect of issuing determinations and decisions in circumstances where the use of Employer Financed Retirement Benefit Schemes was suspected and how the decision was made to issue such determinations, decisions and county court recovery proceedings.

In dismissing the taxpayer's application, the UT determined that the documents sought by the taxpayer were irrelevant given there was nothing in HMRC's witness evidence indicating those extraneous materials had had any impact on its decision. Nor was such material relevant to establishing whether HMRC had misdirected itself in law because it was not relevant to the determination of what that correct legal test was. Accordingly, the UT concluded that HMRC had not breached its duty of candour. 

Given that orders for disclosure are rare in judicial review proceedings, it is perhaps unsurprising that the taxpayer's application was unsuccessful. However, while the duty of candour should generally be sufficient in ensuring that taxpayers challenging HMRC decisions are in possession of all information necessary for the fair and just determination of their claims, it is worth remembering that an application for disclosure remains an option and, in appropriate circumstances, should be considered as a means of ensuring that proper disclosure has been made by HMRC in accordance with its duty of candour. 

Third party access to documents filed with the First-tier Tribunal (FTT)

In Bolt Services UK Ltd v HMRC [2025] UKFTT 302 (TC), the FTT considered an application by a third party, Transopco UK Ltd, for the disclosure of documents relating to Bolt's tax appeal. The request included the grounds of appeal, HMRC's statement of case, the parties' skeleton arguments, and hearing transcripts. Transopco sought disclosure on the basis that its own tax appeal raised issues of law that were essentially the same as those raised by Bolt, but there were also some important differences that Transopco wanted to identify. While HMRC took a neutral position on Transopco's application, with the exception of the disclosure of the transcripts, Bolt opposed the application on the basis that the FTT had produced a well-reasoned decision setting out all of the relevant facts, disclosure of the documents was not necessary to advance the principle of open justice, all the relevant information about the parties’ submissions could be obtained from the transcripts, and disclosure of some of the documents would risk significant harm because they contained confidential and commercially sensitive information. 

Applying the principles identified by the Court of Appeal in Moss v The Upper Tribunal [2024] EWCA Civ 1414, the FTT observed that it was required to approach the application by first considering why access was sought and whether disclosure would advance the open justice principle, noting it was for the person making the application to show a good reason for seeking access and that there was no presumption in favour of disclosure. If there was a good reason for the documents to be disclosed, the tribunal was then required to consider whether there were any countervailing factors, such as a risk of any harm or prejudice that might be caused by the disclosure and the practicalities and proportionality of granting the request. 

As to the specific documents Transopco sought, the FTT determined that the hearing transcripts, pleadings, Bolt's witness statement (without exhibits), statement of agreed facts, and the parties' skeleton arguments should be disclosed. The FTT noted that the threshold to establish that there is a good reason why such documents should be disclosed was low, and that Transopco had demonstrated a good reason, namely, in order to understand more fully the way Bolt's case was put to the FTT and why it decided the case as it did. 

In contrast, the FTT refused Transopco's request for a copy of the exhibits to Bolt's witness statement, Bolt's expedition application and related documents, the hearing bundle, and Bolt's application for permission to appeal to the UT. This was because the FTT did not consider such documents to be central to understanding Bolt's case, such that Transopco had not shown a good reason for their disclosure and/or because disclosure of the documents would not advance the principle of open justice. With regard to the witness statement exhibits and the hearing bundle, the FTT noted that the documents were voluminous and that to direct disclosure would impose a disproportionate administrative burden on Bolt. However, the FTT said that if, having read Bolt's witness statement and the hearing transcript, Transopco considered that a more limited disclosure of specific exhibits and documents would advance the principle of open justice, it could make a further application to the FTT.

Given the significant number of tax appeals being heard by the tax tribunals, it is inevitable that, on occasion, the question of whether there is a common issue of fact and/or law between cases, will arise. Understanding the arguments advanced by other taxpayers and HMRC and the tax tribunals' reasoning in such cases can assist in formulating legal strategy and the appropriate action to be taken in an appeal. This decision provides valuable guidance on the circumstances in which access to documents filed with the FTT will be granted to third parties.

Late appeals

The FTT has released a number of decisions that emphasise that the test in Martland v HMRC [2018] UKUT 0178 (TCC), is a high hurdle that taxpayers must overcome if they wish to bring late appeals. 

The applications to bring a late appeal in Benjamin Hammant v HMRC [2025] UKFTT 244 (TC), Tenzing Wangel Lama v HMRC [2025] UKFTT 243 (TC), Brett Von Buddenbrock v HMRC [2025] UKFTT 211 (TC), PBS Wholesale Ltd v HMRC [2025] UKFTT 210 (TC), Jordan Lyden v HMRC [2025] UKFTT 204 (TC), and Xcel Consult Ltd v HMRC [2025] UKFTT 96 (TC), were all refused by the FTT after applying the Martland test. The range of circumstances in issue in these appeals were:

• A taxpayer failing to log into his personal tax account and view communications sent to him by HMRC notifying him of late filing fees, despite also receiving email alerts that HMRC had sent him communications.
• A taxpayer's near 5-year delay in bringing his appeal due to a mistaken belief that the loss of his business due to a fire meant that assessments and penalties he had been issued in respect of VAT and corporation tax, had fallen away.
• A South Africa based taxpayer who contended, amongst other things, that he did not know what was required to submit a formal appeal and that the postal system in South Africa could cause delays of 12-24 months.
• The alleged failure by the taxpayers' adviser to file appeals on their behalf. 
• A taxpayer's agent being ill with COVID, while the taxpayer was absent from the UK and not in a fit mental state to deal with his tax affairs. 
• A taxpayer's failure to appeal in time against default surcharges in respect of VAT, which had been caused by the actions of a previous accountant acting for the taxpayer and because the taxpayer had suffered a bereavement and health issues.

While every application to bring a late appeal will be determined on its own particular facts, the above cases provide a useful overview of the range of circumstances the FTT has recently considered and rejected. These cases emphasise that the test for allowing a late appeal is not easily satisfied and a taxpayer will have to have compelling reasons and supporting evidence for the delay, if their application is to be successful. 

HMRC's approach to DSARs

The recent High Court decision in Michael Ashley v HMRC [2025] EWHC 134 (KB) (in which RPC was instructed on behalf of Mr Ashley), has attracted a considerable amount of commentary and for good reason - practitioners will be only too familiar with the difficulties taxpayers face when seeking a copy of their personal information held by HMRC and HMRC's general  reluctance to provide such information. Mr Ashley's success in challenging HMRC's approach to his data subject access request (DSAR) will therefore be welcomed by many taxpayers. 

Between February 2014 and October 2016, HMRC enquired into Mr Ashley's 2011/12 tax return. HMRC subsequently issued a closure notice concluding that various properties had been sold by Mr Ashley at an overvalue, giving rise to a tax liability of c.£13.6m. Mr Ashley appealed and following discussions between the parties, the closure notice was withdrawn. Mr Ashley subsequently made a DSAR, requesting all information HMRC held in relation to him since the inception of its enquiry. HMRC refused to disclose any copies of Mr Ashley’s personal data that it held, save that it offered to provide him with a copy of inter-partes correspondence between his representatives and HMRC. With respect to the personal data it had withheld, HMRC claimed that it was lawfully entitled to withhold the data by virtue of the exemptions provided for in paragraphs 2 and 3, Schedule 2, Data Protection Act 2018 (DPA). 

Mr Ashley challenged HMRC's processing of his DSAR by way of a Part 8 Claim in the High Court. By the time the claim came before the court, HMRC had provided Mr Ashley with some of his personal data in a number of tranches throughout 2024, accepted that it had breached its obligations under Article 15(3) of the UK GDPR in its handling of the DSAR, and only relied on the tax exemption in paragraph 2, Schedule 2, DPA, to withhold some of Mr Ashley's personal data. However, a number of matters remained in dispute between the parties, including the application of the tax exemption relied on by HMRC to withhold Mr Ashley's personal data. The court therefore undertook a comprehensive review of the relevant case law, and identified the following principles as being relevant when construing the tax exemption:

• The relevant controller (in this case HMRC) bears the burden of proving the applicability of the exemption and thus its entitlement to refuse access. The ordinary civil standard of proof applies. 
• The starting point is that the data subject is entitled to the data unless the exemption is established and the presumption in favour of disclosure should be viewed as a strong and weighty factor. 
• The statutory wording requires the court to be satisfied of two things: (i) that the personal data in question was being processed for one of the specified purposes; and (ii) that the application of the subject access provisions would be “likely to prejudice one or more of those specified matters”. 
• “Likely”, in this context, does not mean more probable than not, but it connotes a significantly greater degree of probability than merely more than fanciful. Likely connotes that there is a very significant and weighty chance of prejudice to the identified public interests, the degree of risk must be such that there “may very well” be prejudice to those interests. 
• The question of whether disclosure is likely to prejudice the specified purpose(s) may include consideration of the consequential impact that disclosure in this particular case may have upon other cases and/or prejudice that would be caused to the activities and aims set out in the statutory provision more generally. 
• A structured and fact-specific approach is required; it is necessary to identify the prejudice, show how disclosure would cause the prejudice and show that a failure to apply the exemption would likely cause that prejudice. 
• Restrictions upon a data subject’s right of access may only be imposed where this is a necessary measure to safeguard the specified purpose. This is a strict test and those seeking to rely on the exemption must do so convincingly by relying on evidence that establishes this, not by mere assertion. 
• The necessity test requires that any interference with the subject’s rights is proportionate to the gravity of the threat to the public interest; and in making the proportionality assessment the court will take into account the value of the access right. The proportionality assessment must be applied to each item of personal data that is in issue. 

Applying the applicable principles, the court determined that HMRC had failed to establish that it was entitled to rely on the tax exemption because it had not discharged the burden of proving that the disclosure of Mr Ashley's personal data would be "likely" to prejudice the assessment or collection of tax. In arriving at that conclusion, the court found that “likely” connoted there being a very significant chance of prejudice to the public interest, which had to be established convincingly by evidence, rather than through mere assertion. Having determined the claim in his favour, the court also awarded Mr Ashley his costs.  

The High Court's judgment in Ashley is a significant rebuke to HMRC and its default position of withholding personal data when responding to a DSAR. Many taxpayers will have experienced HMRC’s reluctance to disclose their personal information, and often on the basis of flimsy and/or generic reasoning. The Ashley decision makes it clear that HMRC’s approach to DSARs is unlawful. It is a high threshold which HMRC must overcome if it wishes to rely on the tax exemption to withhold personal information sought by taxpayers under a DSAR.

Bryan Robson is a former professional footballer and manager, perhaps best known for captaining both Manchester United and the England national team during the 1980s and early 1990s.

Following his retirement, Mr Robson acted as an ambassador for MUFC under a series of agreements entered into both personally and (from late 2019) through his personal service company, Bryan Robson Ltd (BRL).

The contract provided for an annual fee of £300,000, of which £150,000 was attributed to ambassadorial duties. The remainder was not formally broken down between services and image rights, and no valuation exercise had been carried out. HMRC sought to treat the full amount as consideration for personal services, while BRL contended that a significant proportion related to the club’s commercial use of Mr Robson’s image. 

HMRC issued:

1. determinations to income tax under Regulation 80 of The Income Tax (Pay As You Earn) Regulations 2003, for the tax years 2015/16, 2017/18, 2018/19, 2019/20 and 2020,21 (the Reg 80 Determinations); and
2. decisions under section 8 of the Social Security Contributions (Transfer of Functions etc) Act 1999, in respect of class 1 NICs for tax years 2015/16 to 2020/21, inclusive (the NICs Decisions). 

The Reg 80 Determinations and the NICs Decisions were made by HMRC on the basis that income tax and NICs should have been payable pursuant to the intermediaries legislation contained in Chapter 8, Part 2, Income Tax (Earnings and Pensions) Act 2003 (IR35), in respect of the monies paid to BRL pursuant to the ambassadorial agreements.

HMRC accepted that IR35 could not apply to earlier agreements entered into by Mr Robson personally, as there was no intermediary in place at that time. 

The Reg 80 Determinations and the NICs Decisions were appealed to the FTT.

FTT's decision

The two issues for the FTT to determine were:

1. whether, from December 2019 onwards, the nature of the work was such that the hypothetical contract between Mr Robson and MUFC would have been one of employment; and
2. whether the consideration for the exploitation of Mr Robson’s image rights was not attributable to personal service, and therefore outside the scope of IR35.

Issue 1

The FTT found in favour of HMRC on the first issue. 

In considering whether the hypothetical contract amounted to employment, the FTT applied the established test formulated in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497, looking at mutuality of obligations, control, and other factors indicative of employment.

Mr Robson was contractually required to personally perform ambassadorial duties for at least 35 days in each six-month period, for a fixed fee of £150,000. That fee remained payable even if no work was provided, demonstrating strong mutuality of obligations. Although he had some flexibility over when he performed the work, he could not defer it indefinitely or refuse assignments altogether.

The FTT also found that MUFC exercised sufficient control, including dictating the types of events Mr Robson would attend and requiring him to wear branded clothing. The FTT noted that this degree of control, while not especially hands-on, was enough to meet the relevant legal threshold.

Additional employment-like features included the indefinite nature of the engagement, the lack of financial risk on Mr Robson’s part, and his close integration into the club’s brand. While some features, such as the flexibility around scheduling and the absence of exclusivity, pointed to self-employment, in the view of the FTT, these were outweighed by the broader context.

On this basis, the FTT concluded that the hypothetical contract was one of employment, and that IR35 applied to payments for the ambassadorial services provided by Mr Robson. This aspect of BRL's appeal was therefore dismissed by the FTT.

Issue 2

The FTT found in favour of BRL on the second issue.

The contract between BRL and MUFC included a distinct provision for the club’s exploitation of Mr Robson’s image rights. The FTT accepted that these rights had genuine commercial value and were not simply a mechanism for funnelling additional remuneration to Mr Robson for the services he provided.

Critically, the FTT held that the image rights payments were not made in respect of services personally performed by Mr Robson. They were instead, consideration for a separate and assignable intellectual property right, namely, his image. MUFC had a genuine commercial interest in using Mr Robson's image and had in fact done so in practice.

Accordingly, the FTT held that such payments were not caught by the IR35 legislation. That element of the appeal was therefore allowed.

The FTT left the parties to resolve the question of apportionment between ambassadorial fees and image rights. No valuation had been carried out, and the relevant agreements did not specify how payments were to be split.

Comment

This case adds to the growing body of IR35 case law, which has seen a sharp increase in disputes in recent years over whether individuals working through intermediaries, such as personal service companies, should be treated as employees for tax purposes. The key issue in these cases is whether the working arrangement has the characteristics of employment, even if the individual is technically engaged through a company. In short, it revolves around whether the individual would be considered an employee if they were directly engaged by the client, rather than through the intermediary and the answer to that question very much depends on the facts of the case under consideration.

This decision represents a classic case of “a game of two halves.” HMRC succeeded in arguing that the ambassadorial work was subject to IR35, a reminder that even high-profile, non-executive roles, can fall within the scope of the legislation where mutual obligations and sufficient control are present.

However, BRL scored an equaliser by successfully arguing that the image rights payments were not caught by IR35. The FTT’s endorsement of this distinction provides some reassurance for other professional sports people and entertainers with similar arrangements in place, provided the image rights are genuinely commercial and not simply a disguise for employment income.

The decision can be viewed here. 

In Local Fuel Ltd v HMRC [2025] EWHC 390 (Ch), the High Court considered an application by HMRC to strike out Local Fuel Ltd's (LFL) Part 8, Civil Procedure Rules (CPR) claim, as an abuse of process, on the basis that HMRC's decision to enforce a debt constituted a public law decision which could only be challenged by way of judicial review proceedings, with the restrictive time limits and permission requirements that apply in such proceedings. The High Court dismissed HMRC's application and confirmed that a decision taken by a public body is only amenable to judicial review if it creates a liability, or alters a pre-existing liability. In the circumstances, there was no decision which LFL could have challenged by way of judicial review proceedings, and it was therefore entitled to bring a claim under Part 8, CPR, for a declaration that the debt claimed by HMRC was unenforceable. 

The exclusivity principle

In determining HMRC's application, the High Court considered the "exclusivity principle", which was established by Lord Diplock in O'Reilly v Mackman [1983] 2 AC 237. At paragraph 285 of that judgment, Lord Diplock said: "it would in my view as a general rule be contrary to public policy, and as such an abuse of the process of the court, to permit a person seeking to establish that a decision of a public authority infringed rights to which he was entitled to protection under public law to proceed by way of an ordinary action".

The exclusivity principle is justified because of the need to protect hard-pressed public authorities and to resolve questions regarding the legal validity of public law acts quickly. A claim for judicial review must be made within three months, as opposed to six years for most civil claims, and a judicial review claim must first pass a permission stage which acts as a filter to prevent frivolous claims.

In the LFL case, HMRC relied on three decisions which applied the exclusivity principle in a tax context: Knibbs v HMRC [2019] EWCA Civ 1719; Barklem v HMRC [2024] EWHC 651 (Ch); and Austick v HMRC [2024] EWHC 2175 (Ch).

In Knibbs, the taxpayers brought proceedings under Part 7, CPR, to challenge the lawfulness of a notice served by HMRC on the partners of a partnership, pursuant to section 28B(4), Taxes Management Act 1970 (TMA). HMRC had reduced the allowable losses of the partnership and so served a notice on the partners reducing the amounts of allowable losses that they could carry back to previous years in their individual tax returns. The central issue in the case was the lawfulness of enquiries that HMRC had commenced. The Court of Appeal affirmed the High Court's decision to strike out the claimant's claim as an abuse of process, on the basis that it should have been brought by way of judicial review.

In Barklem, the taxpayer had been a member of a partnership which claimed to have realised substantial losses, some of which were attributable to the claimant. HMRC issued closure notices disallowing the losses and the dispute was settled by agreement after the partnership appealed to the First-tier Tribunal. HMRC then issued a notice under 28B(4), TMA, amending the claimant's return. The claimant brought proceedings under Part 7, CPR, challenging the notice, but again the claim was struck out by the High Court as an abuse of process, on the basis that it should have been brought by way of judicial review.

Finally, in Austick, the taxpayer issued a Part 8 claim seeking declarations that he had no tax liabilities for certain tax years beyond what was shown in his own self-assessment tax returns. HMRC claimed to have given Mr Austick a notice under section 28B(4), TMA, on 4 November 2011, amending his tax returns, but it could not provide a copy or prove service of that notice. The central issue in the case was whether the section 28B(4) notice was effective to create an enforceable tax liability. Once again, the High Court agreed with HMRC that the claim should be struck out as an abuse of process, on the basis that it should have been brought by way of judicial review.

What made LFL's case different?

Considering the recent case law outlined above, what was it about LFL and its dispute with HMRC that led the High Court to conclude that a claim under Part 8, CPR, was the correct forum?

Background

LFL imported heating fuels which it stored in warehouses before onward distribution. These fuels were subject to excise duty and LFL paid this duty monthly by first submitting Form HO10, as prescribed by HMRC, setting out the quantity of oil removed from the warehouse and the total duty due or claimed in respect of that oil. In the ordinary course, HMRC would collect the total amount of duty by direct debit on the last business day of the month in which the Form HO10 was filed.

On 26 July 2021, LFL submitted a Form HO10 and the total duty shown for the previous month was £1,912,079.19 (the Road Fuel Duty). For reasons still unknown to the parties, despite a direct debit being in place, the Road Fuel Duty was not collected. 

HMRC did not take any steps to recover the Road Fuel Duty until 14 August 2023, over two years later. At that point, HMRC began sending letters notifying LFL of an overdue payment and threatening legal action. 

LFL challenged HMRC's attempts to collect the Road Fuel Duty, arguing that filing Form HO10 does not, of itself, give rise to an enforceable debt owed to HMRC. In circumstances where the duty identified in Form HO10 is not paid, HMRC must raise an assessment of liability in order to enforce payment.

HMRC did not accept this position and, on 21 March 2024, presented a winding-up petition to recover the debt. LFL wrote to HMRC to explain that, even if HMRC did not accept LFL's position, the debt was disputed on substantive grounds and it was therefore inappropriate to commence winding up proceedings (in accordance with the well-established principle in Re a Company [1991] BCLC 737). On 10 April 2024, HMRC agreed to withdraw its petition on condition that LFL issued proceedings to challenge the debt within a certain time period. 

On 31 May 2024, LFL issued its Part 8 claim seeking a declaration from the High Court that it did not owe an enforceable debt to HMRC. On 9 July 2024, HMRC applied to strike-out the claim as an abuse of process.

Distinguishing LFL from Knibbs, Barklem and Austick

The key difference between LFL's position and the position of the taxpayers in Knibbs, Barklem and Austick, is that in LFL's case there was no public law decision capable of being challenged by way of judicial review. 

Judicial review is a procedure for 'reviewing' decisions/actions. CPR Part 54.1 explains what it applies to:

"(2) In this Section – 
(a) a 'claim for judicial review' means a claim to review the lawfulness of – 
(i) an enactment; or
(ii) a decision, action or failure to act in relation to the exercise of a public function."

LFL's claim was not a claim to review the lawfulness of an HMRC decision, action or failure to act. On the contrary, LFL's claim sought a declaration as to the consequences of LFL's own action in filing a Form HO10. Other than acknowledging receipt of the form, HMRC took no steps in relation to the Road Fuel Duty other than enforcement action in respect of the debt it claimed was due from LFL.

HMRC contended that its decision to enforce the claimed debt was a public law decision and therefore the first demand letter, which explicitly identified the Road Fuel Duty on 29 November 2023, started time running for the purposes of bringing a judicial review claim.

The High Court's decision

Mr Justice Fancourt rejected HMRC's argument. At paragraphs 28-30 of his judgment, the judge explains that HMRC's decision to enforce the claimed debt by sending demand letters was not a relevant decision that could be impugned on public law grounds because it did not alter, or infringe, LFL's rights or affect its legitimate interest. The letters simply informed LFL of what HMRC considered the position to be. He noted that, if the law were otherwise, the Administrative Court would be at risk of being inundated with applicants believing they need to challenge promptly letters from HMRC claiming that they were liable to tax. By contrast, the actions taken by HMRC in, for example, Knibbs, materially altered the taxpayers' rights – HMRC issued a notice which reduced the allowable losses the taxpayers were able to carry back.

HMRC's decision to issue a winding-up petition could be seen in a different light as it threatened LFL's reputation and the viability of its business. However, in the view of the judge, judicial review would also have been inappropriate to challenge that decision because an alternative remedy existed. Somewhat ironically, it was open to LFL, at that time, to apply to strike out HMRC's petition as an abuse of process as the debt was known to be disputed on substantive grounds. In any event, the winding-up petition had been withdrawn by the time LFL issued its Part 8 claim. 

It is important to note that Mr Justice Fancourt saw no inconsistency between his decision and the approach taken in Knibbs, Barklem and Austick. In those cases, it was the step taken by HMRC that created a liability, or loss of tax relief, that was under attack and in such circumstances the exclusivity principle applied.

Significantly, Mr Justice Fancourt ordered HMRC to pay over 90% of LFL's costs incurred as a result of HMRC's strike-out application.

Why this case matters 

The key takeaway from this decision is that choosing the correct forum is an essential procedural step that should be carefully considered by taxpayers at the outset of proceedings.  HMRC has demonstrated that it is not averse to taking procedural challenges which, in the case of Knibbs, Barklem and Austick, proved fatal to the taxpayers' claims. It should not be assumed  that disputes involving HMRC are limited to statutory appeals and/or judicial review claims. Where there is no statutory right of appeal and no public law decision which alters or infringes on a person's rights, alternative forums should be considered. 

Finally, it will come as no surprise to many readers to learn that HMRC's Debt Management team adopted an overly aggressive approach during the course of this dispute.   At the outset, despite there being no contact for over two years, HMRC's Debt Management team sought to enforce a significant debt without providing sufficient detail regarding what the debt related to. Once the debt was disputed on substantive grounds, HMRC continued to refuse to engage with LFL and presented a winding-up petition in the High Court. Even though HMRC agreed to withdraw the petition on the condition that LFL issued a Part 7 or Part 8 claim, HMRC then proceeded to apply to strike out LFL's Part 8 claim.  Given government pressure on HMRC's Debt Management team to increase the amount it collects, particularly in relation to older debts, this type of overly exuberant approach is likely to continue.

In respect of LFL's Part 8 claim, a substantive hearing to determine whether an enforceable debt exists is listed for hearing in the High Court later this year.

The authors were instructed by LFL in its Part 8 claim.

HMRC updates its Partnership Manual reversing changes relating to the capital contribution condition under the LLP salaried members rules 

HMRC has updated its internal Partnership Manual in relation to the capital contribution condition (Condition C) under the LLP salaried members rules in Part 9 of Income Tax (Trading and Other Income) Act 2005, reversing changes introduced in February 2024. The updated manual confirms that whether a contribution is genuine and at real risk is a question of fact, and HMRC will consider the legislative intent when applying the targeted anti-avoidance rule (TAAR). Contributions intended to be enduring and commercially used, such as for regulatory capital, will not, on their own, trigger the TAAR. The updated examples at PM259200 and PM259310 reflect this more pragmatic approach, offering some reassurance to LLP members.

HMRC updates its Guidance on paying Pillar 2 top-up taxes

HMRC has updated its guidance on paying Domestic and Multinational Top-up Taxes under the OECD's Pillar 2 framework. Payments are due by 30 June 2026, or 18 months after the end of the group's accounting period, whichever is later. To make a payment, businesses need their 15-character Pillar 2 ID reference, provided upon registration. The guidance also includes details on payment processing times and contact information for assistance.

HMRC updates various manuals to reflect the shift to a residence-based regime for non-UK domiciled individuals

HMRC has updated several tax manuals to reflect the shift to a residence-based regime for non-UK domiciled individuals, introduced by the Finance Act 2025 and effective from 6 April 2025. Revisions have been made to the Inheritance Tax, International, and Trusts manuals, among others. A new Residence and FIG Regime Manual provides guidance on the four-year foreign income and gains regime for new arrivals who were non-resident for the past ten years.

HMRC updates its Guidance on paying landfill tax

HMRC has updated its guidance on paying landfill tax. Payment of landfill tax by direct debit is now limited to £20 million. Where payment is greater than £20 million, payment by other means such as online through a bank account, by bank transfer or by cheque will need to be used. The guidance note also confirms that a return must be submitted, and payment must be made, by the deadline which is usually the last working day of the month following the end of the return period. Even where no tax is due, a return to HMRC must still be submitted on time.

Case reports

Upper Tribunal allows company's appeal as payment to EBT was not earnings of its employee

In M R Currell Ltd v HMRC [2024] UKUT 00404, the Upper Tribunal held that a contribution from the company to an employee benefit trust (EBT), which then made a loan to a director of the company, did not constitute earnings.

This is a significant decision and confirms that not all contributions made by a company to an EBT, which are then subsequently used to make a loan to a director of the company, will constitute earnings. Genuine loans from such trusts, with clear repayment obligations, do not automatically constitute taxable earnings. There has been a propensity on the part of HMRC to rely on the Rangers decision when challenging EBT arrangements. This decision confirms (what has always been the case) that the Rangers decision does not mean that all loans made by an EBT constitute earnings. Each individual case must be determined on its own particular facts when considering that question.

You can read our commentary on the decision here.

Court of Appeal confirms that compensatory payments made to settle regulatory investigations are not penalties

In ScottishPower (SCPL) Ltd and others v HMRC [2025] EWCA Civ 3, the Court of Appeal  held that payments made to consumers in settlement of regulatory investigations were not penalties and therefore were deductible for corporation tax purposes.

This decision provides some important clarification on the correct tax treatment of payments regulators require taxpayers to make and will be welcomed by businesses which make payments in a regulatory context, particularly those in highly regulated sectors where breaches can result in significant financial obligations. The Court found that a long-standing principle denying tax deductions applies only to penalties, and not to redress or other payments, even if made in lieu of a penalty.

The judgment reinforces the principle that nature of a payment needs to be carefully examined and if it serves a compensatory function, rather than a penal function, it may be deductible as a trading expense.

You can read our commentary on the decision here.

And finally...

Adam Craggs and Liam McKay of RPC's Tax, Investigations and Financial Crime team, have written for Tax Journal here, providing the Contentious tax quarterly: Spring 2025 update. 

If you would like to speak further on this, or any of the topics covered above, please contact Adam Craggs or Liam McKay. 

The Mersey Docks and Harbour Company Ltd (Mersey Docks) was the operator of the Port of Liverpool. It developed a new deep-water container terminal at the port between 2013 and 2017.

Mersey Docks and HMRC agreed the tax treatment of all expenditure except expenditure incurred in respect of a quay wall. In relation to this expenditure, Mersey Docks submitted claims for capital allowances in the periods ending 31 March 2015 to 31 March 2018, on the construction expenditure of £57,134,538. Mersey Docks argued that the quay wall served a functional purpose integral to its trade and therefore qualified as 'plant' under the Capital Allowances Act 2001 (CAA).

HMRC, considered that the quay wall was a building or structure and therefore excluded from capital allowances under sections 21 and 22, CAA, and issued closure notices and consequential amendments accordingly.

Mersey Docks appealed to the FTT.  

The parties agreed that in order to determine the appeal the following issues had to be decided by the FTT:

(1) does the quay wall constitute a distinct asset for the purposes of the relevant provisions of the CAA, or does it form part of a larger whole. 

(2) assuming the quay wall should be regarded as a distinct asset, was the relevant expenditure, in principle, on the provision of plant or machinery, within the meaning of section 11(4)(a), CAA; and 

(3) if so, is the relevant expenditure saved by item 1 (machinery not within any other item in the list); item 22 (the alteration of land for the purpose only of installing plant or machinery); and item 24 (the provision of any jetty or similar structure provided mainly to carry plant or machinery), in List C in section 23, CAA, it being common ground that the expenditure on the quay wall was, on its face, excluded from the scope of capital allowances (item 5 in List B in section 22, CAA).  

FTT decision 

The appeal was allowed. 

On issue (1), the FTT held that, having considered the evidence, relevant legal principles and the specific circumstances and facts, the quay wall was a separate item and therefore it constituted a distinct asset for the purposes of the relevant provisions of the CAA. The  functions of the quay wall are to allow the berthing and mooring of vessels and to support the cranes that load and offload containers.

With regard to issue (2), the FTT held that the quay wall expenditure was on the provision of plant and machinery, within the meaning of section 11(4)(a), CAA, as it fell on the 'plant' side of the line dividing the two. This took into account the FTT's finding that, in the circumstances, it was appropriate to describe the quay wall as apparatus rather than premises. Every part of the quay wall played an essential role in manoeuvring large vessels into a position where loading and unloading could take place.

On issue (3), the FTT considered whether the expenditure on the quay wall fell within the relevant items in List C in section 23, CAA, which would enable Mersey Docks to claim capital allowances. 

The FTT held that item 1 applied and concluded that the expenditure on the quay wall was expenditure on the installation of machinery, being the cranes. Without installation on the quay wall, the machinery could not be said to have been provided for the purposes of the trade. 

Although it was not necessary, the FTT said that items 22 and 24 did not apply. Item 22 did not apply because the installation of machinery was not the only purpose of the alteration of the land as the quay wall was also to provide mooring for ships. Item 24 did not apply because the wall was not a jetty, or similar structure. 

Comment 

Although this decision is fact specific, it does provide some helpful guidance on how the FTT is likely to approach the analysis of claims for capital allowances and, in particular, the meaning of plant and machinery. It also demonstrates how capital allowances can be successfully claimed on expenditure that does not obviously qualify for such allowances. Given the sums involved, HMRC may seek permission to appeal to the Upper Tribunal.

As an aside, during the hearing, HMRC made an application to withdraw its agreement to paragraph 6 of the Statement of Agreed Facts (paragraph 6 stated that there was no dispute between the parties as to the relevant tax treatment of certain cranes). The FTT refused HMRC's application as it would, in its view, be prejudicial to the proceedings and unfair to Mersey Docks to allow HMRC to withdraw its agreement to this fact. 

The decision can be viewed here.

Unlike tax avoidance, which is legal, tax evasion (also known as tax fraud), is unlawful and will constitute a criminal offence under UK law. The key ingredient in any criminal offence relating to tax, unless it is a strict liability offence, is ‘dishonesty’. The issue of what constitutes dishonesty was considered by the Supreme Court in Ivey v Genting Casinos [2017] UKSC 67. In deciding whether a defendant had acted dishonestly, the Supreme Court held that a court must:

1. ascertain (subjectively) the actual state of the individual's knowledge or belief as to the facts; and
2. determine whether the individual's conduct was dishonest by applying the objective standards of ordinary decent people (it is not necessary for the individual to appreciate that what he has done is, by those standards, dishonest).

In a criminal trial, unlike in a civil tax appeal, the Crown bears the legal burden of proof, which means that it must prove that the accused person has committed the offence, and the standard of proof in a criminal matter is beyond reasonable doubt.

Tax fraud offences

Tax offences carry potentially lengthy custodial sentences and/or unlimited fines. In addition, the courts can order the confiscation of the benefit obtained from the criminal activity.

There are a variety of tax fraud offences, including:

• Cheating the public revenue (common law): triable on indictment only, with a maximum custodial sentence of life imprisonment. This is the principal offence relied upon by HMRC and comprises making a false statement tending to prejudice the King and the Public Revenue with the intent to defraud the King.
• Conspiracy to defraud (common law): triable on indictment only, with a maximum custodial sentence of ten years.
• Fraud contrary to section 1 of the Fraud Act 2006: triable either way, with a maximum custodial sentence of ten years
• False accounting contrary to section 17 of the Theft Act 1968: triable either way, with a maximum custodial sentence of seven years.
• Fraudulent evasion of income tax/VAT contrary to section 106A of the Taxes Management Act 1970/section 72(1) of the Value Added Tax Act 1994: triable either way, with a maximum custodial sentence of seven years.

Failure to prevent criminal facilitation of tax evasion

Sections 45 and 46 of the Criminal Finances Act 2017, introduced two strict liability corporate criminal offences of failure to prevent criminal facilitation of tax evasion. The legislation came into force on 30 September 2017. The aim of the legislation is to require corporates and partnerships to put in place reasonable procedures to prevent those providing services for them, or on their behalf, from dishonestly and deliberately facilitating tax evasion. The corporate offences aim to overcome the difficulty often encountered by prosecuting authorities in attributing criminal liability to relevant bodies for the criminal acts of employees, agents or those that provide services for them, or on their behalf.

Although strict liability offences, there is a complete statutory defence if:

1. the corporate or partnership has in place such reasonable preventative procedures as it was reasonable in all circumstances to expect it to have; or
2. it was not reasonable, in all the circumstances, to expect it to have any preventative procedures in place.

HMRC's prosecution policy

HMRC does not have the resources to prosecute every suspected tax crime. Instead, it follows a selective policy. The following are examples of the circumstances which might lead HMRC to consider a prosecution:

• cases of organised criminal gangs attacking the tax system or systematic frauds where losses represent a serious threat to the tax base;
• where materially false statements are made or false documents provided in the course of a civil investigation;
• where, in pursuing an avoidance scheme, reliance is placed on a false or altered document or such reliance or material facts are misrepresented to enhance the credibility of a scheme;
• where deliberate concealment, deception, conspiracy or corruption is suspected;
• where the perpetrator has committed previous offences or there is a repeated course of unlawful conduct or previous civil action; and
• where there is a link to suspected wider criminality, whether domestic or international, involving offences not under the administration of HMRC.

Deferred prosecution agreements

Deferred prosecution agreements (DPAs) were introduced on 24 February 2014, by Schedule 17 to the Crime and Courts Act 2013 (CCA 2013). A DPA may be entered into for the offence of cheating the public revenue (paragraph 16, Schedule 17, CCA 2013) as well as other specific statutory offences such as offences under the Customs and Excise Management Act 1979 (paragraph 18, Schedule 17, CCA 2013) and the Value Added Tax Act 1994 (paragraph 21, Schedule 17, CCA 2013).

A DPA is an agreement reached between a prosecutor and a corporate body under the supervision of a judge. A DPA allows a prosecution against a corporate body to be suspended for a defined period of time provided the corporate body meets certain specified conditions such as paying a financial penalty and co-operating with future prosecutions of any individuals. If the conditions are not fulfilled, the prosecution will resume. A company will only be invited to enter DPA negotiations if it has co-operated with the criminal investigation.

Commencement of a criminal investigation

HMRC's Fraud Investigation Service (FIS) is responsible for all of HMRC's criminal investigations.

A criminal investigation will sometimes arise out of a pre-existing HMRC civil tax enquiry where factual circumstances examined during the civil enquiry identify a potential criminal offence. It may also arise from information supplied by an informant, such as a disgruntled former business partner or a former employee, or other sources of information available to HMRC, such as Suspicious Activity Reports filed by persons working in the regulated sector (see Part 7 of the Proceeds of Crime Act 2002 (POCA 2002)).

A typical investigation will involve FIS officers undertaking a review and evaluation of documents and other information that has already been obtained, including working with specialists (such as accountants and lawyers) to understand the particular issues involved. As part of its review, FIS will decide whether it is necessary to undertake a search of premises or interview witnesses for the purpose of gathering information to assist their investigation, and whether there is sufficient material to justify interviewing the suspect under caution. FIS will also consider obtaining information from third parties who are not suspects.

Information powers

Under the Serious Organised Crime and Police Act 2005, HMRC has the power to issue a ‘disclosure notice’ where it believes that:

• there are reasonable grounds to suspect that a prescribed offence has been committed;
• any person has information, in whatever form, which is relevant to the investigation of that offence; and
• there are reasonable grounds that such information is likely to be of substantial value to that investigation.

A person served with a disclosure notice may be required to answer questions or produce relevant documentation. However, legally privileged material need not be disclosed.

Search and arrest

The Police and Criminal Evidence Act 1984 (PACE 1984) and its accompanying Codes of Practice, establish the powers of investigating officers, including those from HMRC, to combat crimes whilst protecting the rights of the public. PACE 1984 and the codes impose specific obligations on an investigating officer in relation to the powers of search and arrest. For example, where premises are searched, some forms of material are protected (such as that covered by legal professional privilege or medical records). Failure to meet the requirements of PACE 1984 may result in the contents of a suspect's statement being ruled inadmissible at trial (see section 78 of PACE 1984).

Disclosure by the Crown

Following charge, if it is demonstrated that the taxpayer has a case to answer,  the Crown will serve bundles on the defendant incorporating documentary evidence upon which the prosecution intends to rely, including statements from witnesses. A rigorous regime applies to the disclosure of documents to the defendant which are relied upon by the Crown for the purposes of its prosecution. 

Additionally, under the Criminal Procedure and Investigations Act 1996, the Crown must provide the defence with copies of, or access to, any material which might reasonably be considered capable of undermining the case for the prosecution against the accused, or of assisting the case for the accused, and which has not previously been disclosed.

The defence statement

It is also necessary for the defence team to serve a defence statement, which must be provided within 14 days (in the Magistrates' Court) or 28 days (in the Crown Court) after the initial prosecution disclosure (or notice from the prosecutor that there is no material to disclose). The content of the defence statement is governed by section 6A of the Criminal Procedure and Investigations Act 1996, so that it must, for example, set out the nature of the defence, including any particular defences and indicate the matters of fact in respect of which the defence takes issue, and why it takes issue.

Witnesses for the defence

The defence team should identify any potential witnesses who will be able to support the defendant at trial. This task can only properly be undertaken by a suitably experienced solicitor, who will need to meet with any prospective witness and take a witness statement of their proof of evidence (which will be signed by the witness). Such witness statements that will be relied upon by the defendant will be disclosed to the prosecution in accordance with a trial timetable that will have been imposed by the court. If necessary, the defence team may also have to consider whether it is necessary to compel a prospective witness to attend court by the issue of a court summons under the Criminal Procedure (Attendance of Witnesses) Act 1965. It is also possible for the court to compel an individual to produce documents for the purposes of the trial.

The judge and jury

In a criminal trial the judge will determine issues of law (i.e. rule on the nature of the legal offence and the requirements that must be met as a matter of law in order for the defendant to be found guilty of the offence with which they are charged). In the Crown Court, the jury is responsible for determining whether the defendant is guilty of the offence with which they have been charged.

Sentencing

If the accused pleads guilty or is convicted, it will then be necessary for the judge to determine the appropriate sentence after hearing submissions on any mitigation by the defence and consideration of the relevant sentencing guidelines. 

Confiscation

The conclusion of the trial is not the end of the matter. HMRC will seek to recover any tax lost as a result of the fraud. On conviction, the prosecution will normally seek to obtain a confiscation order in respect of the proceeds of crime.

Under section 6 of POCA 2002, the Crown Court is, in certain circumstances, required to make a confiscation order. The court will make an order if two conditions are satisfied:

1. the defendant has been convicted of an offence in proceedings before the Crown Court, or has been committed to the Crown Court; and
2. either the prosecutor is seeking a confiscation order or the court is of the view that it is appropriate to proceed under section 6.

If both of the above conditions are satisfied, a confiscation order may then be made if the defendant is found to have a ‘criminal lifestyle’ and if they have, to have benefited from their ‘general criminal conduct’ (or, if they do not have a criminal lifestyle, they have nonetheless benefitted from their ‘particular criminal conduct’).

Any question arising in connection with whether the defendant has a criminal lifestyle, or has benefited from their criminal conduct, is decided on the balance of probabilities.

In broad terms, a person has a ‘criminal lifestyle’ if they are either convicted of one of a number of prescribed offences, including money laundering, or the offence constitutes conduct forming part of a course of criminal activity, or was committed over a period of at least six months. ‘General criminal conduct’, is all the defendant's criminal conduct, whenever it occurred.

The recoverable amount is broadly equal to the defendant's benefit from the conduct concerned. The amount may be reduced if the defendant can demonstrate that the realisable value of his assets is less than the recoverable amount.

Unexplained wealth orders

An unexplained wealth order (UWO) is designed to confiscate the proceeds of crime by using civil powers instead of criminal powers. The power was introduced by section 1 of the CFA 2017 and HMRC is one of the enforcement bodies who can obtain an UWO. In order to apply to the court to order an UWO, the following conditions must be satisfied: 

1. the respondent must hold the asset;
2. the value of that asset must be greater than £50,000;
3. there must be reasonable grounds for suspecting the known source of the respondent's lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the asset; and
4. the respondent is a politically exposed person, or there are reasonable grounds for suspecting that:

(i) the respondent is, or has been involved in serious crime in the UK or elsewhere; or

(ii) a person connected with the respondent is, or has been, so involved.

Conclusion

In late 2024, the government estimated that the tax gap (the difference between the annual amount of tax HMRC collects and the amount it believes is payable) stood at £39.8bn. To reduce this figure, it was announced that it will be investing £1.6bn over five years to fund the recruitment of 5,000 additional HMRC compliance officers. With that level of commitment and investment from the government, an increase in the number of HMRC prosecutions for tax fraud is likely to increase significantly.