Corporate tax update - May and June 2026

Welcome to the latest edition of our Corporate Tax Update covering key developments from May and June 2026, written by members of RPC's tax team.

In this update we look at key UK tax developments, including new HMRC registration requirements for tax advisers, and changes affecting businesses and multinational groups. In particular, it covers significant developments in areas such as R&D tax relief, transfer pricing, VAT grouping, overseas permanent establishments and benefits in kind.

1. HMRC's new tax adviser registration scheme

From 18 May 2026, businesses can register under the UK's new Mandatory Tax Adviser Registration (MTAR) regime. The MTAR requires businesses to register with HMRC if they are paid to assist in connection with another person's tax affairs and interact with HMRC on that person's behalf (for example, by submitting returns, corresponding with HMRC or making tax payments). Registration applies to the legal entity providing the service, and HMRC will also carry out suitability checks on certain senior individuals. Businesses required to register generally have three months to do so, with the initial registration period ending on 18 August 2026.

An important exemption from the MTAR regime applies to employees who deal only with their employer's own tax affairs or those of companies within the same corporate group. However, this exemption is narrower than many organisations may expect. In-house tax teams that support entities outside the statutory group—such as investment funds, SPVs, portfolio companies or joint ventures—may still be regarded as providing tax services to another person and therefore fall within the registration requirement.

For financial services businesses, HMRC has deferred the registration deadline until 31 December 2026 while it considers how the regime should apply to the sector. This is a postponement rather than an exemption and affected organisations should use the additional time to review their structures, identify where they interact with HMRC on behalf of third parties, and assess whether registration will be required.

View guidance on if and when you need to register as a tax adviser with HMRC.

2. R&D tax relief - targeted advance assurance for SMEs

On 18 May 2026, HMRC published guidance on its targeted advance assurance service for eligible small and medium-sized enterprises (SMEs) making R&D tax relief claims. SMEs can request HMRC’s view on up to two specific complex or high-risk areas of an R&D claim before submitting it. The service operates alongside the existing full claim advance assurance process and is intended to help businesses reduce uncertainty and avoid errors in their claims.

The service is available to SMEs that are carrying out (or planning to carry out) R&D in the relevant accounting period and have not yet claimed R&D tax relief for that period. Companies with an open corporation tax enquiry, involvement in a disclosable tax avoidance scheme, or corporate serious defaulter status are excluded.

Advance Assurance can be requested on specific areas including whether a project qualifies as R&D for tax purposes, whether overseas expenditure qualifies for relief, whether contracted R&D arrangements qualify, and whether the company is exempt from the PAYE and NICs cap. Each application can cover one project and one area of relief, with a maximum of two applications. HMRC aims to respond within 40 calendar days where complete information has been provided.

The service is voluntary and does not replace the normal R&D claim process or the requirement to meet all statutory conditions when submitting a claim. If assurance is refused, the decision cannot be appealed, although the company may still submit an R&D tax relief claim through its corporation tax return. The targeted service is intended to provide a more focused alternative to the full claim assurance process and improve certainty for SMEs on higher-risk aspects of their claims.

View guidance on applying for targeted advance assurance.

3. Consultation on modernising the tax treatment of distributions and returns of capital

On 23 June 2026, HMRC published a consultation on proposals to modernise the UK tax framework for company distributions and returns of capital. The consultation seeks views on reforms affecting individuals receiving distributions, as well as changes to the treatment of non-UK company distributions, share buybacks, demergers and the transactions in securities anti-avoidance rules. The consultation will close on 14 September 2026.

A key proposal concerns returns of capital and share buybacks. HMRC is concerned that some structures allow shareholders to increase the capital element of proceeds by “rebasing” shares through the insertion of a holding company, reducing income tax exposure. The government is considering freezing the capital value of shares at their original subscription value to prevent this outcome.

The consultation also proposes making statutory demerger relief more accessible by relaxing certain conditions, including allowing investment companies to qualify, removing the requirement for all companies involved to be UK resident, and permitting the distributing company to be dissolved after the demerger where it has no remaining assets.

Other proposals include clarifying the interaction between the distributions regime and loans to participators rules, potentially extending close company loan rules to certain loans from non-UK resident companies, replacing the subjective trade benefit test for qualifying share buybacks with clearer mechanical conditions, and modernising the transactions in securities anti-avoidance rules to better address modern business structures.

The reforms are wide-ranging and could affect existing and future corporate structures, particularly those involving restructurings, shareholder exits, buybacks and distributions. Businesses and investors should review potential impacts while HMRC considers responses and develops draft legislation.

View consultation on modernising the distributions framework.

4. Consultation on new criminal offence for reckless untrue statements

On 23 June 2026, HMRC published a consultation on introducing a new criminal offence for making reckless untrue statements or declarations in relation to direct taxes. The consultation follows the government’s Autumn 2025 Budget announcement and seeks views on the proposed offence, with responses requested by 16 August 2026.

Currently, criminal offences for reckless untrue statements exist in certain indirect tax areas, but no equivalent offence applies to direct taxes. Instead, direct tax criminal offences generally require proof of dishonesty. The proposed measure would create a new offence where a person makes a statement or declaration that is untrue while being aware of a risk that it may be incorrect.

The offence would apply to statements made orally, in writing or implicitly through actions, and would also apply to tax agents who make reckless untrue statements on behalf of clients. HMRC intends to provide guidance to distinguish genuine mistakes or misunderstandings from reckless behaviour.

The proposed penalty is an unlimited fine or imprisonment for up to two years. However, innocent errors or mistakes resulting from a failure to take reasonable care would remain subject to existing civil penalty regimes, while deliberate dishonest statements would continue to fall under existing tax fraud offences.

The proposal represents a significant strengthening of HMRC’s enforcement powers and may increase scrutiny of taxpayers, advisers and tax agents when preparing and submitting direct tax information.

View consultation on proposed offence for reckless untrue statements.

5. VAT grouping and fixed establishments: Upper Tribunal decision in the Barclays case

On 8 June 2026, the Upper Tribunal, in Barclays Service Corporation and another v HMRC[1] dismissed an appeal against HMRC's decision not to allow a US company to join a UK VAT group.

The appeal concerned whether Barclays Services Corporation (BSC), a US-incorporated company within the Barclays group, could be treated as a member of the UK VAT group headed by Barclays European Limited (BESL). BSC applied to join the VAT group on the basis that its UK branch constituted a fixed establishment in the United Kingdom. HMRC refused the application, arguing that BSC did not have a UK fixed establishment and, alternatively, that refusal was necessary for the protection of the revenue.

The First-tier Tribunal (FTT) dismissed the appeal, finding that BSC’s UK branch was not a fixed establishment at the relevant date of 1 December 2017. The FTT considered, on the assumption that the Appellants’ proposed test was correct, whether the branch had sufficient human and technical resources under its ownership or comparable control to make a meaningful commercial contribution to BSC. It concluded that the branch did not have the necessary control over employees, premises, systems or other resources.

The Upper Tribunal (UT) upheld the FTT’s conclusion on the fixed establishment issue. It rejected the argument that the branch had “comparable control” merely because employees had access to Barclays facilities, including office space, computers and telephones. Following the principles in Welmory[2], comparable control requires more than practical access; the resources must be available to the taxable person as if they were its own, usually supported by legal arrangements that cannot be terminated at short notice. The Tribunal found that, on 1 December 2017, the UK branch had no employees of its own and no comparable control over the relevant resources.

The UT also rejected the Appellants’ challenges to the FTT’s factual findings concerning Ms Hadjikakou, who was intended to head the UK branch. The Tribunal held that the FTT was entitled to consider that she remained significantly involved in work for another Barclays entity, reported to a manager within that entity, and was not yet operating with the level of independence required to demonstrate comparable control by the branch.

The Appellants also argued that the branch should be compared with an intending trader or a newly established business that could qualify despite being in its early stages. The UT rejected this argument, holding that there was no basis for treating an intended future fixed establishment as sufficient. A fixed establishment must exist at the relevant date; merely taking steps to create one in the future is not enough.

Although it was unnecessary to decide the point because the fixed establishment argument had already failed, the UT also considered the “protection of the revenue” issue. It disagreed with the FTT’s view that HMRC could not reasonably refuse the application on this basis. The Tribunal held that HMRC could reasonably have considered refusal necessary because the branch was only minimally established at the relevant date and the timing of the application was strongly influenced by a potential one-off tax benefit of approximately £21 million.

The UT explained that VAT grouping is intended to allow businesses to organise themselves commercially while maintaining tax neutrality, but that HMRC may refuse grouping where the circumstances indicate a risk of tax avoidance or abuse beyond the ordinary consequences of VAT grouping.

Accordingly, the Appellants’ appeal was dismissed. The UT confirmed that BSC’s UK branch was not a fixed establishment capable of joining the VAT group at the relevant date. It also held, that HMRC would have been entitled to refuse the application for protection of the revenue purposes.

View decision.

6. Proposal to make foreign permanent establishment tax exemption mandatory

On 21 May 2026, HMRC announced plans to make the foreign permanent establishment (PE) exemption mandatory for UK-resident companies. Currently, UK companies are taxed on their foreign PE profits unless they elect for exemption. If no election is made, foreign PE losses may also be used to reduce UK taxable profits.

The government considers that this system has allowed multinational groups to obtain UK tax relief for overseas losses while avoiding UK corporation tax on foreign PE profits. The proposed reform aims to prevent this outcome by removing the ability to choose whether the exemption applies.

For most companies, the mandatory exemption will apply to accounting periods beginning on or after 1 January 2027. An earlier implementation date of 1 September 2026 will apply to UK companies with foreign PEs involved in oil and gas exploration or exploitation.

The changes will include transitional rules preventing pre-existing foreign PE losses and other tax attributes from being used to reduce UK profits after the exemption takes effect. An anti-avoidance rule will also be introduced to stop arrangements designed to accelerate the use of these losses before the new rules apply.

The government intends to publish draft legislation during the summer. Businesses with foreign PE operations, particularly those in the oil and gas sector, should review the impact of these changes on their tax position.

View policy paper on Foreign Permanent Establishment Exemption.

7. Mandatory payrolling of benefits in kind – delays in introduction

On 15 June 2026, HMRC confirmed a phased introduction of mandatory payrolling for benefits in kind (BiKs), delaying the full rollout by one year. From 6 April 2027, employers will be required to payroll company cars and vans (including fuel benefits) and employer-provided medical benefits. Mandatory payrolling for most other BiKs has been deferred until 6 April 2028, while employment-related loans and living accommodation will remain outside the mandatory regime and can continue to be payrolled voluntarily.

The revised timetable follows feedback from employers, payroll providers and software developers, giving businesses additional time to prepare for the transition to real-time reporting. HMRC has also confirmed that further technical guidance will be issued during 2026, with final guidance for the first phase expected at the Autumn Budget 2026.

View guidance on mandatory payrolling of benefits in kind and expenses.

8. New annual reporting requirements for international controlled transactions – consultation

On 16 June 2026, HMRC launched a technical consultation on draft regulations which will require certain multinational groups to report detailed information on cross-border related party transactions in the form of an International Controlled Transaction Schedule (ICTS). The new reporting requirement is expected to apply to accounting periods beginning on or after 1 January 2027, with responses to the consultation due by 31 July 2026.

The proposed rules will apply to in-scope multinationals that meet specified thresholds, generally where transactions involve non-UK related parties and exceed certain value limits. The regulations set out which entity within a group must file the schedule, the information that must be reported, and the filing deadlines. HMRC has also proposed penalties for non-compliance, although it intends to adopt a soft-landing approach for the first year of reporting. The government states that the ICTS is intended to support automated, data-led risk assessment, enabling more targeted transfer pricing enquiries while reducing unnecessary compliance burdens through revised templates, materiality thresholds and targeted exemptions. The final regulations and HMRC guidance are expected by the end of 2026.

View consultation on Transfer Pricing.

9. Final guidance on revised anti-avoidance rules for share exchanges and company reconstructions

HMRC has published Appendix 20 (CG-APP20) to its Capital Gains Manual, providing final guidance on the revised anti-avoidance rules for share exchanges and company reconstructions introduced by the Finance Act 2026. The updated guidance applies to transactions from 26 November 2025 and replaces most of the provisional guidance previously contained in Appendix 19.

The revised rules amend section 137 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992), allowing HMRC to make targeted and proportionate adjustments where arrangements have a main purpose of avoiding or reducing capital gains tax or corporation tax on chargeable gains, rather than disapplying the share exchange relief in its entirety. The guidance also confirms that tax deferral alone does not constitute tax avoidance, provides examples of transactions that are unlikely to be challenged (including certain commercial reorganisations and private equity management rollovers), and explains how the rules interact with other reliefs. HMRC has also included practical examples of how the revised rules will operate and recommends that taxpayers make a white space disclosure where they believe the anti-avoidance provisions may apply.

View Capital Gains Manual.