Tax Bites - June 2025

Welcome to the latest edition of RPC's Tax Bites – providing monthly bite-sized updates from the tax world.

News

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.