Tax Bites - May 2025

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

News

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.