News & Insights

The latest tax developments and VAT round-up for the month.

Our monthly tax update covers the developments most likely to affect individuals, trusts, estates and businesses. If you would like to discuss anything here in more detail, please get in touch with your usual contact.

1. Private client

1.1 No BADR where Companies House records showed non-voting shares

The FTT has refused business asset disposal relief (BADR) on a sale of shares because the official company records showed that the shares carried no votes.

The taxpayer owned all the B shares in an architectural practice, and the other director held the A shares. By the time she sold, she had resigned as a director but remained an employee. To qualify for BADR she needed at least 5% of the voting rights. She argued that both share classes in fact carried equal votes.

The company’s filings said otherwise. Its SH01 and annual confirmation statements recorded the B shares as non-voting and identified the other director as the person with significant control. The FTT treated the register as prima facie evidence that could only be rebutted by cogent evidence. She produced no written resolutions or minutes showing she had voted. Nor had she corrected the filings while she was a director.

The appeal was dismissed. Before a sale, it is worth checking that the share rights shown at Companies House match what the shareholders believe them to be. Errors are much easier to put right before a disposal than after one.

Poznic v HMRC [2026] UKFTT 1298 (TC)
caselaw.nationalarchives.gov.uk/ukftt/tc/2026/1298

1.2 Pool house annex not a separate dwelling for MDR

The FTT has denied multiple dwellings relief (MDR) on the purchase of a house with a detached pool house, finding that the annex lacked the privacy and security of a separate dwelling.

The annex stood beside an outdoor pool, more than 200 feet from the main house and across a stream. The FTT rejected some of HMRC’s arguments, including those about space for a bed and storage. However, it found it unrealistic that occupiers of the main house would give up use of the pool. In practice they would need the annex’s shower and toilet, which would intrude on anyone living there.

Applying the multi-factor test from Fiander, the FTT held that the annex was not suitable for use as a single dwelling. MDR was abolished for transactions completing from 1 June 2024, but claims and enquiries on earlier purchases are still working through the tribunals.

Smith v HMRC [2026] UKFTT 1351 (TC)
caselaw.nationalarchives.gov.uk/ukftt/tc/2026/1351

1.3 Loan charge settlement offers: engage, even if the offer is nil

The Low Incomes Tax Reform Group (LITRG) is urging people offered a loan charge settlement by HMRC to respond, even where the amount due is zero.

Some recipients are wary that engaging amounts to admitting liability. LITRG points out that many will see a reduced bill and that a formal acceptance is legally needed, even for a nil offer. Settlement-related inheritance tax arising within three months of acceptance is waived under the scheme.

LITRG also warns about third parties who claim to own the underlying loans and demand repayment or a fee to release them. That is a private matter outside the settlement process. Anyone who receives such a demand should take advice before paying.

LITRG: loan charge settlement offers

2. PAYE and employment

2.1 Payrolling benefits in kind: six months to phase 1

Mandatory payrolling of benefits in kind starts on 6 April 2027 for a limited group of benefits, and HMRC is urging employers to prepare now.

Phase 1 covers company cars, car fuel, vans, van fuel and medical benefits only. Most other benefits follow from April 2028, so P11Ds will still be needed for those until then. A voluntary registration service opens in November 2026 for benefits outside phase 1, including beneficial loans and living accommodation. HMRC expects to publish final phase 1 guidance this autumn.

Employers should list the benefits they currently report on P11Ds, check that their payroll software will be ready, and plan for starters, leavers and in-year changes. Employee communication matters too. In 2027/28, some employees will pay tax on phase 1 benefits in real time while their tax code is still collecting an underpayment from earlier years. HMRC asks employers not to describe this as double taxation, because it is not.

HMRC Employer Bulletin, August 2026

2.2 Approved mileage rate rises to 55p

The approved mileage allowance payment (AMAP) rate for the first 10,000 business miles has risen from 45p to 55p, backdated to 6 April 2026.

The rate after 10,000 miles stays at 25p. The NIC disregard for relevant motoring expenses has also risen to 55p. Employers who paid above 45p earlier in 2026/27 may have deducted tax and Class 1 NIC that is no longer due, and should correct payroll so the overpayments are refunded. Employees reimbursed below 55p can claim tax relief on the difference.

2.3 Dates for employers this month

• 6 October: a further £300 automatic penalty for 2025/26 employment-related securities returns still outstanding three months after the 6 July deadline.
• 12 October: HMRC’s consultation on aligning NIC recovery time limits with income tax closes.
• 22 October: electronic payments under a PAYE Settlement Agreement for 2025/26 must clear.
• October: further Employment Rights Act 2025 measures start, including the duty to take all reasonable steps to prevent sexual harassment and new trade union access rights. The unfair dismissal qualifying period falls to six months from 1 January 2027.

3. Business tax

3.1 R&D relief refused: innovation is not the same as an advance in science

The FTT has refused R&D relief to a business whose projects improved its own operations but did not seek an advance in a field of science or technology.

The tribunal accepted that the company had experimented, solved practical problems and used a suitably qualified competent professional. That was not enough. The projects were commercial and operational improvements to the company’s own activities, not attempts to advance overall knowledge or capability in the field.

The decision follows a similar result in Tanglewood Care Services earlier this year. Together they confirm HMRC’s firm line on claims from non-technology sectors. Claims should identify, for each project, the field of science or technology, the baseline of existing knowledge, the advance sought and the uncertainties faced, supported by contemporaneous records.

Environmental Services Ltd v HMRC [2026] UKFTT 1301 (TC)
www.bailii.org/uk/cases/UKFTT/TC/2026/1301.html

3.2 ICAEW calls for relief on pre-development costs after Orsted

The ICAEW has asked for clearer guidance and a new statutory relief for pre-development costs, following the Supreme Court’s decision in Orsted West of Duddon Sands.

The Supreme Court held that the test for capital allowances on plant is narrow. As a result, spending on pre-construction work such as environmental assessments, surveys and technical studies did not qualify. HMRC has since consulted on the tax treatment of these costs. The ICAEW argues that, without a targeted relief, the decision could deter investment in large infrastructure and energy projects.

ICAEW: new tax relief needed for pre-development costs

3.3 MTD for income tax: second quarterly update due 7 November

Sole traders and landlords within Making Tax Digital for income tax must submit their update for the quarter to 5 October by 7 November.

MTD for income tax has applied since 6 April 2026 to those with qualifying business and property income over £50,000. This is the second quarterly deadline of the first year. The threshold falls to £30,000 from April 2027, so clients in that band should be choosing software and setting up digital records now.

4. VAT and indirect taxes

4.1 Zero rate on domestic electricity in Great Britain from 1 October

Qualifying supplies of electricity in England, Scotland and Wales are zero-rated from 1 October 2026 to 31 March 2027, down from the 5% reduced rate.

The change was made by the Value Added Tax (Supplies of Domestic Electricity) Order 2026 (SI 2026/987), and HMRC has explained how it works in Revenue and Customs Brief 10 (2026). The supplies that qualify are unchanged: domestic use, charities’ non-business use and supplies below the de minimis limits in VAT Notice 701/19. Gas and other fuels stay at 5%, and so does qualifying electricity in Northern Ireland.

Where a billing period straddles 1 October, suppliers can apportion by the date the energy was consumed. HMRC recommends using meter readings. Suppliers will need to switch systems again when the 5% rate returns on 1 April 2027.

Revenue and Customs Brief 10 (2026)

4.2 VAT refunds for non-UK businesses in a VAT group

HMRC has changed how non-UK members of a UK VAT group should claim UK VAT refunds, resolving an issue that has been open since Brexit.

Revenue and Customs Brief 8 (2026) sets out how future claims should be made and the transitional arrangements. It also explains how to ask HMRC to reconsider claims made since 1 January 2021 that were refused. Groups with overseas members should check whether any refused claims can now be revisited.

Revenue and Customs Brief 8 (2026)

4.3 Education by alternative providers

Revenue and Customs Brief 9 (2026) sets out HMRC’s position on the VAT liability of higher and further education supplied by alternative providers.

The brief follows the Court of Appeal’s decision in St Patrick’s International College. Private colleges and training providers should review whether their supplies are exempt or taxable under HMRC’s revised approach.

Revenue and Customs Brief 9 (2026)

5. Autumn Budget and key dates

5.1 Autumn Budget on Wednesday 28 October

Chancellor John Healey will deliver his first Budget on 28 October 2026, with the OBR’s updated forecast published the same day.

This is the first fiscal event since the change of Prime Minister and Chancellor in July. No tax measures have been announced in advance, so planning should not be based on speculation. Clients considering disposals, gifts or extracting profits before the Budget should discuss the timing with us first. We will publish a summary of the announcements on Budget day.

5.2 Diary dates

Date	Deadline or event
5 October	Register for Self Assessment for 2025/26 if newly chargeable
6 October	Further £300 penalty for outstanding 2025/26 ERS returns
12 October	Consultation on NIC recovery time limits closes
22 October	PAYE, NIC and PSA electronic payments must clear
28 October	Autumn Budget and OBR forecast
31 October	Paper 2025/26 Self Assessment returns due
7 November	MTD for income tax quarterly update for the period to 5 October
November	Voluntary payrolling registration opens for benefits outside phase 1
1 December	Fuel duty rises by a further 2p per litre

6. And finally

6.1 Nothing so permanent as a temporary tax

This month’s zero rate on household electricity is billed as a temporary measure, ending on 31 March 2027. Temporary measures have a habit of lasting longer than planned. Income tax was introduced by William Pitt the Younger in 1799 as a temporary measure to pay for the war with France. It was repealed, brought back, repealed again and reintroduced by Peel in 1842, again as a temporary measure. More than 180 years on, it is still with us.

We will find out on 28 October which of this year’s temporary measures the new Chancellor would like to keep.