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 Assigning a company debt to a shareholder was a taxable distribution

The FTT has held that a company’s assignment of a debt to its shareholder was a taxable distribution, and that the inaccuracy in the shareholder’s return was deliberate.

The tribunal upheld HMRC’s discovery assessment and the penalty. Transferring a company asset, including a debt owed to the company, to a shareholder can be a distribution taxed as income, even where no cash changes hands. Owner-managers should take advice before moving assets or debts out of their companies.

Thomas v HMRC [2026] UKFTT 627 (TC)

1.2 Overseas loan register lacked formality: gain taxable in the UK

The FTT has held that a gain was chargeable in the UK under the remittance basis rules because an overseas loan register lacked the formality needed to support the taxpayers’ position.

The case concerned the remittance basis, which applied to non-UK domiciled individuals before April 2025. Where tax years before the new residence-based regime are still open, the quality of records about where funds came from and how they were used remains crucial.

Personal representatives of Sehgal & Anor v HMRC (FTT, April 2026)

1.3 SDLT: option and purchase were separate linked transactions

The FTT has held that the grant of an option and the later purchase of a property were separate, but linked, non-residential transactions for SDLT.

Linked transactions are added together to work out the rate of SDLT, which can increase the tax due. Buyers using options or phased purchases should consider the linked transaction rules at the outset.

Shinebrook Ltd v HMRC (FTT, April 2026)

2. PAYE and employment

2.1 Court of Appeal: genuine EBT loan was not earnings

The Court of Appeal has dismissed HMRC’s appeal and confirmed that a genuine loan from an employee benefit trust (EBT) to a director was not taxable as earnings.

In 2010 the company paid £800,000 to an EBT, which lent it to the director under a formal five-year loan secured on his shares. The court held that a genuine loan with real repayment obligations is not earnings merely because it was funded by the employer, distinguishing the Rangers case. The decision concerns arrangements before the disguised remuneration rules and the loan charge, which apply to most later EBT loans.

HMRC v M R Currell Ltd [2026] EWCA Civ 445

2.2 New rules for umbrella companies from 6 April

Since 6 April 2026, recruitment agencies, and in some cases end clients, can be held jointly and severally liable for the PAYE and NICs due on payments made by umbrella companies.

The change is aimed at non-compliant umbrella companies that fail to pay over the tax they deduct. Agencies and businesses that use contractors supplied through umbrella companies should review their supply chains and the checks they carry out on umbrella providers.

2.3 Host employer NIC rules confirmed

The Upper Tribunal has dismissed an appeal on the NIC rules that make a UK business liable as the host employer for workers supplied by an overseas employer.

The tribunal held that the work did not need to be directed at a detailed level by the UK business for the rules to apply. Businesses using workers supplied by overseas group companies or contractors should check whether they are the host employer for NIC purposes.

Bilfinger Salamis UK Ltd v HMRC [2026] UKUT 143 (TCC)

3. Business tax

3.1 New tax year changes now in force

A number of business tax changes took effect from April 2026.

• Making Tax Digital for income tax: sole traders and landlords with qualifying income over £50,000 must keep digital records and send quarterly updates from 6 April 2026.
• Capital allowances: the main rate of writing-down allowance fell from 18% to 14%.
• Dividends: the basic and higher dividend tax rates rose by 2 percentage points.
• IHT reliefs: the reforms to agricultural and business property relief took effect from 6 April 2026.

Clients affected by MTD should check that their software is working and that records are being kept digitally from the start of the tax year.

3.2 Deliberate avoidance scheme: gift to overseas charity

The FTT has held that a purported gift to an overseas charity was part of an undisclosed tax avoidance scheme.

The appeal was dismissed. Arrangements offering tax relief on charitable gifts that cost the donor little or nothing should be treated with great caution, and HMRC’s published list of named schemes is worth checking.

Fleet v HMRC [2026] UKFTT 507 (TC)

3.3 Hybrid partnerships and indemnities in property businesses

HMRC has published Spotlight 63a, warning about property business arrangements using hybrid partnerships and indemnities.

HMRC considers that these arrangements do not deliver the tax savings promoted. Landlords who have been offered schemes involving hybrid partnerships with companies should take independent advice before going ahead.

4. VAT and indirect taxes

4.1 Further education funding was consideration for taxable supplies

The Court of Appeal has held that government funding paid to a further education college was consideration for its supplies of education.

The funding was paid under detailed agreements requiring the college to deliver approved courses to eligible students. HMRC has confirmed in Revenue and Customs Brief 3 (2026) that it will not appeal further, and it will consult on the policy. Colleges should consider the effect on their VAT recovery position.

HMRC v Colchester Institute Corporation [2026] EWCA Civ 363

4.2 NHS medicine pricing payments did not reduce VAT

The Upper Tribunal has held that payments made by a pharmaceutical manufacturer under the voluntary NHS pricing scheme did not reduce the VAT due on its medicine sales.

The payments were too far removed from the actual supplies to be treated as retrospective price reductions. Businesses that make rebates or payments to third parties should not assume they reduce the VAT due on their sales.

HMRC v Boehringer Ingelheim Ltd [2026] UKUT 135 (TCC)

4.3 Donating goods to charity

From 1 April 2026, businesses can donate goods to charities without accounting for VAT, subject to conditions.

The conditions cover the value of the goods and the type of charity and goods involved, and are set out in VAT Notice 701/1. The change is designed to reduce waste and remove a barrier to donations.

5. Key dates

The new tax year started on 6 April, and first Making Tax Digital quarterly updates for income tax are due on 7 August.

6. And finally

6.1 Building with bigger bricks

From 1784 until 1850, bricks were taxed by number. Some makers responded by producing larger bricks, so that fewer were needed for each wall. The government then set a higher rate for bricks above a certain size.

As Making Tax Digital moves landlords and sole traders onto quarterly reporting, the lesson still holds: when the rules change, people adapt quickly. It pays to plan for the new rules rather than wait for them to bite.