Tax update July 2026
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 Employee benefit trust sub-funds caught by the ten-year IHT charge
The FTT has held that sub-trusts carved out of an employee benefit trust (EBT) for two individuals were subject to the inheritance tax (IHT) ten-year anniversary charge, though on a smaller amount than HMRC had assessed.
A company set up an £8 million EBT, which was then split into two sub-funds, one for each of the company’s only two employees. The taxpayer argued that the whole fund was a qualifying EBT and so outside the relevant property regime. The tribunal disagreed. Each sub-fund was a separate settlement for a single named person, so neither benefited all or most of the company’s employees, and neither qualified for the EBT exemption.
The tribunal did, however, accept that the charge should be calculated on the taxpayer’s own sub-fund of about £4 million, rather than the full £8 million. Older EBT arrangements, particularly those divided into individual sub-funds, should be reviewed ahead of their next ten-year anniversary.
McIlhone v HMRC [2026] UKFTT 995 (TC)
caselaw.nationalarchives.gov.uk/ukftt/tc/2026/995
1.2 Garden “mobile home” was a chattel, not land, for SDLT
The FTT has refused multiple dwellings relief (MDR) on a house with a self-contained unit in the garden, because the unit was a removable chattel rather than part of the land.
HMRC had originally argued that the unit was not suitable as a separate dwelling. The tribunal held it could also consider whether the unit was land at all, because that question was necessary to decide whether MDR applied. The unit could be taken away intact without significant damage and had not been fixed in place to improve the land permanently. It was therefore a chattel, and MDR could not apply to it.
There was a silver lining for the buyers. Because part of the price paid for the chattel, that part falls outside SDLT, and the tax due must be reduced accordingly.
Lambourne & Anor v HMRC [2026] UKFTT 997 (TC)
caselaw.nationalarchives.gov.uk/ukftt/tc/2026/997
1.3 Crypto lending and liquidity pools: CGT to be deferred
HMRC has published details of rules that will defer capital gains tax (CGT) on certain cryptoasset lending, borrowing and liquidity pool arrangements until there is an economic disposal.
At the moment, putting tokens into many decentralised finance arrangements can be treated as a disposal, triggering CGT even though the holder has not cashed in. The new rules cover single-asset lending, single-asset borrowing and automated market-making arrangements. Clients active in decentralised finance should keep detailed records of every transaction in the meantime.
HMRC: cryptoasset loans and liquidity pools
2. PAYE and employment
2.1 Mandatory payrolling of benefits to be phased in
The government has decided to phase in mandatory payrolling of benefits in kind rather than introduce it for all benefits at once in April 2027.
From 6 April 2027, only company cars, car fuel, vans, van fuel and medical benefits will have to be payrolled. Most other benefits follow from April 2028. Employers will be able to register from November 2026 to payroll other benefits voluntarily, including beneficial loans and accommodation. HMRC expects to publish final guidance for the first phase in the autumn. The change gives employers and software providers more time, but those with company cars or private medical cover should start preparing now.
2.2 P11D and Class 1A deadlines
2025/26 P11Ds and P11D(b)s were due online by 6 July 2026, and Class 1A NICs must be paid by 22 July if paying electronically, or 19 July by cheque.
All forms must be filed online and together. When paying, use the 13-character accounts office reference followed by 2613, with no spaces, so that the payment is allocated to 2025/26 Class 1A. Penalties for late P11D(b)s are charged monthly, so any employer that has missed the deadline should file without delay.
2.3 Pension contributions reported under the wrong method
HMRC has warned that some employers are giving tax relief twice on pension contributions by reporting them in the wrong field of the Full Payment Submission.
Under a net pay arrangement, contributions are deducted before tax. Under relief at source, they are deducted after tax and the pension provider claims basic rate relief from HMRC. Employers who report relief at source contributions as net pay give relief through payroll as well, and the employer is liable for the tax under-deducted. Employers unsure of their scheme type should check with their pension provider, correct payroll immediately and disclose any past errors through HMRC’s digital disclosure service.
2.4 CIS: monthly returns now required even when nothing is paid
Since April 2026, contractors in the Construction Industry Scheme must file a return every month, including a nil return when no subcontractors were paid, unless they have told HMRC they are inactive.
Penalties start at £100 for a missed return, rising to £200 after two months and to tax-geared penalties after six and twelve months. Contractors who only use subcontractors occasionally are most at risk, and should file nil returns or submit an inactivity request, which lasts six months.
HMRC Employer Bulletin, June 2026
3. Business tax
3.1 Tax Update 2026: the main consultations
On 23 June the government published a large package of simplification and modernisation measures, with several consultations that could change how owner-managers are taxed and how tax is paid.
The most significant for our clients are:
- Distributions: a wide review of rules largely unchanged since 1965. It covers returns of capital, demergers, purchases of own shares, loans to participators, dividends from overseas companies and the transactions in securities rules. The consultation closes on 14 September.
- Timely payments in Self Assessment: proposals for taxpayers with PAYE income to pay more of their Self Assessment liability in-year through their tax code from April 2029, and possible reform of payments on account.
- Direct Debit: a proposal to make Direct Debit the required way to pay PAYE and VAT return liabilities, with exceptions.
- Gift relief: draft legislation to restore the full holdover relief on gifts of shares where a company holds goodwill or shareholdings that are outside the chargeable gains rules, from 6 April 2027.
- Reckless untrue statements: a new criminal offence for direct tax, matching the one that already exists for VAT.
3.2 Supreme Court rules on LLP salaried members
The Supreme Court has dismissed BlueCrest’s appeal on the salaried member rules, which can tax LLP members as employees.
The court held that pay driven mainly by a member’s own performance is disguised salary, even if the LLP’s overall profits cap the total. It also held that “significant influence” must come from the LLP’s legal governance arrangements, such as members’ rights under the LLP agreement. A member’s expertise or importance to the business is not enough. LLPs should check that their agreements reflect the influence members actually have.
HMRC v BlueCrest Capital Management (UK) LLP [2026] UKSC 18
3.3 Quarterly instalments: expenditure credits to be ignored
From April 2027, R&D, audio-visual and video games expenditure credits will not count when working out whether a company must pay corporation tax in quarterly instalments.
This stops companies being pushed into the instalment regime purely because they received a credit, which can cause a sudden cash flow hit. Groups with several associated companies should still check their thresholds, because these are divided between associated companies.
3.4 L-Day: draft Finance Bill clauses published
Draft legislation for Finance Bill 2026-27 was published on 13 July.
It includes the legislation for mandatory payrolling of benefits, reform of the foreign permanent establishment exemption, a new Securities Transfer Tax modernising the stamp taxes on shares, and Pillar 2 amendments. New consultations were also opened on land remediation relief, treaty relief for interest paid overseas and the tax treatment of pre-development costs.
Finance Bill 2026-27 draft legislation
4. VAT and indirect taxes
4.1 Online marketplace VAT rules may extend to UK sellers
HMRC is consulting on making online marketplaces liable for the VAT on sales by UK-based sellers, as they already are for many overseas sellers.
The aim is to tackle non-compliance that undercuts businesses selling both online and on the high street. The government says it wants to limit the impact on small UK sellers below the VAT threshold and is seeking views on how to do that. Businesses that sell through Amazon, eBay, Etsy and similar platforms should follow this closely. The consultation closes on 18 August.
4.2 Zero rate proposed for land sold for social housing
A consultation proposes a new VAT zero rate for sales of land to registered providers of social housing at an earlier stage of development.
At present, zero-rating generally applies only once each building has risen above foundation level, the “golden brick” stage. This can complicate deals and delay when social housing providers can take ownership. A targeted zero rate could simplify these transactions, with safeguards to stop misuse. The consultation closes on 18 August.
4.3 Software standards to tackle till fraud
HMRC is consulting on minimum software standards for electronic and mobile point of sale systems, to stop software being used to hide cash sales.
The proposals include encryption and standard record formats. Retail and hospitality businesses should expect till systems to need upgrades or certification in future, and should consider this when renewing EPOS contracts.
4.4 Input tax denial needs more than general criticism of due diligence
In a case involving a construction company, the FTT has confirmed that HMRC cannot refuse input tax for VAT fraud on the basis of general criticism of the trader’s checks.
HMRC must show that the trader knew or should have known of the connection to fraud. The tribunal held that generic criticism that the business should have done more checks is not enough to meet that test. It remains sensible to carry out and record proportionate checks on new suppliers, particularly in sectors such as construction labour where fraud is common.
Big and Small Construction Ltd v HMRC [2026] UKFTT 816 (TC)
5. Key dates
The second Self Assessment payment on account for 2025/26 is due on 31 July, and several Tax Update consultations close over the summer.
| Date | Deadline or event |
|---|---|
| 19 July | Class 1A NICs for 2025/26 due if paying by cheque |
| 22 July | Class 1A NICs and PAYE for the month to 5 July due if paying electronically |
| 29 July | Capital Goods Scheme changes take effect: computers removed, property threshold raised to £600,000 |
| 31 July | Second payment on account for 2025/26 Self Assessment |
| 31 July | Consultation on US LLCs and other reverse hybrids closes |
| 1 August | Corporation tax due for 31 October 2025 year ends (non-large companies) |
| 4 August | Consultation on timely payments in Self Assessment closes |
| 16 August | Consultations on Direct Debit for PAYE and VAT, and on reckless untrue statements, close |
| 18 August | VAT consultations on online marketplaces, social housing land and till software close |
| 14 September | Consultation on modernising the distributions framework closes |
6. And finally
6.1 Sixty years of the same rules
This summer’s consultation on company distributions notes that much of the framework dates back to 1965, the year corporation tax was introduced. In that year a pint of beer cost a little over a shilling, colour television had yet to arrive in British homes, and the idea of paying tax online would have sounded like science fiction.
The rules have been patched many times since, which partly explains why the same transaction can be taxed as income or as capital depending on how it is structured. Whether the government opts for a light refresh or a full rewrite, owner-managers and their advisers will be watching closely.