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 Farmers’ challenge to APR and BPR changes refused

The High Court has refused permission for a judicial review of how the government consulted on the restrictions to agricultural and business property relief (APR and BPR).

The claimants argued that Budget documents had promised a full consultation on the policy, whereas the consultation that took place only covered how the changes applied to trusts. The court gave three reasons for refusing permission: there was no clear promise of a wider consultation, the claim was brought too late, and Budget and parliamentary processes are not matters the courts can review.

The reforms are now in the Finance Act 2026, so this route to challenging them has closed. Farming and family business clients who have not yet reviewed their succession and IHT plans in light of the new limits should do so.

R (Martin & Ors) v Chancellor of the Exchequer & Ors [2026] EWHC 1123 (Admin)

1.2 Inheritance rights for cohabitants under review

The Ministry of Justice is consulting on giving cohabiting partners rights to inherit when their partner dies without a will.

At present, an unmarried partner has no automatic entitlement under the intestacy rules and must make a court claim for financial provision. The consultation closes on 14 August 2026. Even if the succession rules change, the IHT spouse exemption does not extend to cohabitants. Unmarried couples should make wills and consider their IHT position now, rather than wait.

1.3 SDLT group relief upheld on a group reorganisation

The FTT has allowed a care group’s appeal against SDLT assessments on property moved between group companies, ahead of a reorganisation and share sale.

HMRC argued that the arrangements, which included liquidating a holding company above the selling company, were designed to avoid SDLT. The tribunal held that group relief was available when claimed, that the anti-avoidance rule within group relief did not apply, and that the general SDLT anti-avoidance rule in section 75A could not be used to recharacterise the transactions.

HC-One No 1 Ltd v HMRC [2026] UKFTT 678 (TC)

1.4 HMRC letters on the BADR lifetime limit

HMRC is sending a further round of letters to people it believes may have claimed business asset disposal relief (BADR) beyond their £1 million lifetime limit.

The limit applies across all qualifying disposals since 2008, including those made under the old entrepreneurs’ relief name. Anyone who receives a letter should check their history of claims with their adviser before replying, and correct any over-claim promptly to limit interest and penalties.

2. PAYE and employment

2.1 Late Class 2 NICs allowed for over 30 years

The FTT has allowed a self-employed man to pay Class 2 National Insurance contributions out of time for the years 1981 to 2014, protecting his state pension record.

Late contributions can normally only be paid at the original, lower rates if the failure to pay was not due to a lack of care and diligence. The tribunal found the taxpayer had taken reasonable steps by appointing professional advisers, stayed engaged with his affairs and had no obvious reason to distrust the advice he was given. HMRC’s refusal was overturned.

Anyone with gaps in their National Insurance record, particularly self-employed clients, should check it through their personal tax account. Gaps can affect state pension entitlement and may be cheaper to fill than expected.

Gadsden v HMRC [2026] UKFTT 720 (TC)

2.2 PAYE Settlement Agreements: apply or amend by 5 July

Employers who want a PAYE Settlement Agreement (PSA) for 2025/26, or to change an existing one, must apply by 5 July 2026.

A PSA lets an employer pay the tax and NICs on minor or irregular benefits, such as staff entertaining and small gifts, in a single annual payment. HMRC no longer accepts PSA correspondence by email, so applications and changes should be made through the online forms. When amending an agreement, include every item you want to keep, because the new agreement replaces the old one in full. Vague descriptions such as “other” or “miscellaneous” will be rejected.

2.3 Encourage staff to file Self Assessment returns early

HMRC is asking employers to encourage directors and other staff with income outside PAYE to file their 2025/26 Self Assessment returns early.

Filing early does not bring forward the 31 January 2027 payment date. It gives certainty about the amount due, speeds up any refund and provides up-to-date evidence of income for mortgage or loan applications. A short reminder in staff communications is enough. Employers do not need to give tax advice.

HMRC Employer Bulletin, June 2026

3. Business tax

3.1 Umbrella company workers’ travel was ordinary commuting

The FTT has held that an umbrella company’s employees could not have tax-free travel expenses for journeys to their assignments, because each assignment was a separate employment.

The umbrella company argued that its workers had a single overarching employment, so each assignment site was a temporary workplace. The tribunal found there was not enough mutuality of obligation between assignments for an overarching contract to exist. Each assignment was therefore its own employment, and travel to it was ordinary commuting.

Contractors working through umbrella companies that pay “tax-free expenses” should check their arrangements, since PAYE may have been underpaid.

Mypay Ltd v HMRC [2026] UKFTT 807 (TC)

3.2 Close companies may face new reporting of shareholder transactions

HMRC is considering requiring close companies to report transactions with their shareholders, such as cash payments, asset sales and distributions.

The proposal is aimed at the corporation tax gap among small businesses. No details have been confirmed yet, but owner-managed businesses should make sure their records of shareholder transactions are complete and up to date now.

3.3 Foreign permanent establishment exemption to become mandatory

From 1 January 2027, profits of overseas permanent establishments of UK companies will be exempt from UK tax automatically, replacing the current election.

The flip side is that losses of foreign branches will no longer be available to set against UK profits. Companies with loss-making overseas branches, or with R&D carried out through overseas branches, should review their position before the change.

3.4 R&D advance assurance pilot and tax certainty for major projects

HMRC has launched a pilot advance assurance service for SMEs on specific aspects of R&D claims, and a new tax certainty service for very large projects from 1 July.

The R&D pilot covers questions such as whether a project qualifies, overseas costs, subcontracted R&D and the PAYE cap exemption, with a 40-day target response. It runs until May 2027. The advance tax certainty service is aimed at projects with at least £1 billion of qualifying UK spending, with clearances lasting five years. Smaller businesses can still apply for advance assurance on R&D claims through the existing service.

4. VAT and indirect taxes

4.1 Temporary 5% rate for children’s meals and family days out

A temporary 5% VAT rate applies from 25 June to 1 September 2026 to qualifying children’s meals, children’s admission to entertainment venues and general admission to family attractions.

HMRC has set out the scope in Revenue and Customs Brief 5 (2026). Restaurants, cafes, attractions and leisure venues should check which of their menus and tickets qualify and update tills and booking systems before 25 June. The standard rate returns from 2 September, so systems will need changing back.

4.2 Ride-hailing operators cannot use the Tour Operators’ Margin Scheme

The Court of Appeal has held that an on-demand private hire operator cannot account for VAT only on its margin under the Tour Operators’ Margin Scheme (TOMS).

Bolt argued that its services were comparable to a travel agent’s and so qualified for TOMS. The court disagreed, reversing the earlier tribunal decisions. Only services sufficiently comparable to those of travel agents and tour operators fall within the scheme. Large sums are at stake, as a parallel appeal involving Uber has been waiting for this outcome.

Bolt Services UK Ltd v HMRC [2026] EWCA Civ 720

4.3 Fast food dip pots: separate zero-rated supplies

The Upper Tribunal has held that sauce dip pots included in fast food meal deals were separate zero-rated supplies, not part of a single standard-rated meal.

The tribunal rejected a hybrid treatment and held that items in a bundle must be either wholly part of a single supply or wholly separate. Businesses that sell bundles mixing different VAT rates, such as meal deals, hampers or gift boxes, should check that their apportionment approach is consistent.

Queenscourt Ltd v HMRC [2026] UKUT 195 (TCC)

4.4 Overseas company refused UK VAT group membership

The Upper Tribunal has upheld HMRC’s refusal to admit a US company with a UK branch to a UK VAT group, because the branch was not a fixed establishment.

The UK staff were not employed by the US company, and it did not have enough control over people or premises in the UK. Groups wanting to bring overseas entities into a UK VAT group need to show real staff and operational control in the UK, not just a registered presence.

Barclays Services Corporation & Anor v HMRC [2026] UKUT 211 (TCC)

5. Key dates

Employers face the P11D and employment-related securities deadlines on 6 July, and the second payment on account for 2025/26 is due on 31 July.

6. And finally

6.1 The great Jaffa Cake question

This month’s dip pot case is the latest in a long line of disputes over where food VAT lines fall. The best known is still the 1991 tribunal decision on Jaffa Cakes. Chocolate-covered biscuits are standard-rated, but cakes are zero-rated. The manufacturer argued, successfully, that Jaffa Cakes were cakes. One of the points in its favour was that cakes go hard when they go stale, whereas biscuits go soft, and Jaffa Cakes go hard.

More than thirty years later, the tribunals are still being asked to decide what counts as a meal, a snack or a separate sauce. It is a reminder that in VAT the smallest details of a product can make a 20% difference.