Tax Matters

Mark Braude (00:00)

Hello and welcome to Tax Matters, our quarterly podcast where we chat about what's new in UK tax law. I'm Mark Braude and I'm joined today by Emma Bradley and we're both partners in TLT's tax team. Today we've got a packed agenda discussing the recent Autumn Budget, some important case law updates and recently released HMRC guidance.

Emma Bradley (00:20)

Thanks Mark. It's been a busy period for tax developments, so let's dive straight in with the big news, the Autumn Budget. The Chancellor delivered the Autumn Budget on the 26th of November, announcing a raft of tax measures. Many of the changes had been unofficially announced in previous weeks. From a business tax perspective, there weren't many great surprises. Shall we run through the key measures?

Mark Braude (00:44)

Yes, let's start with capital allowances. The writing down allowance main rate will be reduced from 18% to 14% from April next year. That's the bad news, but there is a silver lining. A new 40% first year allowance for main rate expenditure will be introduced from the 1st of January next year. New allowance will be subject to fewer restrictions than other first year allowances. For example, assets bought for leasing and by unincorporated businesses will be eligible for the new relief.

That's quite significant for businesses planning capital investments.

Emma Bradley (01:15)

Thanks Mark. There's an interesting development on cross-border VAT grouping. With effect from 26th November 2025, HMRC has confirmed that an overseas establishment of a business VAT grouped in the UK should be treated as part of that VAT group. This applies even when the overseas establishment is located in an EU member state that doesn't operate whole entity VAT grouping. This position is a change to HMRC's previous guidance.

HMRC accepts that some VAT groups may have accounted for VAT in line with the previous guidance. Those VAT groups may now be able to reclaim overpaid VAT through the error correction notification procedure, so businesses should definitely review their position.

Mark Braude (01:59)

That's a good point. Now on to employee ownership trusts. The capital gains tax relief on disposals to employee ownership trusts has been reduced from 100% to 50% from the date of the budget. That's quite a significant change for business owners considering this exit route. But the EOT structure will still deliver a meaningful tax saving for those selling to an EOT. The change is unlikely to halt the increasing popularity of EOTs, which continue to offer a range of advantages for sellers beyond just the tax relief.

Emma Bradley (02:28)

There were some positive changes for EMI schemes. From the 6th of April next year, the employee limit will increase to 500 from 250 and the gross assets test will increase to 120 million from 30 million. Also, the EMI overall company share option limit will increase to 6 million from 3 million. Another helpful change will see an increase in the current 10-year holding period for EMI options to 15 years.

This broadly means that EMI qualifying options exercised up to 15 years from their grant date can benefit from the associated tax advantages. That's really helpful for growing businesses. Companies who are currently ineligible to grant EMI options may want to consider whether from the 6th of April next year they will become eligible to grant tax favoured EMI options.

Mark Braude (03:20)

Now let's move on to another important development, the mandatory tax advisor registration requirement. A policy paper was released following the autumn budget, confirming that the government intends to proceed with the mandatory registration requirement from May, 2026. This is a month later than originally proposed. So from May next year, it will be necessary for a tax advisor to register with HMRC if they wish to interact with HMRC in relation to their clients' tax affairs. Businesses engaging advisors for HMRC interactions

should check that those advisors meet the eligibility requirements and plan to register with HMRC as soon as the deadline arrives.

Emma Bradley (03:57)

Let's turn to Scotland next, as there's been an interesting development on land and buildings transaction tax. Revenue Scotland has sought permission to appeal to the upper tribunal for Scotland in the case of Archer UK Limited and Revenue Scotland. The case concerns a lease over Scottish property that was subject to the stamp duty land tax regime when it was granted. The main issue was whether the extension of the term of that lease

was the grant of a deemed new lease for LBTT purposes. The first tier tribunal found in favour of the taxpayer saying that the lease extension was not a surrender and grant of a new lease under Scots law. So a new LBTT lease was not deemed to be created for LBTT purposes as a result of the extension of the lease. This meant that no LBTT was payable on the lease extension. However, Revenue Scotland are not accepting that position.

Their latest update confirms that they will continue to operate in accordance with existing guidance in the LBTT manual. This means that LBTT is payable on lease extensions in the circumstances described and an LBTT return should be submitted.

Mark Braude (05:10)

Thanks Emma. Let's look at the first of our case studies, the Dialogue Semiconductor case on capital gains tax. The issue in this case was whether a termination fee paid to the taxpayer under a merger agreement was subject to capital gains tax. Dialogue Semiconductor Ltd, the taxpayer company, had entered into a merger agreement to acquire another company, Atmel Corporation. Under the terms of the merger agreement, Atmel was obligated to pay a termination fee of $137.3 million to Dialogue if the merger agreement was terminated because of Atmel receiving a superior proposal. Atmel did, in fact, receive a superior proposal, and as Dialog chose not to make a counteroffer, Atmel paid the termination fee to Dialog. Dialog then filed its company tax return, showing the termination fee as a capital receipt, but not as a chargeable gain. HMRC's argument was that the receipt of the termination fee was a CGT disposal of assets as it was a forfeiture or surrender of rights. The first-tier tribunal found that there had been no forfeiture of rights as dialogue had not been required to exercise its right to make a counteroffer. The tribunal also decided that there was no surrender as there was no action that dialogue took that led to the loss of their rights under the merger agreement. Termination resulted from dialogue not exercising its rights to make a counteroffer. The case provides useful clarification.

But a surrender of rights for CGT purposes requires an action leading to the loss of rights.

Emma Bradley (06:40)

Now let's turn to the Hippodrome Casino case on VAT input tax apportionment. Hippodrome Casino Ltd. appealed against the first-tier tribunal's decision on recovering residual input VAT. The issue was whether its floor space-based standard method override was correct. Hippodrome supplies both taxable hospitality entertainment and exempt gaming, requiring apportionment of overhead VAT.

It argued that the standard turnover method did not reflect economic use and sought to apply a floor space override. The first tier tribunal agreed, but the upper tribunal and Court of Appeal dismissed the appeal. They held that the economic reality was that the floor areas of the premises allocated for hospitality and entertainment had significant dual use for gaming as well. The dual use meant that the floor-based standard method override was fundamentally flawed.

The standard method of attribution led to a fair and reasonable recovery of residual input tax. The burden was on Hippodrome to show otherwise, and it failed to do that. Businesses with mixed supplies should carefully assess whether their attribution method can withstand scrutiny, as failure to justify an override could lead to significant vat exposure.

Mark Braude (08:02)

There have been several recent guidance updates as well. First, HMRC has issued new guidance on national insurance contributions for internationally mobile employees, referred to as IMEs, to help employees determine when NICs are due on earnings paid to them. IMEs include individuals who live in the UK but work overseas or come from overseas for periods of work in the UK. The updated guidance confirms that if the IME was liable to NICs at the time the work was carried out in the UK, they will continue to be liable for NICs in respect of earnings paid to them later. So, for example, a bonus paid to a former employee by their former UK employer after they leave employment and move overseas is subject to NICs when paid. This is because the bonus was earned wholly in the UK when the IME was subject to UK NICs. Employers with IMEs should review historic payments, correct any under or overpayment of NICs for up to six years, and maintain evidence to support compliance.

Emma Bradley (09:04)

HMRC has also updated its VAT land and property manual to include new commentary on how overage payments are treated for VAT purposes. An overage payment is typically a payment to be made by a buyer for a property sometime after its purchase has been completed, where the amount of the payment is unknown at the time of the sale. When considering the VAT liability of an overage payment, it is necessary to look at the description of the land at the time the overage payment is made, and not at the time of supply of the initial sale. And where an option to tax is made after a property has been sold to the buyer, any subsequent overage payment may be subject to standard rate VAT unless the option to tax has been excluded or disapplied. So developers and sellers should review their contracts and tax planning to ensure overage provisions do not create unforeseen costs.

Mark Braude (09:59)

Thanks Emma. There are some important court cases coming up in the next quarter. The Supreme Court will hear the appeal in the capital allowances case of Orsted West of Duddon Sands UK Limited and others v HMRC. That's the one we discussed in our September podcast. And the upper tribunal is expected to hear the appeal in the case of Barclay Service Corporation and another in HMRC relating to the VAT grouping rules.

Emma Bradley (10:21)

Both of those will be worth watching. Well, that's all we have time for today. If you'd like to know more about the topics we've discussed, the December edition of our Tax Matters briefing is available on our website. If you have any questions about these developments or how they might affect your business, please get in touch with your usual contact in our tax team.

Mark Braude (10:42)

Goodbye from both of us and thanks for listening to Tax Matters.

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