Tax Matters

Tax Matters Audio Recording Script - Edition 9 (September 2025)

MARK: Welcome to Tax Matters, our quarterly podcast on recent UK tax law developments. I'm Mark Braude and I'm joined by Emma Bradley and we’re both partners in TLT’s tax team. Today we're covering some important case law updates and the publication of the draft Finance Bill legislation.

EMMA: Thanks Mark. Let’s kick off with some significant Supreme Court developments. HMRC has been granted permission to appeal in two major cases - Orsted and Scottishpower. These could have far-reaching implications.

MARK: That’s right Emma. We discussed the Orsted case in detail in our previous podcast. This case concerns whether expenditure on environmental impact and technical studies for windfarm setup qualifies as expenditure "on the provision of plant and machinery" for capital allowances purposes. The Court of Appeal disagreed with the Upper Tribunal's narrow interpretation and found that eligible expenditure extends to costs of studies which inform installation and design.

The Supreme Court hearing is scheduled for 3 February 2026, so we'll have to wait a while for the final outcome. But this is crucial for construction projects generally - the financial implications could be very large.

EMMA: The Scottish Power case is equally significant. This involves around £28 million in payments to consumers and charities settling regulatory investigations. The key issue was whether the case law principle that statutory penalties aren't deductible applied to these payments. The Court of Appeal found they weren't penalty payments and allowed the deduction in calculating trading profits.

The Court of Appeal adopted a narrow scope of the principle, distinguishing between penalty payments and compensation payments. A hearing date is awaited but if the Supreme Court upholds this, it will provide welcome clarity for businesses facing regulatory settlements.

MARK: Now, let's talk about the government's new Financial Services Growth and Competitiveness Strategy. This was launched in July and shows the government's recognition of the importance of financial services to the UK economy.

The government sees financial services as central to delivering national renewal, being one of the largest and most productive sectors. They're even launching a dedicated concierge service for international investors, providing regulatory and business support including tax guidance.

What's particularly relevant for our listeners is that industry respondents to the government's earlier consultation raised the importance of tax to growth and competitiveness, making representations on stamp taxes, bank-specific taxes, VAT treatment for fund managers, and insurance premium tax.

The Strategy confirms the government recognises tax's vital role in supporting growth and commits to keeping tax regimes affecting financial services under review. We've already seen the announcement about replacing stamp taxes on shares with a single securities tax from 2027.

EMMA: Our next update is on HMRC's transformation plans. The Exchequer Secretary published a comprehensive roadmap in July setting out three key priorities.  These are improving day-to-day performance for individuals and businesses, closing the tax gap and driving reform and modernisation of the tax and customs system.

The digital transformation is ambitious. By 2030, HMRC aims to be digital-first with at least 90% of interactions taking place digitally. They're also recruiting 5,500 new compliance colleagues over the next five years to help close the tax gap. 

By 2030, they plan a simple, standardised, and secure registration process to verify customer identity. This ties into the broader modernisation of how taxpayers and their advisers interact with HMRC.

MARK: I look forward to seeing HMRC’s progress. In the meantime, let's move to our case studies. We have three significant decisions to discuss, starting with the Amarjeet Mudan case on residential property for SDLT purposes.

This case really clarifies when a property requiring substantial renovation remains "residential" for SDLT. The difference in SDLT rates between residential and non-residential property was approximately £100,000 in this case, so the stakes were high.

The property needed complete rewiring, new boiler and pipes, leak repairs, kitchen replacement, window and door repairs, and extensive clearing of rubbish. Despite all this, the Upper Tribunal found it was still "suitable for use" as a dwelling. 

EMMA: So what did the Court of Appeal decide?

MARK: The Court of Appeal agreed with the Upper Tribunal and the decision provides helpful guidance.  The Court found that "Suitable for use" doesn't mean "suitable for immediate use” and the assessment of whether a property is, or is not, residential is not restricted to a snapshot on a particular date. It's a question of fact and degree whether works are so extensive as to deprive a building of its residential character. 

This provides certainty that properties requiring substantial renovation will generally remain classified as residential for SDLT purposes as long as they retain their fundamental characteristics as dwellings.

EMMA: Thanks Mark. The next case is concerned with CGT degrouping charges and is technically complex but important for corporate groups. The issue was whether a degrouping charge was triggered when Currys Retail Limited left the capital gains group of which it was a member.  The potential charge arose in relation to goodwill acquired by Currys Retail intra-group within six years of it leaving the group.  The complexity in this case was that the goodwill had been sold to a third party buyer before Currys Retail left the group. 

The First Tier Tribunal applied the approach set out in the Rossendale case (and previous authorities), determining the facts realistically rather than just looking at legal rights and obligations. They found that despite a formal sale agreement, Currys Retail continued to carry on the business as principal, and not as agent for the buyer of the goodwill, because it retained strategic control and profit entitlement.

The case confirms that determining degrouping charges requires a realistic view of all facts, not just formal agreements. Where control and profit entitlement remain with the original owner, no transfer occurs regardless of sale agreement terms. 

MARK: Our final case update is on the VAT treatment of intra-group services. The Upper Tribunal had to decide whether JP Morgan Chase Bank made single or separate supplies to JP Morgan Securities, another company in the same VAT group, and whether any single supply was taxable or exempt.

The First Tier Tribunal found a single supply of taxable "support function services" not separate supplies of business delivery services and support services. This was on the basis that the services were closely linked. JP Morgan Securities couldn't trade using business delivery services without support services and splitting the services would be artificial.

The Upper Tribunal agreed, also finding that while the services were operationally significant, they didn't meet the legal test for VAT exemption as they didn't effect a change in legal and financial relationships between parties to securities transactions. This means that the single supply of services was taxable. 

EMMA: Thanks for the summary Mark. There seem to be two key takeaways from that decision. First, the importance of identifying at the outset whether supplies are single or multiple for VAT purposes. And secondly, that HMRC will closely examine integrated services where supplies may have been split to gain a VAT advantage.

So, let’s move on to discuss our legislation and guidance updates.  The draft Finance Bill 2026 contains several significant measures, including in relation to PISCES. 

The draft legislation allows EMI and CSOP options granted before enactment to be varied to permit exercise when shares become PISCES shares, provided they're immediately sold on the platform. This variation preserves the associated tax advantages. This is good news for companies with EMI and CSOP plans, as providing liquidity to employees in private companies is often challenging and can limit share awards' effectiveness as incentives.

MARK: Whilst we’re on the topic of PISCES, we should also mention the new stamp duty exemption. From 3 July 2025, there's an exemption for shares acquired on PISCES platforms for investment and for intermediate transfers connected to PISCES trading activity.

This removes a key cost and administrative burden, making the PISCES sandbox more commercially attractive for facilitating intermittent trading without transitioning to public company status. 

EMMA: The carried interest reforms are also important. From April 2026, carried interest will be treated as trading profits subject to income tax up to 45% and Class 4 NICs, though "qualifying" carried interest will be reduced to 72.5% of qualifying profits, giving an effective rate of just over 34% for additional rate taxpayers.

This is a significant change to traditional incentivisation structures for investment professionals. Businesses may need to look at alternative incentives, and will need to monitor fund investment holding periods to determine what carried interest qualifies for the reduced rate. 

MARK: The draft legislation also includes measures to tackle non-compliance in the umbrella company market. From April 2026, agencies and clients will be jointly and severally liable with umbrella companies for unpaid PAYE.

Before this takes effect, businesses should review their supply chains to identify workers engaged via umbrella companies and assess the risks. Due diligence on new engagements will also be essential.

EMMA: Finally, there are new tax adviser registration requirements in the draft legislation which require tax advisers to register with HMRC and meet minimum standards. This broadly covers anyone who assists others with tax affairs in the course of business.

MARK: Is it mandatory for tax advisers to register?

EMMA: Yes it is and the mandatory registration starts on 1 April 2026 with at least a three-month transition period. Businesses relying on advisers for HMRC interactions should seek confirmation that their advisers meet the eligibility requirements and will register on time. 

MARK: Well we’ve reached the end of this quarter’s Tax Matters update. We've covered a lot of ground - from HMRC’s transformation plans for the next five years to significant Supreme Court appeals that could reshape capital allowances and penalty deductibility.

We'll be back in December with another update on UK tax law developments including our thoughts on the tax measures announced at the Autumn Budget on 26 November.  

EMMA: If you’d like to know more about the topics we’ve discussed, the September edition of our Tax Matters briefing is available on our website and if you have any questions about these developments or how they might affect your business, please don't hesitate to get in touch with your usual contact in our tax team.

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