Contentious Tax Bulletin

HMRC initiatives and new legislation

• Investors’ Relief

HMRC has already begun writing to people who have claimed Investors’ Relief in their latest 2024/25 tax returns upon the sale of shares in unlisted companies. There are two versions of the letters:

• one simply asking that claimants doublecheck that they meet all the qualifying criteria

and

• another stating that recipients haven’t been able to provide enough information for HMRC to allow their claims, and that they should either amend their returns to withdraw the claims, or else contact HMRC to provide further information to support the claims.

The speed with which these letters are going out shows not just the heightened attention which claims to relieve large amounts of tax now attract, but also the automation which HMRC now employs to sweep tax returns as they come in.

Full copies of the standard text can be read here:

Investors Relief – check your 2024-25 return
Investors Relief – amend your 2024-25 return

• Business Asset Disposal Relief (“BADR”)

Similarly, HMRC has also been conducting a rapid sweep of 2024/25 Self Assessment returns to identify and perform preliminary checks on claims for Business Asset Disposal Relief and HMRC has already begun writing to individuals who its checks show have either:

• exceeded the £1m lifetime limit in making the 2024/25 claim

or

• had already exhausted the £1m lifetime limit in previous years.

Full copies of the full standard text can be read here:

BADR – overclaimed in 2024-25
BADR – fully claimed before 2024-25

• New education letters – inclusion of cryptoassets in death estates

Further to HMRC’s efforts to heighten awareness and consideration of crypto assets, HMRC began writing to the tax agents of Executors who have recently filed IHT400 accounts asking them to check whether the deceased held any cryptoassets that might have been omitted from the assets subject to Inheritance Tax and, if so, to file Corrective Accounts.

The letters appear to be largely educational rather than intelligence driven.  However, even before the new Crypto Reporting Framework (“CARF”) starts supplying information, HMRC does already have considerable data gathered through information powers or shared with it by overseas counterparts like the United States Internal Revenue Service (“IRS”).  So, the risk of HMRC identifying cryptoassets that Executors have failed to identify or otherwise omitted is very real.

A copy of the full standard text can be read here:

IHT on Cryptoassets

Case decisions

HMRC v MedPro Healthcare & Ors [2026] EWCA Civ 14 – Court of Appeal reaffirms the Martland framework for late appeals

The Court of Appeal’s decision in the MedPro case marks an important return to procedural orthodoxy in the law of late tax appeals after previous confusion sown in the same case by the Upper Tribunal.  The case arose out of a series of VAT penalty and personal liability notices totalling over £1m, where MedPro and related parties sought to appeal 70 days out of time. Their late appeal was refused by the First-Tier Tribunal (“FTT”), reinstated by the Upper Tribunal – whose members disagreed on whether the Upper Tribunal was even permitted to give guidance on such discretion – and ultimately escalated to the Court of Appeal.

The central issue was not the VAT dispute itself, but a procedural question – to what extent may the Upper Tribunal direct how the FTT should exercise its discretion to allow or refuse a late appeal?  The Court of Appeal gave a definitive answer, holding that the Upper Tribunal is entitled to issue guidance, even where the underlying power is an “unfettered” statutory discretion. This confirms that the long‑standing three‑stage test set out by the Upper Tribunal in Martland v HMRC [2018] UKUT 178 (TCC) continues to apply, namely to:

1. establish the length of delay in bringing an appeal and whether it was material,
2. assess whether there was a good reason for the delay, and
3. conduct a balancing exercise evaluating all circumstances, including the importance of procedural discipline and adherence to statutory deadlines.

Crucially, the Court of Appeal rejected the argument that following the Upper Tribunal guidance in Martland emphasising certain procedural factors – such as efficient litigation and respect for time limits – impermissibly fetters the FTT’s discretion. It held that highlighting important factors is not the same as removing discretion altogether. A superior court may legitimately issue guidance on the “weight” to apply to certain considerations to promote consistency.  The Upper Tribunal, the Court said, had been wrong to suggest otherwise. As a result, HMRC’s appeal succeeded, and the matter is remitted to the FTT to be reconsidered under the reinstated Martland framework.

Why this matters

The decision is a clear statement that deadlines matter and should not easily be breached and that late appeals will only be admitted subject to structured and disciplined tests. Martland – now reaffirmed – remains a taxpayer‑unfriendly framework that places substantial weight on efficient case management, proportionality and finality.  That said, Martland often still provides more latitude for successful appeal at the Tribunal than the narrower “reasonable excuse” criteria under which HMRC’s own statutory powers of discretion are fettered by S49 of the Taxes Management Act 1970.  Now the Court of Appeal has settled the Martland tests, S49 should surely be revised for consistency so that HMRC is required to consider the same criteria rather than leaving many taxpayers with a good reason for delay, if not quite a reasonable excuse, compelled to take matters to the Tribunal before all the tests that ultimately matter can be argued.

Philip Cox & Anor v The Commissioners for HMRC [2026] UKUT 7 (TCC) – Court of Appeal overturns Upper Tribunal rejection of HMRC refusal to suspend penalties re a one-off transaction

This case concerned HMRC’s refusal to suspend penalties for careless inaccuracies arising from the taxpayers’ incorrect claims for Business Asset Disposal Relief (BADR).

Although the taxpayers briefly held 6.4% of the company’s shares, a subsequent reallocation of consideration took their holding below the 5% threshold, yet they proceeded to claim BADR in their 2019/20 returns. HMRC disallowed the relief and issued penalties, declining to suspend them on the basis that the inaccuracies arose from a one‑off event for which no meaningful suspension conditions could be set.

The taxpayers argued that HMRC had unreasonably fettered its own discretion – particularly, by applying their customary “SMART conditions” approach and by treating one‑off inaccuracies as intrinsically unsuitable for suspension. The Upper Tribunal found no such fettering. Although the FTT had erred in part of its reasoning on the statutory linkage between the original inaccuracy and future repeat behaviour, the UT held this error to be immaterial – HMRC had not applied any rigid rule and had properly considered the specific facts and the proposed suspension conditions. Those conditions – essentially promises to act prudently and to review returns with an adviser – were found to add nothing beyond what every prudent taxpayer should already be doing. On that basis, HMRC’s refusal to suspend the penalties stood.

Why this matters

Para 14(3) Sch 24 FA 2007 – which gives HMRC discretion to suspend penalties simply says:

“HMRC may suspend all or part of a penalty only if compliance with a condition of suspension would help P [a person] to avoid becoming liable to further penalties under paragraph 1 for careless inaccuracy.”

The decision is helpful to taxpayers in making clear that no statutory requirement can be inferred by HMRC into this paragraph that would automatically prevent penalties relating to one-off events from being suspended. Advisers have had this argument with HMRC since the penalty suspension regime first came into being.

However, the decision concludes that suspension of penalties by HMRC should not be the norm in cases involving one‑off transactions. To secure suspension, taxpayers must identify specific, measurable and genuinely preventative conditions capable of reducing the risk of recurrence.  Where the inaccuracy stems from a unique set of circumstances – such as a bespoke transaction or a one‑time restructuring – there will usually be no practical suspension conditions that meet the statutory test.

HMRC initiatives and new legislation

• HMRC education letters warning advertising agencies about making R&D claims

During the month, HMRC mass mailed advertising agencies with pre-emptive warning letters warning them about the remote feasibility of them successfully making R&D claims.

In an effort to get ahead of unscrupulous R&D boutiques, HMRC has been monitoring their activities and has become aware that some of them are still targeting advertising companies with bogus suggestions they can qualify for R&D relief.  In HMRC’s own words:

“Most claims aren’t eligible. This is because they’re usually based on: 

• normal day-to-day work – creating, adapting or duplicating digital billboards, banners, adverts, or client websites, on a regular basis
• making adverts or products with a client’s brand or desired specifications without advancing a field of science or technology
• developing tools that collect customer data and analyse their behaviour
• using existing technology, for example VR, to showcase a client’s products
• developing bespoke software platforms by utilising already existing knowledge or capability to combine software features already existent within software
• buying ‘off the shelf’ e-commerce platforms, customer relationship management systems or dataset management tools, and adapting them to suit the business.”

As with all R&D claims, projects must aim to achieve an advance in overall knowledge or capability in a field of science or technology, not just within the company in question.  They must aim to resolve an area of scientific or technological uncertainty in a way that can’t just be readily deduced by a competent professional with existing knowledge.  In that context, the limited scope of advertising companies to make valid claims speaks for itself.

A copy of the full standard text can be read here: Claims for R&D tax relief

Case decisions

• WM Morrison Supermarkets Ltd v HMRC [2025] UKFTT 1542 (TC)

This issue heard by the First-Tier Tax Tribunal (“FTT”) – rather than by the High Court as misreported by most of the Press – centred on whether Morrisons’ “cool-down” rotisserie chickens should be treated as hot food for VAT purposes under Note 3B, Group 1, Schedule 8 of the Value Added Tax Act 1994.

Morrisons argued that:

• the chickens were zero-rated because they were often eaten cold or reheated at home – to the extent they might still be sold heated that was incidental not deliberate;
• HMRC had previously indicated this treatment was acceptable and were therefore bound by legitimate expectation.

HMRC maintained that the chickens were sold in heat-retentive packaging in foil-lined bags labelled “Caution: hot product” and remained well above ambient temperature for up to two hours after cooking, meeting the statutory definition of hot food.

The FTT found for HMRC, concluding that:

• the packaging was specifically designed to retain heat and prevent leakage of hot fluids;
• the chickens were not on a cooling trajectory that would make them “incidentally hot” when sold;
• Morrison’s had no legitimate expectation – HMRC had not expressed a clear, unambiguous and unqualified view on the matter – moreover, Morrisons had failed to fully disclose all material information, including that the chicken was routinely taken off sale after two hours when still well above ambient temperature.

Why this matters

This ruling lands Morrisons with a £17m+ tax bill before interest and penalties and reinforces HMRC’s interpretation of the “pasty tax” rules introduced in 2012 – which were relaxed after an outcry to exclude items such as Greggs pasties sold at ambient temperature – but which do still apply VAT to hot takeaway food sold above ambient temperature or placed above ambient temperature into heat-retentive packaging.

Contentious Tax Roundup – What Happened in November 2025

In the November 2025 bulletin, Andrew Park, Tax Investigations Partner at Price Bailey, provides an overview of some of the most recent and significant contentious tax news, legislative changes, updates, and relevant case decisions that occurred throughout the month.

Autumn Budget 2025

A number of new measures were announced on 26 November 2025 to help close the tax compliance gap.  These included:

• New whistleblower scheme

With immediate effect from Budget Day, potential informers may be eligible for payments from HMRC of between 15% and 30% of the tax received where the tax recovered is over £1.5m.

However, unlike the US – which inspired the new UK initiative – informers will have no absolute entitlement to a reward just by meeting fixed criteria.

In the first instance, claimants will have to demonstrate that they don’t fall foul of an extensive list of exclusions – some of which look very broad and very grey.  They will be excluded if:

• they are or were a civil servant (or contracted to work in the government) and got the information while they were employed
• they are the taxpayer involved in the tax evasion or avoidance, or they planned and started the actions that led to the tax evasion or avoidance
• the information they provide may already be known to HMRC or could have been identified through routine processes
• the reward might directly or indirectly lead to funding illegal activity
• they are required by law to disclose, or not disclose, the information
• they are acting on behalf of someone else
• they got the information from someone who would not have been eligible for a reward themselves
• they are providing the information anonymously

Even if those tests are met, all and any payments and the level of such payments will also still be at HMRC’s discretion.  Accordingly, it is highly questionable whether the scheme will be successful in achieving its stated aims to encourage well placed individuals who wouldn’t otherwise have come forward to approach HMRC with details of major tax evasion or aggressive failed tax avoidance.  In fact, it seems that now we have the details – which have clearly been drawn up to be subject to the constraints of UK law as well as the constraints of the UK political environment and UK civil service culture – the scheme is highly likely to fail.

• Loan charge review

Budget Day saw the publication of the outcome of the latest disguised remuneration loan charge review together with the publication of the Government’s detailed response – which accepted eight out of nine of the recommendations.  Although taxpayers and advisors have in the past been cautioned not expect any major changes of policy to come out of the latest review and for it largely to be focused on fair time to pay arrangements, in the event the review has delivered radically improved outcomes for people who have yet to settle including:

• late payment interest will no longer be charged;
• penalties will never be sought;
• IHT will no longer be sought for arrangements involving trusts – the legitimate substantive nature of which was often questionable;
• a discount on the tax liabilities of out to £10,000 per year will be available in respect of historic promoter fees;
• repayment terms of up to five years available without having to discuss affordability;
• maximum reductions of up to £70,000 on what was payable under the loan charge (ignoring IHT for which no maximum waiver).

The only rejected recommendation was that any unpaid liabilities be written off after ten years.  However, the government has instead decided to set no maximum duration over which repayments can be made

The new settlement terms will be formalised within Finance Bill 2025/26.

Although the terms are only stated to apply to taxpayers who have yet to settle and fall within the scope of the loan charge rather than other “pre loan charge” charging provisions that might be open to HMRC where it has open enquiries into particular years, obvious questions of fairness now arise for other parties.  For instance, what of all the taxpayers who have previously agreed to pay IHT on trust arrangements which lacked genuine substance or have otherwise settled on less favourable terms?  It seems the saga may yet rumble on before all serious unfairness is resolved.

More investigators investing small businesses

A further 350 investigators will be recruited and tasked with investigating the sort of small businesses which are believed by HMRC to make up over 60% of the UK’s tax compliance gap.  Contrary to the headline Budget policy announcement, it is now understood that not all of them will be criminal investigators – but, nonetheless, increasing the number of criminal investigations will be part of the main focus.

Changes to penalty regime

With effect from 1 April 2026, company late filing fixed penalties will double – beginning with an initial fine of £200 – through to £2,000 fines where three successive failures occur where returns are more than three months late.

HMRC initiatives and new legislation

• New nudge letters

HMRC issued a raft of new nudge letters in November including:

1. Letters to UK holding companies of overseas subsidiaries claiming management expenses referring them to the relevant guidance on whether such expenses are allowable.

• OTM Final Letter Corporation Tax – claiming management expenses

2.   Letters to individuals who HMRC believe should have paid the remittance basis charge in 2023/24 under the UK’s outgoing non-dom regime.

• Remittance basis charge letter

3.   Letters from HMRC’s Wealthy team reminding individuals of the rules for claiming foreign tax credits on overseas investment income or overseas employment income.

• Foreign Tax Credit Relief letter
• Foreign Tax Credit Relief non-employment income letter

4.   Letters from HMRC’s Wealthy team to people with income of more than £200,000 who failed to file tax returns in 2022/23.

• Self Assessment tax return 22-23 letter

5.    Letters to companies which may have claimed excessive relief from S455 tax by making claims based on anticipated future repayment dates for director or participator loans.

• OTM Final letter – Director loan account future repayment date

As ever, all the letters put the onus on the taxpayers concerned to check their positions and make voluntary disclosures of any irregularities with the implicit threat of investigation hanging over them should they fail to do so.

HMRC Initiatives and New Legislation

• HMRC launches new “customised journeys” to guide taxpayers during compliance checks

New online tools went live from HMRC to provide “customers” with more tailored journeys providing relevant guidance and explanatory videos when they come under investigation – for instance, advice on how to contest HMRC decisions or information notices.  Inevitably, that guidance is still basic, not at all impartial and would be a very poor substitute for seeking professional help.

Case Decisions

• Mainpay Ltd v HMRC [2025] EWCA Civ 1290

The latest decision handed down by the Court of Appeal in this saga involving travel and subsistence payments made by an umbrella company to its temporary workers dismissed Mainpay’s appeal and found for HMRC.

The company reimbursed its temporary workers for these expenses using benchmark scale rates. It argued that these were deductible because the workers were employed under a single overarching employment contract, making each assignment a temporary workplace for the purposes of the legislation.

The Court endorsed the previous decisions of the First-Tier and Upper Tribunals in rejecting Mainpay’s argument that there was a single overarching or “discontinuous” employment contract.

It held that:

• Each assignment was a separate employment.
• Therefore, each workplace was a permanent workplace for tax purposes.
• As a result, travel and subsistence expenses were not deductible under sections 338–339 of ITEPA 2003.

The Court also confirmed that:

• There was no need to even consider whether benchmark scale rates could be used, since the expenses weren’t deductible in the first place.
• HMRC was entitled to extend assessment time limits due to carelessness by Mainpay, even though it had taken legal advice because the advice it relied upon came from lawyers who were not tax specialists and lacked a full understanding of the tax implications of employment arrangements. The failure to take proper advice was sufficient to meet the threshold for carelessness.

Why this matters

The ruling reinforces that umbrella companies must ensure their employment contracts are genuinely overarching if they wish to treat assignments as temporary workplaces.

It also makes clear that carelessness can be found even where professional advice was taken, if that advice was inadequate.  In such circumstances, the taxpayer has a responsibility to ensure that they take tailored advice from suitably specialist and ostensibly competent advisers in the relevant area.

Other News and Announcements

• Capital Gains Tax investigations

Information obtained with a Freedom of Information (“FoI”) request by law firm BCLP show that HMRC recovered over £1/4billion in unpaid Capital Gains Tax in 2024/25 – up 41% on the year before as the number of related compliance checks increased to over 10,000 from less than 8,000 the year before.

Commenting on the increase in The Times, Price Bailey’s Andrew Park speculated that the increase was likely to relate in large part to HMRC’s crackdown down on undisclosed real estate gains and the increased proficiency with which HMRC now checks Land Registry records against personal tax returns.

• Crypto Tax investigations

An FoI request from UHY Hacker Young shows that HMRC is escalating its campaign to identify non-compliant crypto investors.  HMRC sent nearly 65,000 nudge letters to crypto investors in 2024/25 – up from less than 28,000 in 2023/24 and none in 2022/23 after initial an initial drive in 2021/22 upon HMRC and international counterparts obtaining data from the Coinbase exchange.

HMRC’s efforts are set to escalate further when jurisdictions around the world begin the compulsory collection and exchange of data under the OECD led Crypto-Assets Reporting Framework.

Speaking to the Financial Times, Price Bailey’s Andrew Park explained that these developments were always inevitable after years of close work between HMRC and other tax authorities to obtain and exchange data.  He added that: “Many taxpayers will have realised very large gains and will have big tax bills.  However, many others will have realised large losses too and it will be crucial for them to have retained or have access to good records for them to be able to claim those losses and offset them against any gains”.  He also emphasised the need for anyone who has bought and sold crypto assets – including exchanging cryptocurrency for other assets – to take urgent professional advice if there is a possibility that they are not take compliant – “unprompted disclosures attract a more benign treatment from HMRC – including lower penalties.”

• Increasing investigations into football clubs

Further FoI data shows that HMRC’s scrutiny of the professional football sector has intensified, with £90 million in extra tax recovered from clubs, players, and agents in the year to 31 March 2025—a 33% increase on the previous year. This uptick is the result of a more aggressive approach by HMRC, which has opened investigations into 12 clubs, 90 players and 16 agents over the period.

It is clear that HMRC now views football as a target rich environment in the pursuit of unpaid tax. HMRC has particular focus on:

• Research & Development (“R&D”) Tax Relief: Clubs have been claiming R&D relief for projects such as performance analytics and sports science. HMRC takes a dim view of the likelihood that football clubs are really seeking to make genuine scientific advances and, as with all R&D claimants, clubs must be prepared to justify claims with robust evidence of the projects they have undertaken and the credentials of the “competent professionals” they have relied upon to determine the scientific advances that would be made.
• Agent Fees and Dual-Representation Contracts: New HMRC guidelines mean that if a club claims an agent represented both the club and the player, it must provide clear evidence. Otherwise, the full fee is treated as paid by the player and subject to Income Tax.

HMRC also continues to pursue ex-professionals for unpaid tax from old investment schemes and failed tax avoidance arrangements.

The message for the football sector is clear.  Clubs, players and agents should enter into no tax arrangements that will not bear close HMRC scrutiny and they should get specialist advice from reputable mainstream accountancy and law firms rather than tax avoidance boutiques selling artificial schemes.

Contentious Tax Roundup – What happened in September 2025

In the September 2025 bulletin, Andrew Park, Tax Investigations Partner at Price Bailey, provides an overview of some of the most recent and significant contentious tax news, legislative changes, updates, and relevant case decisions that occurred throughout the month.

HMRC initiatives and new legislation

• Nudge letter campaign aimed at VAT claimed by facilities management companies

Further to HMRC identifying that many facilities management companies are wrongly claiming input VAT on utility supplies purchased on behalf of their customers, HMRC has launched a new letter campaign requesting that such companies review their arrangements and respond to their HMRC customer compliance manager within 60 days confirming that they have reviewed their contracts and invoices and will take steps to rectify errors – or else, that they are satisfied that they have no errors to correct.

As with nudge letters in general, although they do not carry any legal force a failure to engage with them may result in investigation and may lead to harsher penalties in the event errors come to light.

A copy of the letter template is available here: OTM Final Letter

Case decisions

• Ahmed & Ors v White & Company (UK) Ltd & Anor[2025] EWHC 2399 (Comm)

In a significant High Court decision on September 22, 2025, the court considered a professional indemnity claim involving 176 claimants who sued the now-liquidated accounting firm White & Co and its insurer, Allianz Global Corporate & Specialty SE (“Allianz”), over losses from failed tax-driven investments – including Enterprise Investment Schemes (EIS), Seed EIS, Super EIS, Films Rights Business (FRB), shares in DJI Holdings plc, Ober Private Clients Ltd, and corporate bonds.  Many of these investments were promoted for their tax relief benefits, but ultimately failed.

The case focused on how White & Co’s notifications to Allianz were handled and how the policy terms should be interpreted in the context of:

• Negligent advice: The claimants alleged they received negligent and/or fraudulent advice from White & Co regarding high-risk tax-driven investment schemes.
• Company failure: White & Co went into administration in 2019 and was later liquidated. The claimants pursued compensation directly from the firm’s professional indemnity insurer, Allianz.
• The policy conditions: The core of the dispute focused on the terms of the Allianz insurance policy, which was active from November 2016 to December 2017. Key policy conditions included:
  • Notification of circumstances: A requirement to promptly notify the insurer of any “circumstance… reasonably expected to give rise to a Claim”.
  • Aggregation of claims: A provision existed to treat all related claims arising from the “same facts or alleged facts, or circumstances or the same Wrongful Act” as a single claim, with a corresponding financial limit.
  • Tax Mitigation Endorsement: A clause capping the insurer’s liability for all claims related to “Tax Mitigation Schemes” at £2 million. These schemes were defined as pre-planned artificial transactions designed for a specific tax outcome.

The Court found that:

• Notification of claims: Several communications relied upon by the claimants, including specific letters and broader “Block Notifications,” were either insufficient to trigger coverage for the range of claims or were directed to an entity other than White & Co. The Court rejected the argument that broad communications constituted a “Hornet’s Nest” notification covering all potential claims.
• Aggregation of claims: Applying principles that aggregation clauses must be read against the specific policy wording, the court determined that the claims related to EIS, Seed EIS, and Super EIS investments were sufficiently similar to be aggregated into a single claim. This meant they would be subject to a single £2m financial limit under the policy.
• Tax Mitigation Endorsement: The court ruled that the policy’s Tax Mitigation Endorsement applied to advice on the sampled EIS, Seed EIS, Super EIS, and Film Rights Business investments, effectively capping Allianz’s total liability for these schemes.

Other news and announcements

• Price Bailey Freedom of Information (“FoI”) request reveals scale of HMRC offensive against non-compliant landlords

HMRC netted a record £107m from compliance activity targeting landlords in 2024/25, more than double the amount clawed in in 2021/22, according to data released to Price Bailey.

HMRC compliance yield from landlords

The Let Property Campaign (LPC), which was launched in the 2013/14 tax year, has brought in £570 million pounds in total from UK residential landlords. HMRC recovered £13,713 in tax per disclosure in 2024/25, by far the highest amount since the campaign’s inception.

Yield per disclosure under the Let Property Campaign

The data released under the FoI represents tax recovered from voluntary disclosures under the LPC, and from other connected compliance related activities, such as HMRC’s non-responder and discovery assessment work.

According to the Ministry of Housing, Communities & Local Government, there were about 2.2 million UK private landlords in the first quarter of 2024 (most recent estimate). There have been 100,332 disclosures so far under the LPC, representing just over four percent of the total population of UK landlords.

Speaking to the Telegraph, Andrew Park, Tax Investigations Partner at Price Bailey, commented:

We’ve assisted large numbers of landlords in making voluntary disclosures over the last few years – typically, after they’ve received an HMRC nudge letter.”  He explained that there is, for instance, widespread confusion about the different tax treatment of capital expenditure and revenue expenditure.  “Capital expenditure, such as installing a significantly upgraded kitchen, is not deductible against letting income, whereas repair and maintenance of an existing kitchen or a like-for-like replacement is deductible. That distinction can be grey around the edges and trips a lot of landlords up.

Often people are accidental landlords who kept a property after moving to cohabit with a new partner, inherited a property or temporarily moved abroad. Many are not financially sophisticated or in receipt of high levels of other income, haven’t properly understood their responsibilities and haven’t previously sought advice.  It doesn’t help that many landlords have unexpected taxable profits on paper but only because tax law has now changed to ignore the full cost of debt servicing. This creates a “phantom profit” effect: landlords owe tax on deemed income that doesn’t economically exist.

The data serves to remind landlords that they should review their tax affairs carefully, especially if they have never sought advice or assumed no tax was due.  In the event that omissions come to light it is never too late to make a voluntary disclosure to HMRC to mitigate the position.

HMRC Initiatives and New Legislation

• New nudge letters targeting associated company arithmetic

In a campaign scheduled to run through until October 2025, HMRC has begun writing to companies it suspects of miscalculating their number of associated companies for Corporation Tax purposes, and resultantly claiming too much marginal relief.

HMRC is using two different letter types to test their comparative psychological effect on recipients – for instance, one is headed “Check . . .” and goes on to threaten a compliance check if ignored, and the other is headed “Please check . . .” and leaves the threat of investigation unspoken.

Copies of the alternative letters are available here:

[CompC1MRRMM]

[CompC2MRRMM]

This initiative further reflects the ever-increasing and imaginative breadth of HMRC’s use of “nudge letters” as well as HMRC’s increasingly sophisticated use of data from sources such as Companies House to trawl for potential anomalies.  HMRC’s experimentation with language as a means of persuasion has been ongoing for c. 15 years, and the evolution of their “Jedi mind tricks” evidently still has some way to go.

• Self-serve time to pay extended to Simple Assessment debts

Should they need it, Agent Update 134 announces that taxpayers receiving Simple Assessment letters advising them of further liabilities payable within three months or by 31 January 2026 are now being given online access to set up payment plans.

To qualify, taxpayers must owe between £32 and £50,000 and not have any other payment plans in place with HMRC or have any other outstanding debts to HMRC.

Sums owed will, of course, be subject to HMRC’s newly increased and more punitive late payment interest set at Bank of England base plus 4%.

Notably, tax is not deducted at source from the UK State Pension and Simple Assessments are issued after the tax year to pensioners in the event that they receive more State Pension than their personal allowance and do not have other work or private pension income from which the tax can be taken under PAYE and are not otherwise filing tax returns.  The surge in the State Pension under the “Triple Lock” and frozen personal allowances will result in huge numbers of impoverished pensioners getting a nasty shock through their letterbox in this regard.  A few hundred pounds is a lot of money to somebody who doesn’t have any.  So, it seems likely that HMRC has extended easy access to time to pay very much with this in mind.

Case Decisions

• Lexgreen Services v HMRC [2025] UKFTT 1019 (TC)

“This is a case about the meaning of life” – so begins the Judge’s decision in this case before the First-tier Tax Tribunal (“FTT”) . . .

More specifically, the case concerns whether a corporate settlor was liable for Inheritance Tax (“IHT”) upon the 10-year anniversary of the settlement of a remuneration trust in 2005 under the provisions of the S201(d) Inheritance Tax Act 1984  – that provision applying where
where: “. . . the transfer is made during the life of the settlor . . .”.

Acting for the Appellant, Michael Firth KC argued that the legislation does not and was not intended to encompass corporate settlors or else it would have been drafted differently – that IHT is fundamentally concerned with life and death, a company has no life force and cannot make a transfer during its life as a settlor – “life” should have its ordinary meaning i.e. the period between birth and death of a living thing.  The Court disagreed and found that the company was a live company at all material times – had the parliamentary draftsman intended to exclude corporate settlors from the application of the provision and limit it to “natural settlors”, it would have been a simple matter to do so.

• Elsbury v Information Commissioner [2025] UKFTT 915 (GRC)

In this unusual case before the First-Tier Tribunal (General Regulatory Chamber) Information Rights (“GRC”), the Appellant sought to compel HMRC to comply with a Freedom of Information (“FoI”) request to provide details of whether HMRC uses artificial intelligence (“AI”) in deciding whether or not to accept claims Research & Development (“R&D”) tax credits.  Have HMRC been using AI to determine whether a projects truly aimed to achieve advances in science or technology and overcome uncertainties that “competent professionals” cannot readily simply deduce.  It would be understandable if HMRC had started to move in that direction, given how ill-equipped its officers are to conclude on matters of science and technology that don’t fall within their experience, training or intellectual grasp.  However, the Appellant has major concerns that patterns show HMRC is both using AI and still coming to inappropriate generic conclusions.

HMRC had refused the FoI on the basis that it would prejudice the collection of tax, and the Information Commissioner – who was the Respondent here rather than HMRC – had found for HMRC.  However, the GRC has now overturned this on the basis that the public interest in transparency outweighs HMRC’s objections.  HMRC now has until 18 September 2025 to reveal the information.

Other News and Announcements

• Rt Hon Angela Rayner – SDLT investigation

The news about the Secretary of State for Housing, Communities and Local Government has failed to pay the right amount of SDLT on a property transaction and is now under HMRC investigation, serves as a salutary lesson on how complicated tax can be and the need to both seek advice from suitably specialist professional advisors and provide them with all of the necessary relevant information.

As many news reports highlighted, failure to get the tax bill right, resulting from carelessness, can result in penalties of up to 30% of the unpaid tax plus punitive late payment interest.  Less well publicised was the possibility that in some circumstances – seemingly not those relating to Ms Rayner – HMRC and the Courts can view any wilful negligence in failing to get proper advice for fear of what that advice might be (so-called “Nelsonian blindness”) to be deliberate wrongdoing which can attract much higher penalties still.

In the July contentious tax bulletin, Andrew Park, Tax Investigations Partner at Price Bailey, provides an overview of the most recent and significant contentious tax news, legislative changes, updates, and relevant case decisions that occurred throughout the previous month.

HMRC initiatives and new legislation

• HMRC’s transformation roadmap 

HMRC published a new “roadmap” on 21 July 2025.  Alongside other objectives like improving the so-called “customer experience”, a core central element of the roadmap is HMRC’s strategy for “closing the tax gap” i.e. reducing the amount of tax – currently estimated at c. £47bn – which is payable under the law but which goes uncollected.

HMRC plans to improve compliance by:

• making increasing use of digitisation and AI to gather and analyse data to pre-populate entries in returns, identify taxpayers who need to brought within the system and send even greater numbers of “nudge letters” to taxpayers who appear to be non-compliant;
• improving IT systems to enable better real-time reporting and communication;
• bringing in new legislation from April 2026 to make recruitment companies that use umbrella companies legally responsible for accounting for PAYE on workers’ pay;
• targeting rogue tax advisors with enhanced information gathering powers and sanctions;
• modernising systems and processes for debt collection;
• aiming to increase the number of criminal prosecutions by 20% over the next five years;
• launching the already announced new HMRC whistleblower reward scheme by late 2025;
• recruiting c. 400 people – including external tax professionals – to bolster HMRC Fraud investigation Service’s efforts to tackle serious offshore non-compliance by the wealthy.

Case decisions

• Marlborough DP Ltd v HMRC [2025] EWCA Civ 796

This case heard by Court of Appeal revolved around a tax avoidance scheme involving a dental practice company, Marlborough DP Ltd (“MDPL”), and its sole director and owner, Dr Matthew Thomas.  The company had paid nearly all its annual profits into an offshore Remuneration Trust (“RT”), which then loaned back matching amounts to Dr Thomas. The scheme – which had been designed by the infamous Paul Baxendale-Walker (aka Paul Chaplin) – aimed to secure a Corporation Tax deduction for the contributions and deliver untaxed cash to Dr Thomas as loans rather than employment earnings or shareholder dividends.

At the initial appeal to the First-Tier Tribunal (“FTT”) the FTT found for the company and Dr Thomas in treating the amounts paid into the trust as shareholder dividends rather than disguised remuneration assessable on Dr Thomas under either general earnings provisions of S62 Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”) or the anti-avoidance provisions of S554 ITEPA – as introduced in Finance Act 2011.  However, showing little confidence in its own decision the FTT concluded that were it wrong and the payments were instead taxable as remuneration the company would be able to take a Corporation Tax deduction in respect of said deemed remuneration.

HMRC duly appealed to the Upper Tribunal on the grounds that the FTT had erred in law in not treating the payments as remuneration either under S554 or instead under S62 and was wrong also in its conclusion that it would then follow that the company would be able to claim deductions against Corporation Tax. The Upper Tribunal found that:

• the FTT had erred in its reasoning in concluding that for S554 purposes the employment had to be part of the reason for the reward and causative rather than merely in connection with it – accordingly, the earnings were taxable on Dr Thomas as deemed remuneration;
• the FTT had made a correct evaluative decision that for S62 general earnings principles – for which the test was not the same as for S554 – that the payments were derived from the recipient’s shareholding rather than in his capacity as an employee;
• Corporation Tax deductions were not then available because the company failed the wholly and exclusively test because “. . . the intention of MDPL in making the contributions was to empty the company of profit in order to fund a tax-free benefit (i.e. the loans) to Dr Thomas. There was no trading purpose and no benefit to MDPL’s trade . . .”

The taxpayer then appealed to the Court of Appeal on the grounds that:

• The UT applied the wrong test when determining whether the loans were “in connection with A’s employment”, for the purposes of Part 7A.
• The UT erred in failing to consider whether the connection identified was displaced and/or applied the wrong approach to that question.
• The UT erred in failing to explain why that connection amounted to a “strong and direct” connection and erred in failing to properly apply its test and reaching an unsustainable conclusion.
• The UT erred in failing to consider whether the arrangement was a means of providing payments with that connection.
• The UT erred in overturning the FTT’s conclusion on corporation tax as it identified no error of law in the conclusion that the tax advantage was not an end in its own right. If Ground 4 above does not succeed, the UT must still have found that the alleged connection with the employment of Dr Thomas was essentially the arrangement’s trading purpose.

The Court of Appeal rejected all the grounds of appeal and upheld the Upper Tribunal’s decision – including, crucially, the reasoning that for the purposes of S554 ITEPA 2003 a causal test of “in connection with” is not required – a sufficient connection, direct or strong, will satisfy the condition even if employment was not the reason for the payment or loan.

Other news and announcements

• HMRC annual report and accounts 2024 to 2025

Published on 17 July 2025, the latest HMRC annual report contains a wealth of information including:

• there were 446 new criminal investigations as well as 310 criminal prosecutions during the year with a 91% conviction rate;
• there were 11,000 new civil investigations into suspected fraud (the vast majority not under COP 9);
• HMRC are recruiting an additional c. 5,500 tax officers to focus on tax enforcement;
• HMRC’s crackdown on renegade tax advisors resulted in 1,285 advisors being blocked access to HMRC services and 183 of them coming under investigation themselves;
• error and fraud in R&D tax relief claims continues to fall but is still believed to be high at c. 10% of the amounts being claimed;
• a record 46,266 penalties – predominantly late filing penalties – were successfully appealed – commenting in The Telegraph Andrew Park, of Price Bailey, said “banking delays, administrative failings by HMRC, and poor customer service were all factors that led to taxpayers filing late. Late filing penalties are disproportionately levied on people on low incomes, many of whom have no tax to pay”.

HMRC initiatives and new legislation

• One-to-many letters targeting “persons with significant control” and directors who have had company loans written off

HMRC has issued a new round of “nudge letters” to people believed from Companies House filings to exercise significant control over companies – typically because they’re 25%+ shareholders – questioning whether they should have filed personal Self Assessment tax returns for 2023/24 or, alternatively, whether their filed tax returns for 2023/24 correctly reflect all related income, benefits and capital gains.

The letters seek action to file any outstanding returns or correct errors in submitted returns by 25 July 2025.

Copies of the HMRC letters are available here:

Person with significant control – about registering for Self Assessment
Person with significant control – making sure your Self Assessment tax

Separately, HMRC has begun writing to company directors who are believed to have had company loans written off between April 2019 and April 2023, asking why these write-offs were not declared on their personal Self-Assessment tax returns as personal income assessable to Income Tax.

Case decisions

• Osmond v HMRC [2025] UKUT 183 (TCC)

In this case—initially found in HMRC’s favour by the First-Tier Tribunal (FTT) and later appealed to the Upper Tribunal—HMRC sought to deny Capital Gains Tax (CGT) treatment, including EIS CGT relief, by applying the Transactions in Securities (TiS) anti-avoidance rules under the Income Tax Act 2007. The TiS rules exist to prevent taxpayers from disguising income receipts as capital in order to pay lower rates of tax.

The taxpayers had invested in a company – Xercise Ltd – with the intention from the outset that the future disposal of their investments would qualify for EIS relief.  As a result of a share for share restructuring in 2009 they became shareholders in a successor company – Xercise2 Ltd.  Ultimately, in 2015 they exited their investments through a share buy back by Xercise 2 Ltd which enabled them to retain their entitlement to EIS relief.

HMRC argued that the buyback was caught by the TiS rules because it failed the main purpose test at S687 ITA 2007 of having an Income Tax advantage. This persuaded the FTT, but the Upper Tribunal then found that the FTT had erred in law:

• obtaining CGT relief under EIS does not automatically equate to seeking an Income Tax advantage;
• it is the subjective intention of the taxpayers that matters and achieving CGT relief does not necessarily imply an Income Tax motive – the effect of the transaction was to achieve an Income Tax advantage but that was not the main motive for it.

• BGC Services Holdings LLP v HMRC [2025] UKFTT 700 (TC)

On 9 June 2025 the FTT refused HMRC permission to appeal two earlier case management decisions relating to Regulation 80 Income Tax determinations issued by HMRC. These totalled c. £96m for the tax years 2017/18 to 2019/20 under the Salaried Members Rules – which deem certain LLP members to be employees for tax purposes.

The partnership has appealed the determinations on the basis that they do not particularise why HMRC concluded that additional tax was due, and because they considered no additional tax was in fact due.

Procedurally, the FTT has refused a request by HMRC for further and better particulars from the appellant, and has instead required HMRC to particularise in its statement of case how salaried members conditions were met for specific partners, how the tax was calculated and the basis for alleging deliberate or careless behaviour on the part of the taxpayer.

The Tribunal found that HMRC’s failure to provide reasons for the determinations is a breach of HMRC’s public law duties – even though there is no statutory requirement to give reasons. In doing so, the Tribunal has emphasised the importance of transparency and procedural fairness in tax administration and has criticised HMRC’s handling of the case.

Other news and announcements

• Measuring tax gap estimates published for 2023/24

Released on 19 June 2025, HMRC’s latest estimates are that:

• the overall level of unrecovered tax stands at 5.3% of theoretical total tax liabilities;
• the tax gap is most pronounced for Corporation Tax at 15.8% – compared to only 3% for Income Tax / National Insurance / Capital Gains Tax;
• 40% of the total tax gap is made up of Corporation Tax but Income Tax / National Insurance / Capital Gains Tax still make up 30% because of the greater scale of personal taxes payable;
• small businesses are responsible for 60% of the total tax gap compared with only 5% for wealthy individuals.

Behaviourally, lost taxes relate:

• 31% to failure to take reasonable care;
• 15% to other error;
• 14% to tax evasion;
• 12% to alternative legal interpretation;
• 12% to non-payment of determined debts;
• 9% to criminal attacks;
• 5% to the hidden economy;
• only 1% to misconstrued tax avoidance.

There are no major surprises in the estimates compared to last year and the main concern continues that Britain’s c. 5.5m small businesses are responsible for the lion’s share of the tax gap and there’s little sign of HMRC being able to introduce effective new measures to address the issue.  Inevitably smaller businesses are both more prone to making inadvertent errors because they have less internal accounting expertise and less resource to spend on external advice but are also more prone to deliberate understatements or overly optimistic accounting treatments because they tend to be actively owner managed.

Although “Making Tax Digital” is one imagined partial solution to addressing small business compliance how effective that will really prove is uncertain.  HMRC will have little alternative for the foreseeable future other than to direct more and more resources into opening more and more investigations into smaller businesses.

HMRC initiatives and new legislation

• New HMRC letter campaign to mail order and internet retail companies warning against unscrupulous R&D boutiques

HMRC have begun mass mailing mail order and internet retail companies, warning them that their sector is being targeted by unscrupulous R&D agents trying to encourage firms to make unsupportable claims for R&D tax relief. HMRC warns that advances in the field of science and technology are unusual in their industry and that “no win, no fee” is not no risk.

Invalid claims risk inaccuracy penalties and punitive late payment interest – not to mention significant professional costs and disruption in rectifying.

HMRC advises companies to speak to their normal Corporation Tax agents before engaging the services of a separate R&D agent.

As with so many HMRC education letters, as well as seeking to prevent future non-compliance, the letters also serve a further purpose in strengthening HMRC’s ability to levy higher penalties on companies that still go ahead in pursuing invalid claims through rogue agents after HMRC have warned them.

A copy of the standard HMRC letter can be viewed here:

Claims for R&D tax relief final letter

Case decisions

• Realbuzz Group Ltd v HMRC [2025] UKFTT 00493 (TC)

In this appeal before the First-Tier Tribunal (“FTT”), the appellant company had submitted claims for R&D relief. HMRC opened an enquiry into the Corporation Tax return for year ending 30 April 2021 and ultimately closed the enquiry after finding that the R&D claim for that year was invalid in its entirety.

The company had also made prior year R&D claims, which HMRC deemed invalid. As HMRC was outside the 12-month window to open an enquiry into the year ended 30 April 2020, they issued a discovery assessment to disallow the claim instead.

The company appealed solely on the basis that HMRC was not entitled to raise the discovery assessment – not because HMRC’s conclusion was incorrect, but because an officer “could have been reasonably expected, on the basis of the information made available to him, to have been aware [of the excessive relief] before he ceased to be entitled to give notice of enquiry” into the return for APE 2020. This is a statutory protection at Schedule 18 to the Finance Act 1998 at Paragraph 44:

“44 (1) A discovery assessment for an accounting period for which the company has delivered a company tax return, or a discovery determination, may be made if at the time when [an officer of Revenue and Customs]—

(a) ceased to be entitled to give a notice of enquiry into the return, … [he] could not have been reasonably expected, on the basis of the information made available to [him] before that time, to be aware of the situation mentioned in paragraph 41(1) or (2). (2) For this purpose information is regarded as made available to [an officer of Revenue and Customs] if— (a) it is contained in a relevant return by the company or in documents accompanying any such return, or

(b) it is contained in a relevant claim made by the company or in any accounts, statements or documents accompanying any such claim, or

(c) it is contained in any documents, accounts or information produced or provided by the company to [an officer of Revenue and Customs] for the purposes of an enquiry into any such return or claim, or

(d) it is information the existence of which, and the relevance of which as regards the situation mentioned in paragraph 41(1) or

(2)—

(i) could reasonably be expected to be inferred by [an officer of Revenue and Customs] from information falling within paragraphs (a) to (c) above, or

(ii) are notified in writing to [an officer of Revenue and Customs] by the company or a person acting on its behalf.

During the time that the enquiry window was open for APE 2020, HMRC had been provided with a detailed report by the company setting out the basis for the claim, and the Court concluded that the actual officers who made the decision to raise the discovery assessments relied upon the information in that report.

It therefore followed that the information necessary was already there in HMRC’s possession for “hypothetical officers” to be reasonably expected to be aware of an insufficiency of tax within the APE 2020 enquiry window.

The later report provided by the company for APE 2021 was not found to be further information that was clearly relevant or necessary with regard to any insufficiency of tax for APE 2020.

The Court found for the taxpayer that HMRC had missed its opportunity to amend the APE 2020 return by opening an enquiry when it had all necessary information and, as such, HMRC was barred from “getting a second bite of the cherry” by making a later discovery assessment.

Other news and announcements

• HMRC briefing note published on the latest independent review of the disguised remuneration loan charge

The briefing note published by HMRC on 22 May 2025 explains HMRC’s actions whilst the review is ongoing. It explains that HMRC has now finished sending letters and a “question and answer” document to taxpayers to:

• give them a named HMRC contact;
• set out whether HMRC think the disguised remuneration arrangements they used will be considered by the review or not, and explain what HMRC’s operational approach to customers will be in their case during the review.

HMRC has sent four different categories of letter to taxpayers depending on their current circumstances – comprising letters regarding:

• mixed disguised remuneration arrangements – considered by the review;
• disguised remuneration arrangements – considered by the review;
• settled disguised remuneration arrangements – considered by the review;
• disguised remuneration arrangements – not considered by the review.

HMRC stress that they won’t be able to tell taxpayers exactly how they may be affected until both the review is complete and the findings are published and the Government issues its response to any review recommendations.

Unfortunately, the terms of reference of the new review are limited to recommending new ways to help or induce taxpayers who are caught by the legislation to settle if they have not done so. There is no prospect of the new review recommending that the legislation should be further revised to take more taxpayers out of its scope or to reduce their liabilities.

• Nudge letter campaign targeting private security businesses

HMRC has written to businesses providing security workers, urging them to check they are paying tax appropriately. HMRC considers this should ordinarily be through registration for PAYE Income Tax and National Insurance deductions.

HMRC has identified a particular risk due to the number of unscrupulous and criminal elements it says are now operating within the sector.

In many cases, care will need to be taken to confirm which business in a supply chain – that may include agencies or recruitment companies – is responsible for operating PAYE, and whether they are actually doing so.

Any remedial action should be taken by 2 August 2025.

A copy of the standard HMRC letter can be viewed here:

• HMRC One to Many Campaign – security workers April 2025

Case decisions

• George Mantides Ltd v HMRC [2025] UKUT 00124 (TCC)

The appellant, a urologist, provided locum services through his personal services company to Royal Berkshire Hospital and Medway Maritime Hospital in 2013.

The main issue was whether the income received by the company for these services was subject to Income Tax and National Insurance contributions under the IR35 employment status legislation. The First-tier Tribunal (FTT) initially ruled that the services provided to Medway Maritime did not constitute employment, but those provided to Royal Berkshire did.  This was on the basis of three material differences between the hypothetical contracts with Medway Maritime and Royal Berkshire:

1. Right to substitute: The Medway Maritime contract allowed the appellant to send a substitute if approved by the agency, which pointed away from employment.
2. Notice period: The Medway Maritime contract could be terminated on one day’s notice, which is almost illusory and does not point to employment.
3. Obligation to provide work: The Medway Maritime contract contained no obligation on Medway Maritime to provide, or try to provide, any sessions in a week, which pointed away from employment.

The Upper Tribunal found that the FTT made errors of law in its findings regarding the hypothetical contract between the appellant and Royal Berkshire. Specifically, the FTT incorrectly concluded that an inferred contract required a week’s notice for termination and that Royal Berkshire was obligated to provide 10 half-day sessions per week. Those terms were not found to have been supported by the evidence before the FTT and those errors led the Upper Tribunal to set aside the FTT’s decision and remake it.

However, in remaking the FTT decision, the Upper Tribunal still found against the appellant because, for several reasons, it still concluded that there was an implied contract between the appellant and Royal Berkshire:

1. Personal service: The Upper Tribunal found that the hypothetical contract would require the appellant to provide his own work and skill, indicating a contract for personal service, which is a pointer towards employment.
2. Control: The Upper Tribunal noted that the appellant would be subject to a measure of control by the hospital. This included being obliged to conduct sessions as specified in the rota and dealing with patients on the list, which pointed towards employment.
3. Mutuality of obligation: The Upper Tribunal concluded that there would be sufficient mutuality of obligation to satisfy this condition. This means there would be an obligation to work and an obligation to pay for the work done.
4. Terms of the hypothetical contract: The Upper Tribunal outlined the terms of the hypothetical contract, which included that it would be for a fixed term, terminable early by either party without notice, and for the personal services of the appellant to work as a urologist.

• Christian Peter Candy v HMRC [2025] UKFTT 00416 (TC)

This case revolved around a claim for repayment of Stamp Duty Land Tax (SDLT) made under Paragraph 34, Schedule 10, Finance Act 2003.

The appellant sought repayment of £1,920,000 in SDLT paid on substantial performance of a contract for the assignment of a lease for Gordon House in Chelsea. The claim was initially refused by HMRC in a closure notice dated 13 August 2015, leading to an appeal to the FTT.

The core issue was whether relief under Para 34 could be claimed in a situation where SDLT would have been repayable under s 44(9) FA 03, notwithstanding that the claimant could evidently not do so because he was out of time to amend the land transaction return within the necessary 12-month time limit. The Court determined that Para 34 provides a “back-stop” for SDLT relief independent of s 44(9), allowing the appeal and granting relief to the appellant.

The Court’s decision was based on the interpretation that Para 34 is designed to provide a final statutory remedy when no other such remedy exists, acting as a last resort or back-stop where all other statutory relief provisions have been exhausted.

There is nothing profound in the decision and which was simply based upon:

1. Legislative wording and structure: The Court examined the wording of Para 34 and its interaction with other statutory provisions. Para 34 is designed to provide relief where tax has been overpaid and no other statutory remedy is available. This is evident from the broad application of Para 34 once its threshold provisions are met and its procedural requirements satisfied.
2. Case C in Para 34A: The Court noted that the wording of Case C in Para 34A(4) supports the interpretation that Para 34 operates as a backstop. Case C precludes relief under Para 34 where the claimant could have sought relief by taking other steps within a period that has now expired and knew, or ought reasonably to have known, that such relief was available.
3. Explanatory notes and technical note: The Court referred to the explanatory notes to the Finance (No.2) Bill 2010 and a HMRC Technical Note – “Relief for mistakes in Stamp Duty Land Tax Returns – draft legislation”, which confirmed that Para 34 was intended to provide a right to repayment in situations where no other means of reclaiming the overpayment existed. The explanatory notes and technical note highlighted the policy aim of Para 34 to limit the alternative necessity for common law restitution claims through the High Court, and to provide a consistent and comprehensive statutory scheme for the recovery of overpayments.
4. Previous case law: The Court considered previous case law, such as the FTT decision in Derek and Susan Smallman v HMRC, which held that Para 34 was indeed a backstop allowing taxpayers to claim relief for overpaid SDLT in circumstances where they were out of time to make a claim under s 44(9).
5. Statutory interpretation: The Court emphasised the importance of discerning and giving effect to the meaning of the words used by Parliament. The Court’s task was to ascertain and give effect to Parliament’s purpose, which was to provide a final statutory remedy when no other such remedy exists.

Other news and announcements

• Late payment interest increased to base rate plus 4%

Further to an initial announcement in the Chancellor’s October 2024 Budget speech, HMRC’s statutory late payment interest was ramped up to Bank of England base rate plus 4% from April 2025.  It was previously levied at base rate plus 2.5%.

The change marks an overt departure from the original neutral principle that people and companies owing tax should not gain a financial benefit from doing so, to now becoming a further form of punishment on top of HMRC’s substantial existing penalties.

Unlike existing forms of penalty, there is no formal appeal process against late payment interest whereby taxpayers can claim they are not culpable as they have a reasonable excuse.  It therefore appears ripe for legal challenge on Human Rights or other grounds. In the meantime, HMRC appear to have realised that there is a potential issue here and we are already seeing more instances of HMRC offering to waive late payment interest at their own discretion where HMRC’s own conduct is a factor in taxpayers not being able to confirm and settle outstanding liabilities.

Conversely, HMRC now typically takes months to process repayment claims whilst only being obliged to pay interest on money owed to taxpayers at a dismal base rate minus 1%…

HMRC initiatives and new legislation

• HMRC giving electronic till suppression evaders one last chance to come clean

Tax fraud through understating business takings going through the tills is as old as the cash register, but it has become much harder since the advent of electronic tills producing automatically generated sales records. Spotting an opportunity, many unscrupulous software developers have targeted businesses throughout the world with special software designed to artificially suppress sales recorded by electronic tills so the businesses concerned can understate their takings without being caught out by an HMRC audit.

HMRC now has a growing mass of intelligence from a coordinated international law enforcement effort against software providers around the world and has been systematically contacting businesses which appear to have bought illicit software to investigate them or urge them to come clean by making a voluntary disclosure.

The latest letters being issued by HMRC state they are giving the recipients a “final opportunity to make a complete, accurate and honest disclosure before we calculate what we think you owe and charge penalties on top”.

An example letter is available here:

• OTM Final Letter

Although, previous “nudge letters” to businesses suspected by HMRC are sometimes known to have been sent to businesses which have not actually conducted the frauds suspected, it seems that many businesses have operated fraudulently and have resisted attempts to make them come clean – notwithstanding maximum civil penalties of up to 100% of the outstanding tax in situations where they have concealed the fraud with the creation of a fake record trail – or else possible criminal prosecution.

For its part, it seems that HMRC has had to resort to repeated “nudging” for lack of resource to open investigations into all the businesses that it suspects – which seems to be undermining its deterrence effort.  Of course, if HMRC does want to calculate and assess the additional tax it thinks it is owed, it can do so going back up to 20 years for tax fraud but cannot do so without engaging in investigative work and opening current year enquiries or raising discovery assessments for earlier years – then forcing them to engage with HMRC to demonstrate the suspicions are unfounded or mitigate their position.

A business that comes under investigation or wishes to make a voluntary disclosure should seek urgent specialist professional advice.  Acceptance into HMRC’S Code of Practice 9 Contractual Disclosure Facility will guarantee the individuals involved that they will not be personally criminally prosecuted but that is in return for full cooperation and full disclosure throughout the process.  The process should not be entered into lightly or without total commitment.

Case decisions

• HMRC v Bolt Services UK Limited v HMRC [2025] UKUT 00100 (TCC)

This case revolves around the application or otherwise of the Tour Operators’ Margin Scheme (“TOMS”) to VAT on mobile ride-hailing services.  The successful application of TOMS would result in VAT only being chargeable on the commission element charged by the appellant company to the private hire vehicle operators – who are independent contractors – rather than the whole fare charged to the passenger.

The company requested a non-statutory ruling from HMRC regarding the VAT treatment of its on-demand ride-hailing services. HMRC ruled that these services did not fall within TOMS, leading the company to appeal to the First-tier Tribunal (“FTT”) – which ruled in its favour. HMRC then appealed to the Upper Tribunal.

In coming to its conclusions, the Upper Tribunal considered two main issues:

• Whether Bolt’s services were of a kind commonly provided by tour operators or travel agents.
• Whether Bolt supplied the services of the drivers to the passengers without material alteration or further processing.

The Upper Tribunal concurred that the company’s services did fall within TOMS and dismissed HMRC’s appeal against the FTT’s decision.  It concluded that:

• Bolt’s ride-hailing services are comparable to services provided by tour operators or travel agents, as they involve passenger transport, which is a travel service –whether they be point-to-point journeys via apps, airport transfers or station drop-offs.
• The services provided by Bolt were not materially altered or processed and were supplied for the direct benefit of the traveller.

The Judge emphasised that the scope of TOMS should be interpreted broadly to avoid distortion of competition and ensure uniform application of VAT rules.

Other news and announcements

• Chancellor’s Spring Statement – 26 March 2025

Further to the Government’s ongoing policy objective to Close the Tax Gap and the Chancellor announced a raft of further measures and proposals to improve tax compliance and increase punishments for non-compliance :

1. Investing in HMRC’s debt management capacity: The Government will invest in HMRC’s debt management capacity, including recruiting 500 more compliance staff and expanding partnerships with private sector debt collection agencies.
2. Making Tax Digital (“MTD”): The continued rollout of MTD with its quarterly reporting for Income Tax Self Assessment (“ITSA”) will include sole traders and landlords with qualifying income over £20,000 who will be required to join from April 2028. The aim is to make it easier for taxpayers to pay the right tax without less cope for error through a modernised and digital tax system.
3. Increasing late payment penalties: Late payment penalties for VAT taxpayers and ITSA taxpayers will be increased as they join MTD from April 2025 onwards beyond the level of penalties originally envisaged.
4. Consultation proposals: The Government is publishing consultations on how HMRC can make better use of third-party data, proposals to strengthen HMRC’s ability to take action against tax advisers who facilitate non-compliance, measures to close in on promoters of marketed tax avoidance, and options to simplify and strengthen HMRC’s inaccuracy and failure to notify penalties.
5. Prosecuting more people for tax fraud: HMRC is expanding its counter-fraud capability with a view to increasing the number of annual charging decisions by 20%, from 500 to 600 per year by 2029-30.
6. Reforming rewards for informants: A new HMRC reward scheme for informants will be launched later in 2025, targeting serious non-compliance by large corporates, wealthy individuals, offshore and avoidance schemes.
7. Tackling “phoenixism”: HMRC, Companies House, and the Insolvency Service are delivering a joint plan to tackle those using contrived insolvencies to evade tax and write off debts owed to others.
8. Overhauling offshore tax non-compliance: HMRC will recruit experts in private sector wealth management and deploy AI and advanced analytics in an effort to help identify and challenge failed offshore arrangements. Another 400 dedicated staff will be recruited – likely many of them will sit within HMRC FIS Offshore Corporate and Wealthy and will conduct an increased number of COP 8 investigations.

Collectively, the measures aim to raise over £1 billion in additional gross tax revenue per year by 2029-30.  However, they are not all without controversy – particularly, the forthcoming whistleblower programme . . .

• New US-style whistleblower programme

The Spring Statement confirmation that the programme will be launched in later 2025 followed on heels of a speech by Treasury Minister James Murray on 11 March 2025.

The new reward scheme is aimed at incentivising informants to expose failed tax avoidance as well as fraud among wealthy individuals and multinational businesses. Under the scheme, The Times has reported that whistleblowers could receive up to 25% of the additional tax revenue raised as a result of their reporting.

A Price Bailey Freedom of Information request shows that in 2023/24, the Treasury paid out £978,256 under its existing informant scheme, although the number of recipients and the total additional tax revenue raised from those reports was not disclosed.  The new scheme is inspired by the US model, where detailed public reporting shows that the US Internal Revenue Service (“IRS”) paid $89 million (£68 million) to 121 whistleblowers in the 2022/23 fiscal year, resulting in an additional $338 million (£261 million) in tax collected.

Speaking to The Times Political Editor, Andrew Park, Tax Investigations Partner at Price Bailey said:

In comparison terms, the level of rewards offered by HMRC is minuscule compared with the IRS. The thing with very large frauds is that the people in a position to report them tend to be in quite involved positions.

They need a pretty major incentive to blow the whistle, even with HMRC’s guarantees of anonymity. They are taking a risk and they want to feel that they are going to be rewarded and protected. The US scheme proves that significant amounts of money can be raised by paying informants.

Under the current system, HMRC gets swamped with vexatious, low-level reports. It hasn’t provided enough of an incentive for the really major frauds. Some of these cases involve criminal gangs and people could be at physical risk if they blow the whistle.

Ministers are understood to be considering payments of between 10% and 25% of the extra tax collected under the new scheme.

However, as understandable as the new programme is on the part of HMRC, aspects of it are likely to prove highly controversial and/or subject to legal challenge.  Not everything about the American modus operandi will necessarily translate easily from the US to the UK.

Any businesses or wealthy individuals with any concerns at all that they might not be fully tax compliant, and might shortly be seen as a lucrative target by a potential whistleblower, should double-down on their compliance efforts and revisit any old professional advice to ensure it is sound. In the event anything needs drawn to HMRC’s attention, it is never too late to pre-emptively address and mitigate the situation by voluntary disclosure if HMRC has not already formally opened an investigation.

1. HMRC initiatives and new legislation

• Nudge letters to offshore companies holding UK residential property

HMRC have launched a new campaign targeting overseas companies which they know from HM Land Registry to own UK residential property, but which did not pay the UK’S Annual Tax on Enveloped Dwellings (“ATED”) in the three years to 2019/20. This being either without the companies filing ATED returns or because they have filed ATED returns and have claimed exemption from ATED on the basis that they have met the qualifying criteria for letting relief.

HMRC’s main focus is on the concern that many overseas companies not paying ATED may have allowed “non-qualifying” connected individuals to occupy the properties – as suggested, in many cases, by them filing Non-Resident Landlord Income Tax returns reporting their properties were persistently let at a loss.

The letters come in different forms depending on whether or not the companies filed any ATED returns during the period. The letters may nudge the recipients to review their position and make voluntary disclosures if required or the letters may come with a request for detailed information about the letting and occupancy of the properties for HMRC to verify the position for itself.

• OTM Final Letter (Non relief filer – no agent) – OTM000384
• OTM Final Letter (Relief filer – no agent) – OTM000384
• Encompassing Schedule (Final) – OTM000384

• HMRC targeting individuals involved in online sales during the year to 5 April 2023

Further to the closure of the tax return amendment window for 2022/23 returns on 31 January 2025, HMRC is now targeting individuals suspected of undisclosed trading using online sales platforms to nudge them into making voluntary disclosures through the Digital Disclosure Service.

HMRC now obtains a huge amount of bulk data from popular online platforms and filters through it as a matter of routine to cross-compare it with the tax records of platform customers.

Inevitably, many people receiving letters will not have been conducting a main trade or taxable “side hustle” and in light of previous publicity around this topic and previous inadvertent misinformation in the media, the latest letters emphasise that using online platforms to dispose of personal goods is not trading and will not give rise to tax liabilities unless capital gains are realised in excess of annual allowances.

• Online marketplace sales letter

Case decisions

• A Taxpayer v HMRC [2025] EWCA Civ 106

In this long running case now brought from the Upper Tribunal to the Court of Appeal, HMRC contended that the appellant taxpayer was resident in the UK for the purposes of UK Income Tax in the tax year 2015/16. The appellant received £8m in dividends in that year but claimed she was not taxable in the UK as she had become resident in the Republic of Ireland. The issue revolves around the application of the Statutory Residence Test (“STT”) contained in Schedule 45 to the Finance Act 2013.

The First-tier Tribunal (“FTT”) initially allowed the appellant’s appeal, finding that there were exceptional circumstances on six days in question, which prevented her from leaving the UK and staying within the normal non-residence day count permitted to her under the SST. However, the Upper Tribunal set aside the FTT’s decision, holding that there were no exceptional circumstances – the appellant had an alcoholic sister and there were issues with the care and safeguarding of her children but such circumstances were held to be all too common and not exceptional for SST purposes.  The appellant then appealed to the Court of Appeal, seeking to have the FTT’s decision restored.

There were five contested grounds of appeal (ignoring a sixth contingent one which was disregarded by mutual consent):

• The Upper Tribunal erred in its approach to the test as to whether the appellant was “prevented” from leaving the UK.
• The Upper Tribunal erred in holding that whether circumstances were “exceptional” was a matter of law.
• The Upper Tribunal erred in holding that moral obligations cannot be or cannot be part of the exceptional circumstances.
• The Upper Tribunal erred in holding that the First-tier Tribunal (FTT) made contradictory findings on the “exceptional circumstances” issue.
• The Upper Tribunal erred in holding that the FTT had no evidence to support their finding that the paragraph 22(4) conditions were met on each day.

The Court of Appeal, after considering the arguments from both sides, preferred the submissions of the appellant’s Counsel and allowed the appeal on all grounds, restoring the decision of the FTT.  The Court concluded that the circumstances, including the need to care for the appellant’s twin sister and her minor children did indeed constitute exceptional circumstances that prevented her from leaving the UK.

Other news and announcements

• Updated HMRC data on Corporate Criminal Offence investigations

According to new statistics just published, as at 31 December 2024 HMRC had 11 live Corporate Criminal Offence (“CCO”) investigations but no current investigations for which charging decisions had yet been made. A further 28 potential were also under review for possible investigation across a variety of sectors including – software providers, labour provision, accountancy and legal services and transport.

The CCO legislation for failure to prevent the facilitation of tax evasion was introduced in Part 3 of the Criminal Finances Act 2017 but despite considerable political pressure HMRC has yet to bring a prosecution – successful or otherwise. As at 31 December 2024, HMRC had reviewed 114 situations with a view to bringing a prosecution and decided not proceed with bringing charges in every single one of them.

Arguably, the main driver for the legislation was the wholesale facilitation of tax evasion found to have been carried out by many offshore banks and professional services companies prior to the collapse of offshore secrecy and the now automatic international exchange of financial information under the Common Reporting Standard (“CRS”). That problem was largely eradicated before the CCO legislation was enacted.  Indeed, HMRC themselves emphasise that the success of the CCO legislation should be judged in part by its behavioural impact in helping to prevent future abuse rather than putting the past right.