Tax Bites: April 2025

Welcome to the latest edition of RPC's Tax Bites – providing monthly bite-sized updates from the tax world.

News

Government response to umbrella company consultation

The UK government has responded to a consultation on tackling non-compliance within the umbrella company sector. Following extensive feedback from stakeholders, the government plans to define and regulate umbrella companies to protect workers' rights and address tax non-compliance. Key proposals include shifting PAYE responsibilities to recruitment agencies or end clients and improving enforcement through the Employment Agency Standards Inspectorate. New legislation will be introduced by 2026 to address issues such as tax avoidance and improper use of schemes such as VAT flat rates.

HMRC updates its guidance on carried interest reporting

HMRC has updated its Investment Funds Manual with new pages IFM37800 and IFM37850, offering guidance on reporting carried interest. HMRC encourages fund managers to provide detailed information in their tax returns, including explanatory notes, computations, and tax packs, to reduce the risk of compliance checks. While not legally required, such information can minimise the risk of enquiries. HMRC stresses the importance of reasonable care when gathering data. Tax packs are recommended to ensure accuracy, though reliance on foreign tax reporting alone may not meet HMRC's expectations for reasonable care.

Reforms to IHT reliefs for trusts

The UK government has opened a consultation on reforms to Inheritance Tax (IHT) reliefs, specifically agricultural property relief (APR) and business property relief (BPR) for trusts. The consultation runs until 23 April 2025 and requests views on various changes announced in the Autumn Budget 2024, including a £1 million allowance for combined APR and BPR property and the introduction of an anti-fragmentation rule. From 6 April 2026, IHT on APR and BPR properties will be payable in equal annual, interest-free, instalments.

HMRC updates its Guidance on Enhanced R&D tax relief for loss-making SMEs based in Northern Ireland

HMRC has updated its Guidance on Enhanced R&D tax relief for loss-making SMEs in Northern Ireland, to provide more detail on the process for calculating and making claims.

The Guidance explains how businesses in Northern Ireland with a trade in goods or relevant electricity market activities can claim enhanced support. SMEs opting out of the provisions will face restrictions on overseas spending. The relief is capped at €300,000 over a rolling 3-year period, with exceptions for certain sectors. Businesses can benefit from simplified claims for R&D expenditure, but should consult HMRC for specific guidance on eligibility and claim procedures.

Case reports

Tribunal allows taxpayer's appeal in R&D relief claim

In Stage One Creative Services Ltd v HMRC [2024] UKFTT 1059 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal against HMRC's decision to refuse R&D relief claims on the basis that the relevant projects were not "subsidised" or "contracted out".

The FTT's decision provides helpful clarification to taxpayers who undertake R&D as part of the process of meeting their contractual obligations. The decision is also a reminder that HMRC's guidance simply reflects HMRC's own interpretation of the relevant legislation and will not necessarily represent the correct interpretation of the legislation under consideration.

You can read our commentary on this decision here.

High Court permits recission in EBT case enabling taxpayers to avoid IHT liability

In JTC Employer Solutions Trustee Ltd and others v Garnett and another [2024] EWHC 3128 (Ch), the High Court allowed the claimants' claim and permitted rescission in relation to various Employee Benefit Trust (EBT) appointments to sub-trusts, with the result that there was no IHT liability, as the mistake in creating the sub-trusts was sufficiently serious to render it unconscionable to leave the mistaken disposition uncorrected.

The High Court's criticism of HMRC's approach is notable and highlights that HMRC should ensure that it is joined to any similar proceedings if it wishes to make legal submissions to the Court as to why the Court should not order recession.

The Court's decision also illustrates that, in appropriate circumstances, those who have entered into complex EBT tax planning arrangements on the basis of an operative mistake as to the fiscal effect of those arrangements, should consider bringing a similar claim in the High Court.

You can read our commentary on this decision here.

Court of Appeal allows taxpayer's appeal and agrees the "exceptional circumstances" exemption was satisfied in statutory residence case

In A Taxpayer v HMRC [2025] EWCA Civ 106, the Court of Appeal allowed the taxpayer's appeal and confirmed that when considering whether a person had been present in the UK for the specified number of days to be liable to UK income tax, the statutory residence test required consideration of all relevant circumstances and whether those circumstances, taken as a whole, were "exceptional". A sufficiently compelling moral obligation could prevent someone from leaving the UK and the moral obligation which the illness of a relative imposed on that person should be taken account of in deciding whether the circumstances qualify as exceptional.

This is an important decision for any individuals who find themselves in a similar position to the taxpayer in this case and wish to rely on the "exceptional circumstances" exemption in paragraph 22(4), Schedule 45, Finance Act 2013. The Court of Appeal did not endorse the Upper Tribunal's guidance on how the FTT should decide appeals concerning paragraph 22(4) and suggested, instead, that the FTT should use 'common sense' in deciding what circumstances to consider and whether they amount to "exceptional circumstances", for the purposes of paragraph 22(4).

You can read our commentary on this decision here.

And finally...

Adam Craggs and Liam McKay of RPC's Tax, Investigations and Financial Crime team have written for Tax Journal here, setting out the general principles and the practical aspects of advancing judicial review claims against HMRC.

If you would like to speak further on this, or any of the topics covered above, please contact Adam Craggs or Liam McKay.