Midweek Tax News

The King’s Speech was delivered on Wednesday 13 May at the State Opening of Parliament, setting out the Government’s legislative priorities in the next Parliament. It includes 37 Bills and draft Bills, which are targeted at “strengthening the UK’s foundations through measures to bolster economic, energy and national security”. The list of Bills includes the European Partnership Bill (for closer trading alignment with the EU), legislation to tackle late payments (the Small Business Protections (Late Payments) Bill) and to reform the leasehold system, including the capping of ground rents (the Commonhold and Leasehold Reform Bill). In relation to tax, the Bills include the Electricity Generator Levy Bill, which, as previously announced, legislates for increases in the Electricity Generator Levy rate from 45 per cent to 55 per cent from 1 July 2026. The Government had also previously announced that it would extend the Electricity Generator Levy beyond its scheduled conclusion in 2028, but the plans and legislation for this extension will be announced at a later date.

No date has been confirmed for the upcoming ‘Tax Update’ day, during which the Government will announce “further changes to simplify and improve tax and customs administration”. However, it is believed that this will take place shortly.

New appointments have been made at HM Treasury, following the appointment last week of James Murray as the new Secretary of State for Health and Social Care. Lucy Rigby, formerly Economic Secretary to the Treasury, has been promoted to Chief Secretary to the Treasury, replacing James Murray. Rachel Blake replaces Lucy Rigby as Economic Secretary to the Treasury (City Minister).

Our next Indirect Tax Perspectives event will take place on Thursday, 18 June. The event will take place in person at our 1 More London Place office, London, SE1 2AF, from 9.45, with networking and refreshments available from 8.45.

During the event, we will cover:

• A round-up of the latest indirect tax topical issues including recent HMRC activity
• Key themes from our Global Indirect Tax Symposium – from fast moving AI developments to unlocking value in data, tax authority audit activity and key technical topics
• Data-driven tax - getting it right first time and data readiness planning for UK e-invoicing
• UK CBAM countdown to 1 January 2027 – a practical overview of the regime

You can register here to join this event.

As announced at Budget 2025, HMRC has launched a limited advance assurance service for R&D tax relief claims. There are two separate services, both of which are available only to eligible SMEs (with turnover below £2m and fewer than 50 employees). The first option gives eligible SMEs clarity when they are claiming R&D tax relief for the first time. The second option, a pilot process available until May 2027, will give eligible SMEs clarity on up to two specific complex or high-risk areas of an R&D tax relief claim.

In Take 3.9 TV Partnership & Ors the First-tier Tribunal has considered the tax treatment of amounts advanced by individuals to five partnerships which were participating in film and television production activities. The advance made by each individual was funded partly by the individual partner’s equity, but largely by highly secured bank borrowing, with the debt funded element of the advance being repaid to the partners regardless of the commercial success of the film.

The partnerships claimed tax relief under the film production relief regime in Finance (No 2) Act 1992 and Finance (No 2) Act 1997 on the full amount of each advance.

The issues under consideration were (i) whether the partnerships were carrying on a trade and (ii) whether the amounts claimed (the advances) were actually amounts incurred on film production and incurred wholly and exclusively for the purposes of that trade.

The Tribunal accepted that the structures were heavily tax-driven, although a profit motive also existed. Applying case law including Ensign Tankers, the Tribunal held that the existence of a dominant tax motive does not prevent an activity from being trading if it otherwise has commercial characteristics. It rejected the argument that the tax-driven borrowing “de natured” the activity. As a result, it was found that the partnerships were carrying on a trade. However, it found that only the ‘equity’ element of the advance was expenditure incurred “wholly and exclusively” for the purposes of that trade. Accordingly, the Tribunal therefore allowed the appeals in part. It held that the partnerships were carrying on a trade and that the equity portion of their funding qualified for relief, but that the debt-funded element was neither “incurred” on production nor wholly and exclusively for the trade, such that relief was denied for that component. Accordingly, only the equity-funded expenditure generated allowable trading losses.

On 18 May, as part of its ongoing enquiry into large business tax compliance, the House of Commons Public Accounts Committee heard oral evidence from several HMRC officials, including John-Paul Marks (First Permanent Secretary and Chief Executive at HMRC). Topics covered during the session included the impact of the ongoing expansion of HMRC staff, with around 5,500 compliance officers and 2,400 new debt officers set to be added to HMRC; the impact of the ‘notification of uncertain tax treatments’ regime, and the consultation underway to expand that regime; and an update on HMRC activity in respect of the corporate criminal office for the failure to prevent the facilitation of tax evasion (CCO). A transcript of the hearing is available.

On 14 May, HMRC published a technical note which gives HMRC’s view on the taxation of various aspects of a range of payments made to landowners for providing ‘ecosystem services’. Ecosystem services include payments for biodiversity net gain, nutrient credits and carbon credits from woodland and peatland.

The judgment in Stellantis Portugal, the latest in a long line of cases considering the VAT treatment of transfer pricing adjustments, has been released by the Court of Justice of the European Union (CJEU). The case examines whether intra-group transfer pricing adjustments, used to ensure a distributor achieved a target profit margin and calculated partly by reference to vehicle repair costs, constitute consideration for a separate supply of services. In this instance, the adjustments were made to align profitability and were based on multiple cost drivers and were not linked to any separate supply.

The CJEU held that there is not a separate supply of services unless there is a direct link between a specific service and the payment, arising from a legal relationship with reciprocal obligations, and that any link to services in this case was at most indirect. Although not stated explicitly in the judgment, the judgment implies that the transfer pricing adjustments implemented by debit and credit notes adjust the value of the underlying supply, in this case the purchase of cars. Many tax authorities are actively reviewing the VAT treatment of transfer pricing adjustments. As a result, businesses may wish to consider reviewing the VAT treatment of their transfer pricing adjustments in light of this and other recent case law.

Further details on the judgment and its implications are available in our global tax alert.

The next in our regular webcast series from the Europe Financial Services team on “International Tax and Transfer Pricing” will take place at 9:00 on 29 May.

In an environment of increased transfer pricing (TP) scrutiny, this webcast will bring together professionals from across different EY member firm offices to share some of the latest TP controversy trends across Europe. During this session, our speakers will share practical insights and perspectives on TP aspects arising in audits, with a focused overview of developments in Germany, Italy, the United Kingdom, Spain and France.

To register to join the webcast, please click here.

On 18 May, the OECD published a ‘common understanding’ between jurisdictions implementing the global minimum tax from 2024 (including the UK) to mitigate the impact of some countries not having information exchange systems in place by the time of the first Globe Information Return (GIR) filing deadline. Implementing jurisdictions have agreed to waive penalties or suspend enforcement of local GIR filing obligations before the relevant GIR exchange deadline, where the GIR has been centrally filed in any one of the jurisdictions identified in the published list. The following day, 19 May, HMRC published a guidance document confirming that the UK Government agrees with the proposed transitional approach and that HMRC will act in accordance with it.

Separately, the OECD has also updated the Central Record which sets out those jurisdictions whose minimum tax legislation has completed the process for the transitional qualification mechanism and will be considered as qualified for purposes of the rule order. In addition, Administrative Guidance to address the application of the Transitional UTPR Safe Harbour to certain groups with 52 or 53-week fiscal years has been published.

We have included links to a selection of our tax alerts below. Additional articles are available in our global tax alert library.

OECD: As previously reported, on 30 April the OECD released the Global Minimum Tax Implementation Toolkit to support tax administrations in applying Pillar Two global minimum tax rules, alongside updated FAQs. Further details are now available in this global alert.

United States: The US has established procedures for pharmaceutical companies to apply for company-specific agreements that may reduce Section 232 tariffs.

Australia: Australia has announced its 2026-27 Federal Budget, introducing a package of tax measures focused on individuals, trusts and property concessions, rather than broad corporate tax reform.

Canada: Canada has tabled Bill C-31, Budget 2025 Implementation Act, No. 2. The Bill implements many business and international tax measures (including the global minimum tax and rules for digital platforms), as well as measures affecting individuals, trusts and registered plans, and charity-related measures.

Colombia: Colombia has granted a measure that provisionally suspends certain parts of a decree issued in 2025 which modified certain withholding tax and self-withholding bases and rates.

Kenya: Kenya has proposed the Finance Bill 2026, including several business tax changes such as expanding the definitions of management/professional fees and royalties, a repatriation tax for extractive industries and introducing a self-assessment regime for non-resident rental income tax.

South Africa: South Africa has published draft subordinate legislation to give operational effect to South Africa's advance pricing agreement (APA) framework and outline a limited-scope bilateral APA pilot programme. It is open for consultation until 29 May.

The May edition of PE Watch, our monthly summary of the latest international developments regarding permanent establishments, is available. This month’s edition covers amendments to domestic law in Finland to introduce more detailed rules for the attribution of income to permanent establishments (PE). There is also coverage of Sweden’s new guidance on when an employee's work from home or another non-business location may give rise to a PE for a foreign company in Sweden.

The latest issue of TradeWatch, our global trade magazine, is now available. This issue explores the new environment of accelerated regulatory change and expanding compliance expectations for trade and customs teams as 2026 progresses.

A new quarterly publication, EY UK Economic Outlook, brings together macroeconomic analysis and sector trends, alongside clear scenarios and implications for business. The May 2026 edition spotlights renewed disruption to the UK’s energy supply. With consumer-facing and industrial sectors the most exposed, it explores the underlying business drivers and implications for these sectors in particular.