Midweek Tax News

The Chancellor of the Exchequer, John Healey, will deliver his first Budget speech this afternoon, at around 12.30pm.

EY’s Budget webpage will be updated this afternoon with details of the Chancellor’s key announcements, and a summary will be emailed to Midweek Tax News subscribers later in the day.

As a reminder, EY’s Autumn Budget webcast will take place at 14:00 tomorrow (Thursday). If you have not already registered to attend, you can do so here. During the event, our panel will summarise the Chancellor’s announcements and consider the potential impact on individuals, employers and businesses, with discussion also covering tax rates and incentives, tax policy and economic analysis.

The Chancellor has made a series of announcements in the final days before the Budget. These include plans to introduce measures aimed at reducing the administrative burden on businesses, including streamlining company reporting requirements, and confirmation that, following a consultation which closed earlier this year, existing import tariff suspensions on more than 250 products will be extended to 31 December 2028.

In addition, a package of ‘everyday fixes’, published on Monday, included the announcement that the 55p per mile rate for the first 10,000 business miles will be made permanent, while the rate above 10,000 miles will be increased from 25p to 35p per mile. The same package included the removal of import tariffs on 100 additional products, including a range of food items, fertilisers and kerosine heating oil.

Media speculation this week has included reports that the National Minimum Wage and National Living Wage will both increase by 3.9%, that the Chancellor intends to extend the current freeze on fuel duty, and that Business Asset Disposal Relief (BADR) may be “scaled back”, possibly alongside the provision of alternative reliefs or benefits to entrepreneurs.

Looking beyond today’s Budget headlines, EY’s Chris Sanger has considered the longer-term direction of the UK tax system in an article for The Times (which is behind a paywall). He explores how the system could be adapted to encourage greater investment and makes the case for an investment-ready tax system, built on three elements: direction, modernisation and correction.

In ScottishPower (SPCL) Ltd & Ors, the Supreme Court (SC) has found that settlement (or redress) payments, made in connection with four Ofgem investigations into ScottishPower’s energy supply business, were not deductible.

The investigations conducted by Ofgem had identified serious breaches by a ScottishPower group company of the obligations imposed on it under its gas and electricity supply licences. Although the Gas and Electricity Markets Authority (GEMA) had the power to impose significant fines on the company, the parties instead entered into settlement agreements, under each of which ‘redress payments’ were made to customers and charities, alongside a nominal £1 penalty.

ScottishPower accepted that penalties were not deductible for the purposes of corporation tax. It maintained, however, that the redress payments were neither penalties nor in the nature of penalties, and that they were deductible. The First-tier Tribunal and the Upper Tribunal (UT) had both accepted HMRC’s argument that the payments were not deductible. The UT found that the payments were part of an “overall package” imposed by Ofgem under the threat of penalties, and that they had, in their entirety, the character of penalties.

The Court of Appeal (CA) disagreed. It considered that the fact that the redress payments were made in lieu of penalties did not change their nature. It found the principle that penalty payments are non-deductible to be a ‘judge-made’ rule that did not extend to payments that are not fines or penalties. It considered that the payments were made wholly and exclusively for the purposes of the company’s trade and that, as such, ScottishPower was entitled to a deduction.

Overturning the decision of the CA and restoring the decision of the UT, the Supreme Court found that the redress payments were not deductible. In a press release accompanying the decision, the Court summarised its reasoning as follows: “The reason why penalties are not deductible is because they are not incurred “wholly and exclusively for the purposes of the trade” under section 54(1)(a) CTA, not because there is a judge-made rule that they are not deductible…The Redress Payments were sufficiently similar to penalties that they were not expenditure “for the purposes of the trade” and therefore could not be deducted.” The Supreme Court therefore allowed HMRC’s appeal.

In Baillie Gifford China Growth Trust PLC, the taxpayer had received portfolio dividends from non-resident investments. It filed its corporation tax returns on the basis that all its non-resident dividend income was exempt. It also had management expenses which were not sufficient to cover the entirety of the overseas income received.

However, HMRC opened enquiries into the returns and issued closure notices bringing the overseas dividend income into account for tax under Schedule D Case V. The taxpayer appealed and claimed DTR at the foreign nominal rate (FNR) in respect of the entirety of the dividend income brought into account, under s806(2) ICTA 1988 – which provided for an extended time limit for DTR claims where an adjustment to UK or foreign tax payable has caused the amount of double tax credit previously given to become insufficient or excessive.

The key issue which the FT needed to consider was the scope of s806(2): whether its provision for extended claims permitted DTR in this case only to the extent of the UK tax payable after management expenses, as HMRC argued, or extended to the full DTR attributable to the formerly exempt dividends, including DTR “blocked” by management expenses and therefore available for carry-forward. The Tribunal concluded that HMRC’s construction was “too narrow”: Section 806(2) extended to the full DTR entitlement, and BGCG could carry forward the blocked DTR.

On 22 October, HMRC published new Guidelines for Compliance: Help to prevent payroll errors and PAYE RTI disputed charges – GfC22. The guidelines are primarily intended for use by employers and anyone who submits payroll information on their behalf, and should be read alongside existing HMRC guidance. They highlight some of the most common Real Time Information (RTI) reporting errors that can lead to disputed charges, provide advice on how to avoid making these errors, and explain the actions that should be taken if a mistake is made.

Following the publication earlier this month of rate and default emissions values for the UK Carbon Border Adjustment Mechanism (CBAM), HMRC has now released technical guidance providing detailed information on the monitoring, reporting and verification requirements for the CBAM. HMRC notes that it is working to improve the content and will be updating the guidance as necessary to reflect further technical analysis and stakeholder feedback.

On 23 October, HMRC published new guidance setting out its view on how legal professional privilege interacts with its anti-avoidance powers. HMRC has not yet confirmed whether this latest publication is destined to become an HMRC Manual. The guidance notes that it summarises in general terms HMRC’s approach when the validity of a claim of privilege may need to be tested. It is only a general summary, and every case will need to be considered on its own merits and in light of its own unique facts. The guidance is set out across two sections. The first section sets out general principles relating to legal professional privilege (LPP), addressing both legal advice privilege and litigation privilege. The second section gives HMRC’s interpretation of how LPP applies in the context of avoidance cases.

As previously reported, on 11 September the OECD/G20 Inclusive Framework on BEPS released a Global Minimum Tax update package, which included an updated GloBE Information Return (GIR) incorporating the simplifications included in the Side-by-Side package. On 20 October, the OECD published a revised GIR XML Schema and User Guide (Version 2.0) to incorporate these changes, along with some technical improvements. Version 1.0 of the Schema will continue to apply to exchanges until 15 June 2028, with version 2.0 applying from 25 June 2028 to all exchanges, including corrections and amendments to previously exchanged GIR information.

On 19 October, the Irish Government published Finance (No.2) Bill 2026, which includes legislation to implement measures announced in Budget 2027 as well as previously unannounced measures. If enacted, the Bill would update Ireland's Pillar Two rules to implement the OECD's Side-by-Side Package, including new safe harbours, and extend the Transitional Country-by-Country Reporting Safe Harbour by one year.

Other measures in the Bill include enhancements to Ireland’s research and development tax credit regime, with the aim of improving access to the credit, increasing flexibility for claimants and simplifying certain aspects of the claim process.

Following a review and consultation process that began in 2025, the Bill introduces the first phase in a proposed multi-year programme of amendments to Ireland’s interest deductibility regime. There are also proposals to amend interest limitation rules, extend Knowledge Development Box relief by five years and amend preliminary corporation tax rules. Further details are available in our global tax alert.

In its Budget 2027, which was presented to parliament on 19 October 2026, the Hungarian Government has proposed an increase to the corporate income tax rate (currently 9%) applicable to large businesses with annual revenues exceeding HUF 180 billion. Other proposed measures include increased taxes on energy companies, banks, insurance companies and retail chains, and the introduction of a wealth tax.

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, the OECD published its tax report to the G20 Finance Ministers and Central Bank Governors, in advance of their meeting in Bangkok on 15 October. The report provides an update on ongoing work on transfer pricing, BEPS, the Global Minimum Tax, tax statistics, additional OECD/G20 Inclusive Framework projects, tax administration, capacity building and tax transparency.

Portugal: The Portuguese Constitutional Court has held that the legal framework underpinning the valuation of wind farms through the cost-based valuation method is unconstitutional, calling into question the basis on which the corresponding municipal property tax liabilities have historically been determined.

Switzerland: Switzerland has amended the Ordinance on the Minimum Taxation of Large Multinational Enterprise Groups to regulate the Swiss application of the OECD Administrative Guidance on Article 9.1 of the Global Anti-Base Erosion (GloBE) Model Rules, including the treatment of certain deferred tax assets.

Oman: Oman has introduced the Executive Regulations of the Special Economic Zones and Free Zones Law. The Regulations establish implementation mechanisms for licensing, land and property allocation, incentives, compliance, project oversight and real estate development, and reinforce One-Stop Shop services and digital approval and licensing processes.

Singapore: The Singapore tax authorities have published a further clarification regarding the transfer pricing treatment of share-based compensation costs. They also announced a one-time administrative concession for taxpayers that excluded uncharged or notional share-based compensation costs from their historical transfer pricing cost base.

Uruguay: Uruguay has issued a Decree implementing the Domestic Minimum Top-up Tax. The Decree provides detailed rules on the tax's scope, calculation, safe harbours, payment deadlines, currency conversion and administration by the Uruguayan Tax Office.

In a new article for Tax Journal, EY’s Chris Sanger and Ian Dennis set out four possible futures for Pillar Two, exploring the competitive implications of the Side-by-Side regime and the practical choices facing heads of tax. If you are not a subscriber to Tax Journal, you can register to read the article.