Monthly Tax Update

Highlights

Budget to be held on 28 October 2026

A reminder that the Chancellor of the Exchequer, John Healey MP, will present his Budget next week on Wednesday 28 October 2026. This will be accompanied by an update from the Office for Budget Responsibility (OBR) on the latest state of the country’s finances. The Budget will provide an early indication of how the government intends to translate its growth and regional development priorities into fiscal and tax policy. For insights on the Budget announcements, visit our Budget 2026 page.

There will be an EMEA Dbriefs webcast on Thursday 29 October 2026 at 12.00 GMT/13.00 CET, hosted by Amanda Tickel, Deloitte’s Global Leader of Tax and Trade Policy, during which our panel of specialists will provide an update on the previous day’s announcements and their implications for businesses and individuals.

UK direct tax developments

RDM Wines Ltd v HMRC: FTT case on R&D tax reliefs

In the latest in a series of First-tier Tribunal (FTT) cases on eligibility for research and development (R&D) tax reliefs, the FTT found that RDM Wines Ltd (RDM) had not discharged the burden of proof to show that its activities sought an advance in science or technology beyond the level already deducible by a competent professional in the field. Therefore, RDM did not meet the eligibility requirements for R&D tax relief and the taxpayer’s appeal against HMRC’s Closure Notice was dismissed. In particular, the FTT considered case law concerning witness evidence and the reliability of memory, and the importance of contemporaneous documentation and known or probable facts.

Mandatory payrolling of benefits in kind: excluding globally mobile employees

HMRC have updated their draft interim guidance on mandatory payrolling of benefits in kind and expenses to confirm that employers will be able to voluntarily exclude ‘globally mobile employees’ from the mandatory reporting requirements that will apply from 6 April 2027 through a new service that will be available from November 2026. Employers should continue with existing year-end reporting arrangements for these employees using forms P11D and P11D(b).

Upper Tribunal dismisses HMRC’s appeal in cabin crew accommodation case

The Upper Tribunal (UT) has dismissed HMRC’s appeal in the employment taxes case HMRC v British Airways PLC. The case concerns the treatment of accommodation provided for cabin crew at Heathrow for the purposes of income tax and National Insurance contributions (NICs). The cabin crew were engaged on a particular flight rotation known as a back-to-back and were provided with accommodation at Heathrow in the middle of the rotation (the Accommodation). HMRC’s view was that this Accommodation was a taxable benefit that did not fall within the rules for deductions in sections 336 to 338 ITEPA 2003, because the crew members were not performing their duties whilst they were resting in the Accommodation and it was not necessary for the Accommodation to be provided at the employees’ home base (being Heathrow).

In 2025, the First-tier Tribunal (FTT) allowed British Airways’ appeal on the basis that the expenditure was deductible under section 337, or in the alternative section 338 or 336. The UT has upheld the FTT’s decision that section 337 applies. In light of the contractual and regulatory requirement for the crew members to stay in the Accommodation, the UT agreed that it was necessary for the crew members to stay in the Accommodation and that they did so in the performance of their duties. Furthermore, the Accommodation was “necessarily incurred” on travelling in the performance of the duties of the employment. As a result, the employees were entitled to deduct the cost of the Accommodation for income tax and NICs purposes.

Supreme Court allows HMRC’s appeal on the deductibility of redress payments

The Supreme Court has unanimously allowed an appeal by HMRC in ScottishPower (SCPL) Limited and others, concerning the corporation tax deductibility of payments made pursuant to settlement agreements with regulators. The taxpayers, regulated by the UK energy regulator, Ofgem, entered into agreements in settlement of a number of regulatory investigations. They paid penalties in nominal amounts, together with agreed ‘redress’ payments to consumers, consumer groups and charities totalling approximately £28 million. The Upper Tribunal (UT) agreed with HMRC that none of the disputed expenditure was deductible. It considered that the principles established in case law, such as Von Glehn and McKnight, denying trading deductions for penalties or fines incurred under a statutory regime even when incurred in the course of trading activities, applied to all expenses which have the nature or character of a penalty. The Court of Appeal (CA) disagreed, holding that these principles did not to extend to amounts which are not, in fact, fines or penalties, and that in its view there was nothing else in law preventing their deductibility as trading expenses.

The Supreme Court has allowed HMRC’s appeal. The Court first considered precisely why penalties are not deductible for corporation tax purposes. It rejected an analysis that the non-deductibility of penalties arises from a separate ‘judge-made rule’. Instead, the Supreme Court held that penalties are non-deductible because they are not incurred “wholly and exclusively for the purposes of the trade” and thus are disallowed by section 54(1)(a) of the Corporation Tax Act 2009. The Court stated that a taxpayer’s purpose in making a payment of a penalty is “to satisfy a legal obligation which arises usually under statute to punish the taxpayer for infringing rules which bind him in the conduct of his trade” and that that is a purpose which “on the true construction of section 54(1)(a), is not a purpose of the trade.” Applying this revised reasoning to the redress payments, in the Court’s view, the payments were sufficiently similar to penalties for it to be clear that they also were not expenditure incurred for the purposes of the taxpayers’ trades. Rather, they were made to avoid the imposition of substantial penalties. The Supreme Court also agreed with the UT that payments to customers could not be treated separately from the other payments under the settlement agreement, as they formed part of the package negotiated as an overall deal.

UK Indirect tax developments

Draft Legislation: Plastic packaging tax mass balance approach for chemical recycling

HMRC have published a consultation on the draft legislation and supporting document for the Plastic Packaging Tax (PPT) mass balance approach (MBA) for chemical recycled plastic. The draft Regulations set out the detailed provisions and conditions that businesses must meet if they wish to use an MBA to account for chemically recycled plastic for PPT purposes from 1 April 2027. This includes requirements relating to attribution methodology, certification, auditing, monitoring and record keeping. The draft reference document sets out the methodology for applying dual-use factors where required. The default values will be confirmed before the final legislation and reference document are published. The consultation seeks views on the draft legislation and supporting document to ensure they deliver the policy as intended. The consultation closes on 21 December 2026.

EU customs reform enters into force

The European Commission announced that the EU customs reform has come into force, following its publication in the Official Journal of the European Union. The reform is intended to modernise the EU customs system, with a new Union Customs Code (UCC) and the establishment of the EU Customs Authority (EUCA). The new UCC provides the legal basis for the reform, which the Commission describes as recasting “the legal architecture governing customs operations across the EU, creating a more integrated system, and helping the Customs Union to operate as one”. The EUCA is tasked with developing the EU Customs Data Hub, which will be a single EU trade interface for imports and exports (replacing existing national and EU IT systems) and will allow for the exchange of information between customs authorities, leading to reduced costs for businesses and for EU Member States. The EUCA is expected to start operations in 2027, with the Customs Data Hub becoming mandatory for e-commerce consignments from 1 July 2028, and extending to other trade by 2031. The UCC also establishes an EU-wide handling fee for goods sold in distance sales and released for free circulation in the EU, which will apply from November 2026. The Commission also published a draft delegated regulation setting the amount of the Union handling fee at €2 per item. This is in addition to the temporary €3 customs duty applied from 1 July 2026. (Contact: Sam Kiely)

GfC 21: Help with VAT treatment of cryptoassets

HMRC have issued a Guidelines for Compliance (GfC), Help with VAT treatment of cryptoassets – GfC21, setting out HMRC’s view of how VAT applies to cryptoasset transactions, including where sold via exchanges. The GfC emphasises that the VAT treatment will depend upon the features of the underlying asset involved, for example, for Non-Fungible Tokens (NFT), the NFT itself merely represents ownership, and is not a separate asset itself. The GfC goes on to set out the rules for UK VAT registration and liability, including customer information requirements to determine place of supply. The GfC notes that the VAT rules regarding digital services and electronically supplied services (ESS) may apply, which may affect the place of supply. Where cryptoassets are supplied through an online platform, the GfC states that it is necessary to identify whether the supply is made by the supplier or by the platform operator, and accordingly who is liable to account for VAT. The GfC provides examples to illustrate where the supplier must account for the VAT and where the responsibility lies with the platform operator. Finally, the GfC states that if a business’ only role in the supply is to provide payment services, the business is not regarded as a digital platform, and does not have to account for the VAT on the sale of the digital service or ESS. (Contact: Dave Taylor)

UK Carbon Border Adjustment Mechanism – calculation of liabilities

The UK Carbon Border Adjustment Mechanism (CBAM), which will place a carbon price on specified goods imported into the UK, will come into effect on 1 January 2027. The government has announced the publication of information regarding the calculation of CBAM liabilities. Illustrative CBAM rates and worked example for CBAM sets out illustrative sector-level CBAM rates that would apply from 1 January 2027. The information is intended to help businesses understand how future rates will be set, and to provide businesses with an initial indication of potential CBAM costs. The official CBAM rates for Q1 2027 will be published before the end of the year, and then on a quarterly basis. Check the default values for the CBAM sets out the default emissions values, expressed in tonnes of carbon dioxide equivalents (tCO2e) per good. The values can be used where the importer is not able to determine actual emissions. A trade-weighted average default value has been published per 8 digit commodity code, and data from the EU is excluded. The government explains that this reflects the UK and EU commitment to link their emissions trading schemes and the expectation that EU-origin goods will ultimately be exempt from UK CBAM. A 10% mark-up has been applied to all sectors except fertilisers. The default values will apply for 2027 and 2028, with the government committing to introduce country-specific default values from 2029. (Contact: Zoe Hawes)

International developments

Updated version of OECD model tax treaty released

On 30 September 2026, the OECD published an updated version of the OECD Model Tax Convention on Income and on Capital (‘OECD model tax treaty’). The new version, the 2025 version, updates the previous 2017 version of the OECD model tax treaty to incorporate the changes previously agreed and published by the OECD in November 2025. These updates notably include the additions to the commentary to Article 5 on the definition of a ‘fixed place of business’ permanent establishment in situations of cross-border remote working. The document published is the ‘full version’ of the OECD model tax treaty. A corresponding ‘condensed version’ is expected to be published in due course. Read more on Deloitte tax@hand.

EU updates list of non-cooperative jurisdictions

EU finance ministers have published the latest EU list of non-cooperative jurisdictions for tax purposes (Annex I) and the ‘state-of-play’ document (Annex II). Jurisdictions are analysed by the European Council twice a year based on certain agreed criteria. Those that fail to meet the criteria are included in Annex I; whilst countries that have made acceptable commitments to modify their tax legislation are included in Annex II.

Compared to the previous version of February 2026, Panama and Vietnam have been removed from Annex I. The updated Annex I now comprises: American Samoa, Anguilla, Guam, Palau, Russia, Turks and Caicos Islands, the US Virgin Islands, and Vanuatu. Panama and Vietnam have been added to Annex II, and Belize has been removed. The updated Annex II now comprises: the British Virgin Islands, Brunei Darussalam, Eswatini, Greenland, Jordan, Montenegro, Morocco, Panama, Vietnam and Turkey.

Jersey’s Multinational Corporate Income Tax – first filing deadline of 31 December 2026

Jersey has introduced a new domestic corporate tax, the Multinational Corporate Income Tax, or MCIT, for accounting periods commencing on or after 1 January 2025. MCIT is charged at a rate of 15% and applies to Jersey Constituent Entities of MNE groups that are in scope of Pillar Two. The tax is calculated in a similar (but not identical) manner to that set out in the OECD Model Rules for GloBE income. Entities that are subject to MCIT are taken outside the scope of the standard Jersey corporate income tax regime.

MCIT returns are required to be filed in Jersey 12 months after the end of the fiscal year to which they relate. This means that first MCIT return filings (i.e. for MNE groups with a December year end) should be made by 31 December 2026.

Other developments

Code of Practice on Taxation for Banks: HMRC Annual Report 2026

HMRC have published their annual report on the operation of the Code of Practice on Taxation for Banks (the Code). The Code describes the approach expected of banks with regard to governance, tax planning and engagement with HMRC. Banks operating in the UK that sign up to the Code commit to adopt good practices in relation to their own tax affairs, and not to promote tax avoidance by others. The 2026 annual report confirms that none of the 315 banks that had adopted the Code at 31 March 2026 were determined to have breached the code during the period. Six banks within the Code population had not adopted the Code at 31 March 2026. Of the 35 banking groups that were subject to HMRC’s Large Business directorate Business Risk Review (BRR+) process during the period, one bank’s compliance with the Code remains under review. All other reviews under the BRR+ process were concluded with no current concerns.

EMEA Dbriefs webcasts

An EMEA Dbriefs webcast will take place on Tuesday 3 November 2026 at 14.00 GMT/15.00 CST. In Cross-border workforce mobility across Germany and the Benelux: key rules, risks and emerging trends, we will consider the new challenges arising for both employees and employers managing tax, payroll, social security, and other obligations across multiple jurisdictions, as cross-border working has become a permanent feature of the modern workforce. Our panel of specialists from Germany, Belgium, Luxembourg, and the Netherlands will use real life-scenarios to explore early risk identification, strengthening governance processes and supporting a compliant cross-border workforce.

On Wednesday 4 November 2026 at 12.00 GMT/13.00 CST, Kunal Patel will be hosting The future of employment tax: taking action on global trends for reward & HR. In the webinar we will consider the rapid transformation of the global employment taxes landscape. We will explore the shift towards digital and real-time reporting, and enhanced tax authority data capabilities; increased scrutiny and enforcement from tax authorities, including advanced data analysis and AI; the growing regulatory focus on contingent workers; addressing the complexities of Benefits-in-Kind reporting; and leveraging technology to build robust, tech-enabled employment tax functions for oversight and compliance.