Tax Matters Digest

HMRC have also published updated guidance for their Profit Diversion Compliance Facility (PDCF) which has now been expanded and rebranded as the Transfer Pricing & Profit Diversion Compliance Facility. Our article reflects on key features of the guidance: the replacement of the Diverted Profits Tax with the Unassessed Transfer Pricing Profits regime (which now sits within the corporation tax framework), and the expansion of the PDCF to other arrangements that may significantly reduce UK profits below the arm’s length amount.

Our final article on transfer pricing, which has an unapologetically tennis theme with Wimbledon soon to be upon us, is a follow up to an article published in the last edition which covered the OECD consultation on revisions to Chapter VII of the Transfer Pricing Guidelines on intra-group services. This article focuses on why that consultation matters for UK holding companies.

On Tuesday 23 June, the Government published a package of measures to simplify, modernise and make fairer the tax and customs system. The announcement included over 40 different items. Our article includes a summary of some of the highlights.

This week also saw the publication of the latest set of Tax Gap data for the 2024/25 tax year. The provisional estimate of the tax gap is 6.4 percent of total theoretical tax liabilities, or £59.2 billion in absolute terms. This is up from the 2023/24 tax gap which was estimated at 6.0 percent (£52.8 billion). Our article looks at some of the underlying trends and the steps the Government has been taking in recent years to combat them.

We have long been anticipating the mandatory payrolling of Benefits in Kind. Having been announced in 2024, it was due to come into force from April 2026 but was then delayed until April 2027. The Government has now announced that it will be phased in over two years from April 2027. Our employment taxes article explains how the phased approach will work and the practical implications this will have as businesses prepare for mandatory payrolling.

Our next article looks at a Supreme Court decision in HMRC v HFFX LLP, a case which focussed on the tax treatment of deferred remuneration arrangements in Limited Liability Partnerships and confirmed the analysis of the lower Courts. Our article highlights the key findings of the judgment and the practical implications that flow from it.

Our final article this week is a link to Tim Sarson’s latest column in CityAM in which he tackles the thorny issue of wealth taxes and argues that we may be writing off asset taxation too quickly.

In Other News in Brief we provide a roundup of other developments and updates including:

• HMRC confirmation that no late filing penalty for Pillar Two returns will apply if submissions are made before 1 August 2026;
• The dismissal of the taxpayer’s appeal at Upper Tribunal in the Swiss Centre Ltd ‘loan relationships’ case;
• The launch of an OECD consultation proposing targeted amendments to the Model Reporting Rules for Digital Platforms;
• The launch of a consultation on proposals to mitigate double taxation for UK resident individuals who are members of reverse hybrids, such as US LLCs;
• The publication of synthesised text of the Multilateral Instrument and UK-South Africa Double Taxation Convention; and
• The announcement of an in-force date for the UK/India social security double contribution convention.

As always we finish up with links to our indirect tax Talking Points and international Week-in-tax publications.