Chapter 7 – Income Tax: Basic Concepts
7.1.3 Rate Structure for Income Tax. For the tax years 2023-24 to 2027-28, the
income tax rate structure in England and Northern Ireland is as follows:
Taxable Income (£) Rate
0 - 37,700 (basic rate) 20%
37,701 - 125,140 (higher rate) 40%
Over 125,140 (additional rate) 45%
The UK government reduced the rates of income tax for Welsh taxpayers by 10% and
the Welsh Government has set the Welsh income tax rate at 10%; thus, the overall
income tax rates for Welsh taxpayers are at the same level as those in England and
Northern Ireland. However, different income tax rates and bands apply in Scotland,
which has 6 rates ranging from 19% to 48%.
Readers should also note that references in this section and at points elsewhere in the
textbook to the Health and Social Care Levy are no longer relevant. The planned
introduction of the levy on 6 April 2023 was cancelled by then Chancellor Kwarteng
in his 23 September 2022 statement, and this is one of the few tax cuts announced on
that day that was not reversed by his successor Chancellor Hunt.
Chapter 9 – Taxation and Social Security
9.3 Impact of NICs. From 6 January 2024, the main rate of Class 1 NICs paid by
employees dropped from 12% to 10%. For the self-employed, Class 4 NICs decreased
from 9% to 8% and involuntary Class 2 NICs were abolished from April 2024. From
6 April 2024, the main rate of Class 1 NICs paid by employees was further reduced to
8%, and the self-employed Class 4 rate of NICs to 6%.
Chapter 11 – Personal Reliefs and Tax Reductions
11.2 The Reliefs. The basic personal allowance for the tax years 2023-24 to 2027-28
is £12,570. The blind person’s relief for 2024-25 is £3,070. The married couple’s
allowance is £11,080, the income limit is £37,000, and the minimum amount where
income exceeds the limit is £4,280.
Chapter 13 – Employment Income: Scope and PAYE
13.1.1 Scope. The word ‘profit’ in the Income Tax (Earnings and Pensions) Act 2003
s 62(2)(b) means gross profit rather than net profit: see Murphy v Revenue and
Customs Comrs [2022] EWCA Civ 1112 (overturning the Upper Tribunal on this
point). In HMRC v E.ON UK plc [2023] EWCA Civ 1383, the Court of Appeal
restored the First-tier Tribunal’s decision, holding that a ‘facilitation payment’ made
to employees who would have to pay increased future pension contributions was
taxable as earnings from their employment.
13.2.2.1 Case Law Tests for Employment. At the time of writing this update, the
UKSC has heard the appeal but not yet released its decision in Professional Game
Match Officials Limited v HMRC.
13.2.3.2 Arrangements Made by Intermediaries: The IR35 legislation. Although
the IR35 rules apply to general partnerships, IR35 does not apply to direct contracts
between a partner providing services and the engager: see G Lineker and another t/a
Gary Lineker Media v HMRC [2023] UKFTT 340 (TC), and note at the time of
writing the case was under appeal to the Upper Tribunal. On the developing IR35 case
law, in HMRC v Kickabout Productions Ltd [2022] EWCA Civ 502, the Court of
Appeal upheld the Upper Tribunal’s decision. The Court of Appeal found that the
contracts contained an obligation to provide work and there were no grounds to
challenge the Upper Tribunal’s view on control or the application of the multi-factorial assessment.
In HMRC v Atholl House Productions Ltd [2022] EWCA Civ
501, the Court of Appeal accepted HMRC’s view that the Upper Tribunal’s conclusion
that the hypothetical contracts in question would not have been contracts of
employment could not stand, and remitted the case back to the First-tier Tribunal for
an assessment whether an employment relationship would have existed under the
hypothetical contracts. In making such assessment the CA stated that terms and their
effects needed to be taken into account as well as the circumstances in which such
contracts would have been made in so far as they would have been known, or were
reasonably available, to both parties. In Atholl House Productions Ltd v HMRC
TC/2018/02263, the First-tier Tribunal held that the hypothetical contract was one of
self-employment). See also Red, White and Green Ltd v Revenue and Customs Comrs
[2023] UKUT 83 (TCC), in which the Upper Tribunal held that there was sufficient
mutuality of obligation and control in the services provided to apply IR35. Although
these cases are certainly advancing our understanding of the application of IR35, there
is some question as to the extent of the relevance of these media industry cases more
widely.
13.4 PAYE. On HMRC's broad discretionary powers over the PAYE regime see Hoey
and others v HMRC [2022] EWCA Civ 656.
Chapter 16 – The Benefits Code and Exemptions
16.3.1 Outline of the Benefits Code. In OOCL UK Branch v HMRC [2023] UKFTT
996 (TC), the chairman and majority shareholder in a company sold the company and
made a discretionary payment to each of the employees through the company. The
payments were on average 50% of annual salary and were dependent on length of
service. The First-tier Tribunal held that the payments were not earnings from
employment, but were a benefit received ‘by reason of employment’ because although
the payment was made as a mark of appreciation, the only relationship between the
chairman and the recipients was that he was chairman of their employer.
Chapter 17 – Employee Share Schemes
17.5.2 Acquisition of Option and Later Chargeable Events. The Upper Tribunal’s
holding that taxpayer acquired share options at the time of the grant was confirmed on
appeal: see J Charman v HMRC [2021] EWCA Civ 1804. In HMRC v Vermilion
Holdings Ltd [2023] UKSC 37, the Supreme Court restored the Upper Tribunal’s
finding that share options granted to an employee had been granted by reason of his
employment and thus were within the scope of ITEPA 2003 s 471(3).
17.8 Company Share Option Plan Schemes. The limit on the value of CSOP shares
over which each participator may hold unexercised options was increased to £60,000
by Finance (No 2) Act 2023.
Chapter 19. Business Income—Part I: Scope
19.1.1 Trade. The Platform Operators (Due Diligence and Reporting Requirements)
Regulations, SI 2023/817, came into force from 1 January 2024. From that date,
websites and mobile apps acting as platforms for goods and certain services (eg eBay,
AirBnB) have to provide reports to HMRC and their individual sellers setting out
identifying information and aggregated payment data. The reporting in the press on
the new regulations at times incorrectly suggested that the law on the taxation of so-called
‘side hustles’ had changed, but that was not the case. This was just the
introduction of a new reporting requirement on platform operators, the aim of which
is to provide HMRC with more information to assist in identifying taxpayers who
may not be complying with the existing law and paying taxes on their trading profits.
Chapter 20 – Business Income-Part II: Basis of Assessment and Loss Relief
20.1 Current Year Basis. Up to 5 April 2023, the basis period reporting rules applied
to taxpayers reporting profits of a trade, profession or vocation, meaning that they
reported profits according to their business accounting year end date within the
relevant tax year (between 31 March to 5 April the following year). From 6 April
2023, the new tax year basis applies: see ITTOIA 2005 ss 7A–7D (added by the
Finance Act 2022 Sch 1 para 3). This means the self-employed and those in
partnerships will need to report profit up to the tax year end, even if their accounting
year ends at a different time. HMRC has issued guidance that explains the basis
period reform changes for the 2023-24 transitional tax year, and highlights that
taxpayers will need to report profits from the day after the end of their accounting
year that fell in 2022-23 up to 5 April 2024: see
https://www.gov.uk/guidance/changes-to-reporting-income-from-self-employment-and-partnerships
Chapter 21 – Business Income-Part III: Principles and Receipts
21.1.1 Legislative Framework and Current Principles. From 2024-25 onwards, the
cash basis in ITTOIA s.25A will be the default method for calculating business profits
for self-employed traders and those in partnerships. The accruals basis will still be
available, but businesses will have to opt in, in a reversal of the current position. In a
perhaps more significant move, the turnover limits for the cash basis will be removed,
opening it up to businesses regardless of size, and the restrictions on interest
deductions and the use of losses in the cash basis will be abolished.
21.1.1.1 Law and Accounting. The Supreme Court upheld the Court of Appeal’s
decision in favour of the taxpayer in HMRC v NCL Investments Ltd and another
[2022] UKSC 9. Readers interested in the relationship between accounting and tax
law should watch for a forthcoming publication from the European Association of Tax
Law Professors, which involves a large comparative project on the role of accounting
in tax law across Europe. The UK chapter was written by Freedman and Loutzenhiser.
Chapter 22 – Business Income-Part IV: Trading Expenses
22.5 Public Policy. In Scottish Power (SCPL) Ltd and others v HMRC [2023] UKUT
218 (TCC), the Upper Tribunal remade the First-tier Tribunal decision and held that
compensation payments to customers made under a number of settlement agreements
entered into with their regulator, Ofgen, for regulatory breaches were nondeductible
for corporation tax purposes, applying the reasoning from the cases on fines. At the
time of writing the case was under appeal to the Court of Appeal.
Chapter 24 – Capital Allowances
24.2 Plant and Machinery. Expenditure on plant and machinery incurred on or after
1 April 2023 generally will qualify for full expensing. Special balancing charge rules
will apply. The temporary full expensing first introduced in F(No2)A 2023 was made
permanent in FA 2024.
24.2.4 Plant or Setting. A drafting error introduced by the Tax Law Rewrite Project
had inadvertently narrowed the scope of List C; in order to remedy this error, the
Court of Appeal held that expenditure ‘on’ list C assets should be read as meaning
‘expenditure on the provision of such assets: see Urenco Chemplants Ltd and others
v HMRC [2022] EWCA Civ 1587 (permission to appeal to the UKSC refused). The
decision in Cheshire Cavity Storage 1 Ltd and another v HMRC [2021] UKUT 50
(TCC) that underground storage cavities were not plant was upheld by the Court of
Appeal in Cheshire Cavity Storage 1 Ltd and another v HMRC [2022] EWCA Civ
305. The Supreme Court dismissed HMRC’s appeal in HMRC v SSE Generation Ltd
[2023] UKSC 17, holding that items constructed for the collection and transmission of
water to, through and from the hydro-electric power station were not a ‘tunnel’ or an
‘aqueduct’, which are exclusions in section 22 List B of Chapter 3, Part 2 of the
Capital Allowances Act 2001, and therefore the taxpayer was entitled to claim capital
allowances.
24.2.5 First Year Allowances and the Annual Investment Allowance. The
temporary Annual Investment Allowance £1,000,0000 limit was made permanent by
the Finance (No 2) Act 2023.
Chapter 25 – Income from Land in the United Kingdom
25.3.2 Furnished Holiday Letting. At Spring Budget 2024 the Chancellor announced
the abolition of the FHL tax regime with effect from 6 April 2025. However, the
changes did not make it into Finance (No 2) Act 2024 and any reforms will be in the
hands of the next government.
Chapter 26 -- Savings Income: Interest and Premium, Bond and Discount
26.3 Yearly Interest. In Hargreaves Property Holdings Ltd v HMRC [2024] EWCA
Civ 365 the Court of Appeal held that yearly interest includes interest paid on loans
that endure for less than a year where those loans are ‘routinely replaced by further
loans [of the same or a larger amount] from the same lenders’. In this case ‘the loans
were in the nature of long-term funding, were regarded by the lenders as an
investment and formed part of the capital of the business, with a permanency that
belied their apparent short-term nature.’
Chapter 28 – Income Not Otherwise Charged
28.1 Introduction. In BlueCrest Capital Management LP and others v HMRC [2023]
EWCA Civ 1481, the Court of Appeal held that profits allocated to a corporate partner
under a partner incentivisation plan could not be treated as income of the individual
partners, but that the payments eventually made to those partners were subject to
income tax as miscellaneous income under ITTOIA 2005 s 687. In The Boston
Consulting Group UK LLP and others v HMRC [2024] UKFTT 84 (TC), the First-tier
Tribunal held that payments made to individual members of a UK LLP on sales of
their ‘capital interests’ were taxable as income under the miscellaneous category in
ITTOIA 2005 s 687.
Chapter 29 – Trusts
29.1.7 The Principle (or Rule) in Re Hastings-Bass. The decision of the Court of
Appeal in Bhaur and others v Equity First Trustees (Nevis) Ltd and others [2023]
EWCA Civ 534 has clarified the principles to be applied when seeking to invoke the
equitable jurisdiction of mistake in respect of artificial tax avoidance schemes. The
CA held that the transfer of a property portfolio into a trust, as part of such a scheme,
could not be set aside due to mistake. The CA described such schemes as ‘a social
evil’ that put an unfair burden on the shoulders of those who did not adopt such
measures. The CA held that if entered into deliberately with knowledge of the risks
being run, the taxpayer could not look to the courts to set aside the transactions, no
matter how financially devastating the scheme failure. The CA also concluded that the
dishonesty of those advising on the avoidance scheme was not relevant to the issue of
mistake.
29.2.3 Rates. As with estates, a new £500 de minimis amount of income applies to
trustees of low income trusts, replacing the previous rules for trustees’ first slice of
trust rate income. The amount is shared among qualifying settlements of the same
settlor, with a minimum of £100 per trust.
29.3.3.2 ITA 2007, Section 494. In H Murphy and another v HMRC [2023] EWCA
Civ 497, the Court of Appeal agreed with the taxpayer, holding that the ‘ordinarily
sophisticated taxpayer’ had a legitimate expectation that HMRC concession ESC B18
(1999) applied without a six-year time limit in respect of credit for UK income tax
paid on trust income.
Chapter 30 – Death and Estates
30.2 Liability of the Personal Representatives. Following a consultation, a number
of technical amendments were introduced in the Finance (No 2) Act 2023 to ensure
the rules governing the taxation of estate income operate correctly. The changes take
effect for the income tax year 2023-24 onwards and for accounting periods beginning
on or after 1 April 2023. In addition, a £500 de minimis amount of income upon
which no tax is paid was introduced, and the application of the default basic rate and
dividend ordinary rate of tax to the first £1,000 slice of income of accumulation and
discretionary trusts was abolished; these changes are effective for the income tax year
2024-25 onwards, and for accounting periods beginning on or after 1 April 2023.
Chapter 31 – Income Splitting: Arrangements and Settlements
31.2.2 No Bounty, No Settlement. There is no authority suggesting a de minimis
threshold applied to bounty: see Clipperton v Revenue and Customs Comrs [2022]
UKUT 351 (TCC). The Upper Tribunal overturned the First-tier Tribunal in M
Dunsby v HMRC [2021] UKUT 289 (TCC), holding that the payments made to the
taxpayer were distributions and that he was subject to income tax on them.
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