Corporate tax update – June 2026

Welcome to our June corporate tax update.

In this update we highlight key developments in corporate tax, focusing on what matters in practice for businesses, where we are seeing HMRC activity and where policy change or case law have an impact. Our aim is to provide a concise, practical overview to help you stay up to date and identify areas where you may want to take action.

A note from Zoe Thomas, Partner and head of corporate tax

Our June update covers a range of recent developments in corporate tax, including upcoming changes to the treatment of foreign permanent establishments, consultations that may expand reporting obligations, and further guidance ahead of the launch of the Advance Tax Certainty Service.

We also highlight clarification on the scope of the Construction Industry Scheme in the context of development finance.

If you’d like to discuss any of the issues raised, please speak to your usual Saffery contact or use the Get in touch form at the bottom of the page and an appropriate person will contact you.

Key UK corporate tax updates – June 2026

• Foreign permanent establishment exemption to become mandatory
• R&D targeted advance assurance pilot launched
• Uncertain tax treatment (UTT) – potential expansion
• Close company transactions reporting could increase for OMBs
• CIS and development finance – HMRC clarifies position

HMRC large business compliance update 2026: enforcement, tax gap and policy direction

At a Public Accounts Committee hearing on 18 May 2026, senior HMRC officials defended the effectiveness of their large business compliance model, while MPs questioned the lack of use of certain enforcement powers and raised concerns around service levels.

HMRC reported that the UK’s 2,000 largest businesses account for around £337 billion of tax receipts (c 39% of the total), with compliance yield rising from £7.1 billion in 2021-22 to £15.8 billion in 2024-25. The department described this as delivering good value for money, with a return of £95 for every £1 spent, and pointed to a relatively low large business tax gap of £5.8 billion (0.7% of theoretical liabilities).

Officials emphasised the success of HMRC’s ‘co operative compliance’ model, under which large businesses are assigned customer compliance managers, and noted that pilot programmes will test whether elements of this approach can be applied more widely.

However, MPs challenged HMRC on why its ‘special measures’ regime for large businesses, introduced in 2016, has never been used. The regime permits HMRC to impose enhanced monitoring, reputation sanctions (including potential public shaming) and formal improvement requirements on large businesses that demonstrate persistent non-compliance or involvement in aggressive tax avoidance. HMRC explained that the legislation is tightly drawn and designed primarily as a deterrent, with a high threshold linked to general anti abuse rule (GAAR) or disclosure of tax avoidance scheme (DOTAS) criteria. HMRC indicated that it is considering whether legislative changes may be needed to make the regime more effective.

The hearing also covered wider issues, including HMRC service levels, the role of legal interpretation in the tax gap, system complexity, support for companies required to report under Pillar 2 and HMRC’s investment in digital transformation and data capabilities.

Key takeaway

HMRC’s focus on co-operative compliance for large businesses is likely to continue, but the discussion highlights ongoing scrutiny of HMRC’s enforcement powers and service performance.

Foreign permanent establishment tax rules: mandatory exemption from January 2027

The government has announced changes to the foreign permanent establishment (PE) exemption, with profits and losses of foreign PEs of UK resident companies to be mandatorily exempt from UK corporation tax for accounting periods beginning on or after 1 January 2027 (with an earlier start date of 1 September 2026 for oil and gas activities).

The proposed change is intended to address routine planning to exploit asymmetry in the current rules, whereby UK-resident companies can obtain tax relief for losses incurred in foreign permanent establishments while subsequent profits are often not fully subject to UK tax. The new measure replaces the current elective regime under which companies can choose to exempt foreign PE profits. Once implemented, losses arising in foreign PEs will no longer be available to offset UK profits, including where losses arose before the exemption takes effect under revised transitional rules.

The rules will also include an anti-avoidance provision to counter arrangements designed to accelerate or otherwise preserve the use of foreign losses. Draft legislation is expected to be published over the summer.

Key takeaway

This represents a significant change and will affect planning, due diligence and restrict availability of brought forward foreign branch losses.

Where Research & Development (R&D) activities are carried on through an overseas PE, the related expenditure and losses will no longer be within the UK tax net, which would prevent UK R&D relief in respect of those activities.

HMRC R&D advance assurance pilot 2026

HMRC has launched a new targeted advance assurance pilot for R&D tax relief for small or medium-sized enterprises (SMEs). The service allows companies to seek HMRC’s view on specific, complex or higher risk aspects of a potential claim before submitting it.

Applications can cover one issue per project (with up to two applications permitted), including whether a project qualifies as R&D, the treatment of overseas expenditure, subcontracted R&D, and whether the Pay As You Earn (PAYE)/National Insurance contribution (NIC) cap exemption applies. HMRC aims to respond within 40 days where sufficient information is provided.

The pilot will run until May 2027 and operates alongside the existing full advance assurance service, which remains available for first time claimants but cannot be used in parallel with the targeted service.

Key takeaway

The targeted advance assurance service represents a potentially useful route for obtaining early HMRC input in more complex areas of R&D claims. Where advance assurance is not granted a taxpayer cannot appeal the decision but is not precluded from making the R&D claim.

Advance Tax Certainty Service launch 2026: what businesses considering large UK projects need to know

HMRC has published a new Advance Tax Certainty Service manual, providing further detail on how the service will operate.

The service is due to launch on 1 July 2026 and is aimed at major projects with at least £1 billion of qualifying UK expenditure.

It will allow businesses to seek early certainty on the tax treatment of significant investments, with expressions of interest already being accepted ahead of launch. HMRC’s ambition is to provide a 90-day turnaround from formal submission to clearance issuance but this will depend on overall complexity. The initial clearance will be valid for five years and eligible for renewal for longer projects.

Key takeaway

The publication of the manual provides additional detail on how the service will operate in practice. While limited to very large projects, businesses considering significant UK investments may wish to assess whether the service could be relevant.

Uncertain tax treatment (UTT) rules expansion: new HMRC consultation explained

The uncertain tax treatment (UTT) regime requires certain large businesses to notify HMRC where they adopt a tax position for corporation tax, VAT or income tax that is uncertain or differs from HMRC’s known position. Introduced from April 2022, the regime is intended to increase transparency and bring forward HMRC engagement on areas of legal uncertainty.

Our response to HMRC’s consultation on extending the uncertain tax treatment (UTT) regime is now available on our website.

The total tax gap was estimated to be £46.8 billion in 2023-24 tax year with legal interpretation calculated to be 5.4 billion (12%) of that total. The consultation considers widening the existing rules by bringing additional taxes into scope (including capital gains tax, stamp duty land tax and National Insurance contributions), and introducing an additional notification trigger where HMRC’s position is not known.

Key takeaway

The proposals would significantly broaden the scope of the UTT regime. Corporate groups should monitor these developments closely, particularly where there is uncertainty in tax positions adopted.

Close company transactions reporting: proposed HMRC rules for shareholder payments

Our response to HMRC’s consultation on reporting company payments to participators, and modernising the reporting framework, is also available on our website.

Small business corporation tax gap makes up a significant proportion of the total tax gap and transactions that occur between a company, and its owners is an area known risk area. Under the proposed changes close companies (broadly, companies controlled by five or fewer shareholders) would be required to report transactions with their shareholders and certain loan creditors. Transactions that might need to be reported include cash payments, sales of assets to and from a company, distributions and any other transfer of value from the company to a shareholder.

Key takeaway

If introduced, the proposals could increase reporting obligations for owner managed businesses and require changes to how relevant transactions are identified, recorded and reported.

Construction Industry Scheme (CIS) and development finance – HMRC guidance clarified

HMRC has recently updated and then further clarified its guidance on the scope of the Construction Industry Scheme (CIS), focusing on when a contract is treated as “relating to construction operations”.

The legislation applies CIS to payments made under a construction contract – being a contract relating to construction operations as defined in s74 Finance Act 2004. In practice, it has long been understood that pure financing arrangements, such as lending, fall outside the regime on the basis that lenders are not undertaking or arranging construction operations.

An earlier update to HMRC’s manual (CISR14020) suggested a broader interpretation, indicating that a contract could fall within CIS where a party agrees the scope of works or funds construction operations, even if construction is not their primary role. This created uncertainty.

HMRC has now revised its guidance to confirm that pure financing arrangements, including lending and grant funding, remain outside the scope of CIS. This clarification will provide reassurance for the most straightforward development finance structures.

However, the position will still depend on the detailed contractual terms. Arrangements that go beyond passive funding, for example where a party has a greater degree of involvement in the works or responsibility for their delivery, may still fall within scope.

Key takeaway

While HMRC’s clarification reduces uncertainty for typical lending arrangements, businesses involved in development finance should continue to review contracts carefully. Where arrangements include features beyond straightforward funding, there may still be a need to consider potential CIS obligations.

2026-27 HMRC mileage rates increase: new allowances and payroll implications

The government has announced (as part of its update on the economic response to the war in Iran) a 10p per mile increase in the tax free mileage rate for cars and vans for the first 10,000 business miles for 2026-27, backdated to April 2026.

HMRC’s published rates confirm that the allowance increases to 55p per mile for the first 10,000 miles (with the 25p rate for additional miles and rates for motorbikes and bikes unchanged).

Key takeaway

The increase provides additional tax‑free reimbursement for business travel with effect from April 2026. Businesses should ensure payroll and expense systems are updated and consider whether any changes are needed to mileage policies.

Umbrella company travel expenses case 2026: HMRC wins on commuting rules

Case: Mypay Ltd v HMRC [2026] UKFTT 807 (TC)

The FTT considered whether travel expenses reimbursed by an umbrella company to its workers were deductible for tax and NIC purposes. The key issue was whether workers were engaged under a single overarching employment or under separate employments for each assignment.

Mypay operated as an umbrella company employing workers for fixed-term assignments arranged via recruitment agencies. It argued that workers were employed under a continuous contract, meaning each assignment location was a temporary workplace and travel costs were deductible. HMRC contended that the arrangements were a framework under which separate employments arose for each assignment, so travel to those workplaces was ordinary commuting and not deductible.

The tribunal found that there was no sufficient ‘mutuality of obligation’ between assignments to support an overarching employment contract. In particular, Mypay was under no obligation to provide work, and workers were under no obligation to accept it when not on assignment. The contractual terms were non-specific and operated as a framework, with core terms agreed separately for each assignment.

As a result, each assignment was a separate employment. The workplaces associated with those assignments were therefore permanent workplaces, and the travel expenses were ordinary commuting and not deductible. The tribunal also rejected Mypay’s alternative argument that the expenses were covered by an HMRC dispensation, finding that the dispensation did not apply to home-to-work travel.

The appeal was dismissed.

Key takeaway

The decision confirms the importance of mutuality of obligation in establishing an overarching employment contract and reinforces the position that, for umbrella arrangements, separate assignments will typically constitute separate employments, preventing relief for travel expenses.

You may also find the following recent Saffery insights helpful

Corporate interest restriction: what large and growing businesses need to know

Hybrid mismatch rules explained: a practical guide for multinational and UK businesses

International Controlled Transactions Schedule (ICTS): a new UK transfer pricing reporting requirement for accounting periods commencing on or after 1 January 2027

HMRC guidance on the taxation of ecosystem service payments

UK e-invoicing mandate 2029: what SMEs need to know and how to prepare now

Key VAT updates for May 2026

Temporary VAT cut 2026: reduced 5% VAT on children’s meals, tickets and attractions – what businesses need to know

Economic Crime Levy (ECL): what UK businesses need to know for payments due in September 2026 and September 2027

How we can help

If any of the topics covered in this update are relevant to your business, or you would like to discuss the potential impact, please get in touch with your usual Saffery contact or use the Get in touch form.