Corporate tax update – September 2026

Welcome to our September corporate tax update

Our corporate tax update focuses on the developments that matter most to businesses, including HMRC activity, policy changes and recent case law. We explain what they mean in practice and where businesses may need to take action.

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

Our September update covers a range of developments affecting businesses and employers, including preparations for mandatory payrolling of benefits in kind, important developments in relation to R&D relief and new HMRC guidelines on short-term business visitors (STBVs).

We also highlight HMRC’s latest guidance on Pillar 2 and a significant Upper Tribunal decision on the taxation of UK property development profits under the UK-Isle of Man double taxation agreement. We also set out our response to the consultation on simplifying treaty relief from withholding tax on overseas interest payments as well as an HMRC update on certificates of residence.

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 – September 2026

• Mandatory payrolling of benefits in kind: employers should prepare now
• R&D relief: recent guidance and tribunal decision
• Short-term business visitors: new HMRC Guidelines for Compliance

Mandatory payrolling of benefits in kind from April 2027: what employers need to do now

HMRC has used the August 2026 Employer Bulletin to remind employers that mandatory payrolling is fast approaching and preparations should already be underway. Under mandatory payrolling, employers will report the taxable value of benefits through their payroll software, with income tax and Class 1A National Insurance contributions calculated and reported to HMRC in real time, rather than relying on the annual P11D process.

From 6 April 2027, mandatory payrolling will apply to company cars, car fuel, vans, van fuel and employer-provided medical benefits. Most other benefits will follow from April 2028, while loans and living accommodation will remain outside mandatory payrolling until a later date.

Employers should begin communicating with employees about the changes and preparing by confirming that their payroll software can support real-time benefit reporting. They should start reviewing how benefit data will be collected, checked and provided to payroll and consider how to tackle changing benefit values, joiners, leavers and corrections as well as modelling the cash-flow effect of paying Class 1A National Insurance contributions during the tax year.

Key takeaway

Mandatory payrolling is likely to require co-ordinated action across payroll, HR, benefits, finance and employment tax teams. Employers should assess their readiness now, rather than waiting until April 2027. Read our article on mandatory payrolling of benefits in kind from April 2027.

R&D tax relief updates

Correcting incorrect SME R&D claims: HMRC updates R&D disclosure service guidance

HMRC has updated its guidance on the R&D disclosure service where a company has incorrectly claimed relief under the SME scheme and the time limit for amending its corporation tax return has expired. Where an SME claim is found to be invalid, the company should disclose the error through the R&D disclosure service.

If it wishes to claim Research and Development Expenditure Credit (RDEC) for the same accounting period, a separate claim process applies (claims submitted to [email protected]). HMRC has now confirmed that the two matters will be dealt with independently.

Key takeaway

Companies that identify historic errors in SME R&D claims should act promptly. HMRC has confirmed that correcting an invalid SME claim and making a replacement RDEC claim are separate processes, so businesses should carefully consider the timing and evidence required before approaching HMRC.

Tribunal rejects £880k R&D tax relief claim: operational innovation is not enough

Case: Tanglewood Care Services Ltd v HMRC [2026] UKFTT 1137

The First-tier Tribunal (FTT) considered whether a care home operator was entitled to R&D relief on a project relating to the management of Covid-19 within its care homes. The claim covered enhanced R&D expenditure of £880,286 and was based on measures including PPE requirements, testing regimes, visitor restrictions, resident cohorting and enhanced cleaning procedures.

The company argued that it had developed and refined an integrated system for managing Covid-19 and that the project involved scientific, technological and system uncertainty. HMRC contended that the company was applying existing scientific knowledge and public health guidance to its own operational circumstances rather than seeking an advance in science or technology.

The FTT accepted that the company had undertaken a structured and co-ordinated project, despite the absence of a formal project plan, and that system uncertainty can, in principle, qualify for R&D relief. It also accepted that a project does not necessarily need to generate new scientific knowledge in order to qualify. However, it concluded that the company’s activities were directed towards managing an unprecedented operational challenge rather than achieving an advance in overall knowledge or capability in a field of science or technology. The Tribunal also attached significance to the absence of evidence from an appropriately qualified competent professional.

The appeal was therefore dismissed.

Key takeaway

This decision is a reminder that responding to a complex commercial or operational challenge does not automatically qualify for R&D relief. Businesses should be able to demonstrate a genuine advance in science or technology, identify the technological uncertainties encountered and retain evidence from appropriately qualified competent professionals supporting the claim.

Short-term business visitors (STBVs): new HMRC compliance guidance for employers

Short-term business visitors (STBV) are overseas workers who perform employment duties in the UK on a short-term basis. Even short periods of UK work can create income tax, PAYE and National Insurance obligations for the employee and the UK employer.

HMRC has published Guidelines for Compliance (GfC19): Help with short-term business visitors. The guidance brings together HMRC’s approach to PAYE, income tax and National Insurance obligations for STBVs and highlights common risk areas, expected controls and record-keeping requirements.

Key takeaway

Employers with overseas workers performing duties in the UK should review their STBV processes and records against HMRC’s latest guidance. Businesses with internationally mobile employees should ensure they can identify UK workdays, apply any treaty relief correctly and maintain evidence to support their reporting position.

Pillar 2 tax rules: HMRC clarifies group boundaries and consolidation requirements

The Pillar 2 rules (implemented in the UK through the Multinational Top-up Tax and Domestic Top-up Tax regimes) impose a 15% minimum effective tax rate on large multinational groups. HMRC has updated its guidance at MTT09520 and MTT10210. The revised guidance emphasises that determining whether entities form part of a Pillar 2 group requires consideration of the relevant accounting consolidation rules. The absence of a requirement to prepare consolidated accounts does not, by itself, prevent an entity from being brought within the deemed consolidation rules.

The guidance also clarifies the interaction between the accounting rules and the excluded-entity provisions. HMRC explains that an investment fund or REIT does not automatically lose its excluded-entity status simply because accounting standards prevent it from consolidating its investments. Account must be taken of both the relevant accounting treatment and the specific excluded-entity rules when determining group status.

Key takeaway

Groups that have relied on accounting consolidation analysis when determining Pillar Two group boundaries should revisit those assessments in light of HMRC’s updated guidance. Particular care may be needed for structures involving investment funds, REITs and other entities that may qualify for excluded-entity treatment.

UK–Isle of Man treaty case: UK property development trading profits remain taxable in the UK

Case: Knights Developments Ltd v HMRC [2026] UKUT 329

The Upper Tribunal has confirmed that profits realised by a non-UK resident company from acquiring, developing and selling UK land can be taxable in the UK under the UK’s immovable property treaty provisions, even where the company does not have a UK permanent establishment.

The Upper Tribunal considered whether profits realised by an Isle of Man resident company from acquiring, developing and selling UK land were taxable in the UK under the UK-Isle of Man double taxation agreement. The company carried on a property development trade and it was agreed that the profits were trading profits rather than capital gains. It was also agreed that the company did not have a UK permanent establishment. The company argued that the profits were taxable only in the Isle of Man under Article 7 (business profits), while HMRC contended that they fell within Article 6 (income from immovable property).

The tribunal dismissed the appeal. It concluded that the profits constituted “income derived from immovable property” and therefore fell within Article 6, allowing the UK to tax them. The tribunal rejected the company’s argument that the provision applies only to income arising from the use or exploitation of land, such as rental income. It held that the wording was broad enough to include profits arising from the ownership, development and sale of land. The tribunal also considered HMRC’s alternative argument that the profits fell within the treaty article dealing with gains from the alienation of immovable property, but indicated that this provision was concerned with capital gains rather than trading profits. The appeal was therefore dismissed.

Key takeaway

Non-UK resident property developers should not assume that the absence of a UK permanent establishment prevents the UK from taxing development profits. The Upper Tribunal’s decision suggests that treaty provisions relating to immovable property may apply more broadly than previously thought, potentially bringing trading profits within the UK tax net. Groups using offshore development structures should review existing treaty analyses carefully.

Withholding tax on overseas interest payments: Saffery’s response to simplification proposals

UK businesses paying interest to overseas entities and individuals are generally required to withhold income tax from those payments unless an exemption or treaty relief applies. Where relief is available under a double taxation agreement, the current process often requires HMRC clearance before interest can be paid gross.

Saffery has submitted its response to the government’s consultation on simplifying treaty relief from withholding tax on overseas interest payments. The consultation considered ways to reduce the administrative burden of claiming treaty relief under the UK’s double taxation agreements while maintaining safeguards against tax avoidance.

In our response, we support the introduction of a self-assessment regime for treaty relief on interest payments and suggest that the current quarterly CT61 process should be replaced with annual reporting through the corporation tax return. We also highlight the practical difficulties created by the current system, where the withholding obligation rests with the UK payer but treaty relief applications are generally made by the overseas recipient.

Key takeaway

Although no changes have yet been announced, the proposals could significantly simplify the administration of cross-border financing arrangements. Businesses making interest payments overseas may wish to monitor developments closely, particularly if they currently rely on treaty clearance applications or regular CT61 reporting.

HMRC updates certificates of residence guidance and online application process

HMRC has updated its guidance on certificates of residence and letters of confirmation. The changes include a new online application service for companies and charities. Applicants who cannot use the online service can still apply by post.

A certificate of residence may be needed to claim relief under a double taxation agreement. A letter of confirmation may be used where no treaty applies or proof of UK tax residence is needed for another purpose.

Key takeaway

Businesses that need residence evidence should review the new application route and make sure they can provide the supporting information requested by HMRC.

How we can help with corporate tax compliance and planning

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.