Corporate tax update – October 2026

Welcome to our October 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 October update covers a range of developments affecting businesses and employers, including the government’s response to the Public Accounts Committee’s report on large business tax compliance, further developments in relation to mandatory payrolling of benefits in kind and HMRC activity affecting Construction Industry Scheme (CIS) contractors.

We also highlight a notable Upper Tribunal decision concerning employee accommodation.

In addition to the above, we explain how businesses can follow Saffery’s Autumn Budget coverage and some of the areas that corporate taxpayers will be watching closely ahead of the Chancellor’s statement later this month.

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 – October 2026

• HMRC large business compliance: government accepts all Public Accounts Committee recommendations
• Mandatory payrolling of benefits in kind: new rules for globally mobile employees
• British Airways wins employee accommodation tax case: key lessons for employers
• Construction Industry Scheme (CIS): HMRC targets contractor return errors

HMRC large business compliance: government accepts all Public Accounts Committee recommendations

The Public Accounts Committee (PAC) examined HMRC’s approach to large business tax compliance earlier this year. While acknowledging the generally collaborative relationship between HMRC and large businesses, the committee identified concerns around transparency, lengthy enquiries and the effectiveness of some existing compliance measures.

The latest Treasury Minutes include the government’s response to the PAC report on large business tax compliance.

The government has accepted all of the PAC’s recommendations. The response covers several areas affecting large businesses, including HMRC’s co-operative compliance approach, the special measures regime, the time taken to resolve large business enquiries, HMRC’s IT transformation programme, transparency around tax settlements and Pillar Two reporting.

The response provides a clearer indication of the direction of travel for HMRC’s large business compliance strategy. In particular, it suggests a continued focus on improving enquiry handling, increasing transparency and making greater use of data and technology.

Key takeaway

Large businesses should continue to monitor developments in HMRC’s compliance approach. The government’s acceptance of all of the PAC’s recommendations suggests that further changes and updates can be expected as HMRC takes forward the recommendations and continues to develop its large business compliance strategy.

Read our article: HMRC large business compliance 2026: what the government’s response means for businesses.

Mandatory payrolling of benefits in kind: new rules for globally mobile employees

As covered in our September update, mandatory payrolling of benefits in kind will be introduced in phases from April 2027.

HMRC has updated its guidance to confirm that employers will be able to voluntarily exclude globally mobile employees from mandatory payrolling from 6 April 2027. A new service is expected to be available from November 2026 to support these exclusions. Where an employee is excluded, employers should continue using forms P11D and P11D(b) under the existing reporting regime.

The updated guidance also confirms that where employers voluntarily payroll benefits that are not mandated during the first phase of the reforms, any associated Class 1A National Insurance contributions must also be reported and paid in real time from 6 April 2027.

Key takeaway

The updated guidance provides further detail on how the new regime will operate in practice. Employers that have not yet started preparing should review their payroll processes, reporting systems and employee communications well in advance of April 2027.

Read our article: Mandatory payrolling of benefits in kind from April 2027.

British Airways wins employee accommodation tax case: key lessons for employers

Case: HMRC v British Airways plc [2026] UKUT 366 (TCC)

The Upper Tribunal (UT) considered the income tax and National Insurance contributions (NICs) treatment of hotel accommodation provided to cabin crew at Heathrow between back-to-back (B2B) long-haul flight rotations. British Airways argued that the accommodation qualified for relief as a deductible travel expense, while HMRC argued that it represented a taxable benefit in kind.

Following aviation regulatory changes introduced in 2016, cabin crew operating B2B rotations were required to use accommodation provided by British Airways during mandatory rest periods at Heathrow. The First-tier Tribunal (FTT) found that the cost of the accommodation was deductible under s337 ITEPA 2003. HMRC appealed.

The UT dismissed HMRC’s appeal. It agreed with the FTT that the obligation to stay in the Heathrow accommodation formed part of the cabin crew’s duties of employment and was not merely preparatory to performing those duties. The Tribunal also concluded that crew members were travelling for the purposes of s337 throughout the B2B rotation. It found that the entire rotation constituted both the job and the journey, which did not end until the rotation was complete and the crew were free to return home. The UT also agreed that the accommodation expense was necessarily incurred because, once rostered on a B2B rotation, cabin crew were required to stay in the accommodation provided. It rejected HMRC’s argument that the expense could not be necessarily incurred because B2B rotations resulted from British Airways’ commercial choice as to how to organise its operations. Instead, it concluded that those commercial decisions formed part of the background that determined the crew’s duties and obligations, with the expense necessarily following from those duties.

Key takeaway

The decision provides useful guidance on the application of s337 ITEPA 2003 to employment-related travel expenses. In particular, it confirms that accommodation costs can qualify for relief where employees are required, by the terms of their employment and the applicable regulatory framework, to stay in employer-provided accommodation while carrying out their duties. The decision also confirms that the fact an expense arises from an employer’s commercial decisions will not, in itself, prevent it from being “necessarily incurred” if it flows from duties that form part of the employment.

Construction Industry Scheme (CIS): HMRC targets contractor return errors

HMRC is sending letters to contractors it believes may have applied an incorrect rate to their subcontractor payments between 6 April 2025 and 5 April 2026.

HMRC has since published guidance explaining how contractors should respond if they receive a letter.

The letters explain why HMRC believes there may be an error and ask contractors to review their Construction Industry Scheme (CIS) monthly returns. Recipients can use a new online process to disclose underpaid tax, correct other CIS return errors or explain why they believe their returns are correct.

HMRC says it aims to respond within 28 working days of receiving the information.

Key takeaway

Contractors receiving one of these letters should review the position promptly. Errors in CIS deduction rates can result in significant liabilities and may require corrections to previously submitted returns.

R&D tax relief: HMRC issues new guidance on qualifying claims

HMRC has published new guidance intended to help businesses assess whether they may be eligible for R&D tax relief.

Although the guidance does not change the underlying rules, under which a project must seek to achieve an advance in overall knowledge or capability in a field of science or technology while attempting to resolve scientific or technological uncertainty, it provides a useful overview of the relief, the key qualifying conditions and some of the compliance requirements businesses need to consider before making a claim. The guidance also reminds businesses that projects do not need to be commercially successful to qualify for relief.

The guidance also highlights some of the newer compliance requirements that businesses must meet before making a claim.

The publication is notable because HMRC has not actively promoted R&D tax relief to potential claimants in this way for many years.

Key takeaway

Businesses undertaking innovative work should consider whether relief may be available, particularly where projects involve scientific or technological uncertainty but have not previously been reviewed from an R&D tax perspective.

Read our article: HMRC issues new R&D tax relief guidance: does your business qualify?

National Minimum Wage and accommodation rules: key risks for employers in 2026-27

Providing accommodation can be an effective way to attract and retain workers, but employers should remember that accommodation is the only benefit in kind that can count towards National Minimum Wage (NMW) calculations.

For 2026-27, the accommodation offset is £11.10 per day (£77.70 per week). Where accommodation is provided free of charge, the offset is added to pay for NMW purposes. Where accommodation charges exceed the offset, the excess reduces the worker’s pay for NMW calculations.

This means that workers whose headline hourly rate appears compliant can nevertheless fall below the minimum wage after the accommodation rules are applied.

Key takeaway

Employers providing accommodation should regularly review charging arrangements and NMW calculations, particularly where accommodation costs, working hours or minimum wage rates change.

Read our article: National Minimum Wage and employer-provided accommodation: NMW accommodation offset rules (2026-27).

UK Carbon Border Adjustment Mechanism (CBAM): how importers should prepare for new rules from 1 January 2027

The UK’s Carbon Border Adjustment Mechanism (CBAM) will take effect from 1 January 2027 and will initially apply to imports of goods in the aluminium, cement, fertiliser, hydrogen, iron and steel sectors.

The regime is intended to prevent carbon leakage by applying a carbon cost to certain imported goods. Businesses within scope may face new registration, reporting and record-keeping obligations and may need to obtain emissions and carbon pricing information from overseas suppliers. The first reporting period will cover the 2027 calendar year.

HMRC has also published a list of overseas carbon pricing schemes that currently qualify for carbon price relief, helping businesses determine whether overseas carbon costs may reduce their UK CBAM liability.

Key takeaway

Businesses importing potentially affected goods should review supply chains, identify whether imports fall within scope and assess whether they can obtain the information needed to comply with the new regime from January 2027.

Read our article: UK Carbon Border Adjustment Mechanism (CBAM): compliance guide for importers.

Autumn Budget 2026: key tax changes businesses should watch

The Autumn Budget will take place on 28 October 2026.

Businesses will be watching closely to see whether the government reiterates its commitment to policies set out in the Corporate Tax Roadmap and Labour’s 2024 manifesto. These include capping the main rate of corporation tax at 25%, retaining full expensing and the Annual Investment Allowance as well as providing greater certainty and stability for business investment decisions.

Businesses may also be interested in any government responses to recent consultations, including those covering distributions and repayments of capital, treaty relief from withholding tax on overseas interest payments, the International Controlled Transactions Schedule (ICTS), the tax treatment of predevelopment costs and possible expansion of the Uncertain Tax Treatment regime. See our recent consultation responses.

Key takeaway

Our pre-Budget article highlights some of the areas businesses may wish to consider ahead of the Chancellor’s statement. You can also visit Saffery’s Budget hub to sign up for our Budget commentary and register for a post-Budget webinar. Details of our in-person Budget events are on our events page.

How Saffery can help businesses manage 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.