Legal Practice Notes

This Practice Note outlines VAT treatment of residential service charges. Service charges payable to landlords Where a lease or licence requires the occupier to pay service charges to the landlord, they are treated in the same way as the rent for VAT purposes. The reason is that there is no distinct supply: rent and service charges together constitute the consideration for granting serviced accommodation. In effect, both elements amount to a single payment for a letting. Consequently, service charges linked to residential property are normally exempt. The tenant therefore bears no VAT, while the landlord cannot reclaim VAT on associated expenditure. By contrast, service charges connected to holiday accommodation will normally be subject to VAT on the same basis as the rent (see Practice Notes: Exclusions from the exemption from VAT for land and buildings— Hotel and similar...

Where no exemption or relief is available, UK‑sourced annual interest is subject to UK withholding tax at the basic rate (20%), moving to the savings basic rate (22%) from 6 April 2027. For further details, see Practice Note: UK withholding tax on yearly interest. This Practice Note summarises the exemption from UK withholding tax that: is set out in section 888A of the Income Tax Act 2007 ( ITA 2007) and the Qualifying Private Placement Regulations 2015, SI 2015/2002 ( QPP Regs) has been in force since 1 January 2016 applies to interest paid: by a corporate borrower on an unlisted security or loan that qualifies as a qualifying private placement ( QPP), and is expected to apply to bond issues and bilateral and syndicated loans—see: What is a...

Unless an exemption or relief (including relief available under a double tax treaty ( DTT)) applies, a payment of yearly interest originating in the UK (ie a UK-source payment) is, as a rule, subject to a duty to withhold (and pay over to HMRC) an amount on account of UK income tax at the basic rate (20%) or, from 6 April 2027, at the savings basic rate (22%) where the payment is made: by a company by a local authority by or on behalf of a partnership with at least one corporate partner, or by any person to another whose usual place of abode is outside the UK (broadly, this covers an individual who ordinarily lives outside the UK, or a company whose principal place of business is outside the UK and which has no permanent establishment in the UK in respect of which the interest is within the...

Practice Note Anyone carrying on a business who is registered, or required to be registered, for UK VAT (a taxable person) must comply with fairly onerous VAT obligations. Accordingly, understanding precisely when a person becomes a taxable person is essential. This Practice Note covers: compulsory and voluntary registration determined by the value of taxable supplies; and compulsory registration, effective from 1 December 2012, for non- UK established businesses (described as non-established taxable persons ( NETPs) in HMRC’s guidance) that make supplies of goods or services in the UK It does not address the VAT registration rules applicable to: the disposal of goods for which a VAT repayment is or has been claimed UK businesses that previously benefitted from the distance selling rules but may, following Brexit, be required to register for VAT in EU Member States businesses in Northern Ireland (identified using the ‘ XI’...

Why is the exemption for financial services important? VAT is a significant issue for organisations in the financial sector, as the provision of certain financial services to customers located in the UK is exempt from UK VAT. This matters because: businesses do not levy VAT on services that fall within the exemption; and those businesses cannot recover input VAT on supplies they receive in the course of making an onward exempt supply The financial services exemption from VAT The UK VAT exemption for financial services stems from the relevant provisions of Council Directive 2006/112/ EC (the VAT Directive). These provisions have been enacted into UK law through Schedule 9, Pt II, Group 5 to the Value Added Tax Act 1994 ( VATA 1994), which lists the items that qualify for exemption. This Practice Note concentrates on the exemptions for services within the...

This Practice Note is about the tax treatment of limited partnerships In general, the fiscal treatment of limited partnerships broadly mirrors that of general partnerships (see Practice Note: Taxation of general partnerships). A limited partnership is transparent for tax purposes; it is not a taxable person in its own capacity. Rather, the partners are charged to tax on their respective shares of the firm’s profits and gains, and can obtain relief for corresponding shares of its losses, whether or not those profits and gains are actually distributed to them. That said, there are specific tax rules that apply to limited partners (and at times to partners in a general partnership who conduct themselves as if they were limited partners), and these are considered in this Practice Note. Note also that the rules concerning the utilisation of losses by a limited partner are set out in...

Tax treatment of general partnerships This Practice Note outlines how general partnerships are treated for tax. A partnership of this kind is not chargeable to tax in its own right. Instead, the partners are taxed on their respective portions of the partnership’s profits and gains and may claim relief for their share of any losses, whether or not profits and gains are actually distributed to the partners. Consequently, a general partnership is often described as transparent for tax purposes, or simply ‘tax transparent’. In summary, taxing a general partnership involves three steps as follows: calculating the partnership’s taxable profits allocating to each partner their share of that taxable profit according to the partnership’s profit-sharing arrangements assessing each partner’s share of the partnership’s profits to corporation tax or income tax For this Practice Note, and in tax legislation generally, a partner means an equity...

Provided the conditions in the Companies Act 2006 ( CA 2006) are satisfied, a limited company may repurchase shares it has in issue. This is referred to as a share buyback or a ‘purchase of own shares’. Beyond the CA 2006 provisions, additional requirements apply to listed and AIM companies. In particular, a listed company must consider the UK Listing Rules ( UKLR) and the Disclosure Guidance and Transparency Rules ( DTR), and an AIM company must comply with the AIM Rules. Such companies might also need to take account of institutional investor guidelines. The CA 2006 restrictions on buybacks do not extend to unlimited companies, which are not discussed further in this subtopic. What are share buybacks? Why do a share buyback? Companies undertake share buybacks for a range of motives. One common rationale is to return excess cash to...

The sale of a company's business can be structured as either: a disposal of assets held by the company (an asset sale), or a disposal of shares in the company by its shareholders (a share sale) In an asset sale, the buyer (or, where appropriate, the seller) can select which assets and liabilities, and which parts of the target business, it takes on (or, in the seller’s case, only parts it disposes of). This lets parties choose what to include and exclude, tailoring the transfer to parts they wish to trade. In a share sale, the buyer assumes ownership of the company that owns and operates the target business. The company keeps its assets (and liabilities) and continues to run the business under the buyer’s ownership. Buyers generally favour purchasing assets to avoid inheriting unknown and potentially unquantifiable company liabilities in practice. Sellers usually favour a sale of...

FORTHCOMING CHANGE relating to the modernisation of stamp taxes on shares framework: From 2027, stamp duty and SDRT will be brought together into a single, self-assessed charge on securities—the securities transfer charge ( STC)—with payment and reporting carried out via a new online portal. The STC’s key elements are expected to broadly reflect the proposals consulted on in 2023. Finance Bill 2026 ( FB 2026) provides, from Royal Assent, a power to make secondary legislation enabling taxpayers to pilot the digital service, self-assess their stamp taxes on securities liabilities, and file transaction details electronically through the system. For more information on the modernisation of stamp taxes on securities, refer to: News Analyses: Budget 2025— Tax analysis— Stamp and transfer taxes Tax update spring 2025— Stamp taxes on shares modernisation Tax update spring 2025— Tax analysis— Stamp and transfer taxes TAMD 2023— Stamp taxes on...

From a shareholder’s standpoint, when a company repurchases its own shares, whether directly or via an intermediary acting as agent for the company (on- or off-market), the transaction generally has two key elements for tax purposes: an income distribution from the company to the shareholder to the extent the buyback proceeds exceed the amount the shareholder originally subscribed for the shares, and a disposal of shares by the shareholder for chargeable gains purposes, with the disposal proceeds being the amount of cash received less any amount chargeable to income or corporation tax In order to calculate precisely how a shareholder will be taxed on a share buyback, it is therefore necessary to establish exactly how much of the total paid is treated as an income distribution. Note that this computation is often complicated where there have been earlier bonus issues of shares by the company (for more on...

The Decommissioning Relief Deed ( DRD) constitutes a contractual arrangement between the UK government and a ' Qualifying Company' involved in oil and gas exploration and production on the UK Continental Shelf ( UKCS), or associated with such a company. It is designed to give clear assurance about the tax relief a Qualifying Company will secure when offshore oil and gas decommissioning is carried out and, in defined circumstances, can also trigger a payment from the UK government to that company. The DRD is issued in a prescribed form by the UK government and cannot be altered in any respect. Its terms are set by that publication, and the deed is not negotiable. For more information on decommissioning in the oil and gas sector, see the following Practice Notes: ...

In certain circumstances, a company within a group may transfer a tax repayment owed to it to another member of the same group. This can be advantageous for the group overall, as it may reduce the interest payable by the group on underpaid tax. For these purposes, ‘group’ refers to a loss relief group as set out in Practice Note: Group relief—loss relief group......

A company belonging to a loss relief group that has sustained any category of losses eligible to be surrendered by way of group relief (including group relief for carried-forward losses) can, in the absence of any further rules or constraints, have more than one route for deploying that loss. For instance, it might either surrender the loss for group relief or set the loss against its own profits in the present or a subsequent accounting period of its own. That said, various provisions curtail the company’s freedom by, for example, stipulating the order in which particular reliefs must be used first and specifying the types of profits against which those losses may properly be matched. This Practice Note outlines the rules—both the choices and the limitations—relevant to trading losses, excess capital allowances, non‑trading loan relationship deficits, UK property business losses,...

The general rule As outlined in Practice Note: Taxation of derivatives—the main rules, a company’s profits and losses from derivative contracts are, in the same way as the profits and losses on its loan relationships, ordinarily brought into account as income for corporation tax purposes. The legislative code for derivative contracts is set out in Part 7 of the Corporation Tax Act 2009 ( CTA 2009), which this Practice Note refers to simply as Part 7. This Practice Note examines the particular situations where that general rule is disapplied, and where the profits and losses on a company’s derivative contracts are instead taken into account for corporation tax on a chargeable gains basis. Where derivative profits and losses are taxed on a chargeable gains basis, this does not of itself mean that: the usual rules for computing corporation tax on chargeable gains apply, or there is an...

This Practice Note This Practice Note sets out how a company that sustains a trading loss in an accounting period may obtain relief. As outlined further below, a trading loss can be: offset against the company’s profits of the same year (current period loss relief) carried back and set against profits of earlier accounting periods (carry back loss relief) surrendered under group relief or consortium relief carried forward to relieve profits arising in a subsequent accounting period (carried-forward loss relief) carried forward and surrendered as group relief for carried-forward losses There are also specific provisions, termed terminal loss relief, which apply where a company incurs a loss in the accounting period in which it ceases trading. This Practice Note covers the rules on: current period loss relief carry back loss relief the...

Conditions for claiming group relief Where a company (the surrendering company) has a loss or other amount that is eligible to be surrendered for group relief in an accounting period (the surrender period), it may surrender that loss as group relief, and then another company (the claimant company) may claim the relief as a deduction against its total profits if all of the following apply: the surrendering company consents to the claim there is a period common to both the surrender period and the claimant company's accounting period in which the claim is made (the overlapping period) the surrendering company and the claimant company are members of the same group at some point during the overlapping period both the surrendering company and the claimant company are UK related, meaning either a UK resident company or a non- UK resident company within the...

Excluded territories exemption This Practice Note sets out the excluded territories exemption from a charge under the controlled foreign company ( CFC) rules. Even if a company qualifies as a CFC for an accounting period, a CFC tax charge arises only where: the CFC has chargeable profits that pass through the gateways; and none of the exemptions within the CFC rules apply There are two types of exemption: entity level exemptions — these take the CFC outside the CFC rules altogether for that accounting period......

What are capital allowances? Capital allowances provide tax relief for certain, though not all, items of capital expenditure. They function as a standardised, tax‑deductible stand‑in for depreciation or amortisation, broadly intended to deliver relief that mirrors the economic life of business assets. For income or corporation tax returns, accounting depreciation is not deductible; capital allowances are claimed instead. Eligibility is restricted and some assets are excluded. For example, spending on land does not qualify. The most frequently encountered allowances are for plant and machinery. The scope of plant and machinery for capital allowance purposes is set out in Practice Note: Plant and machinery allowances—definition of plant and machinery. Since October 2018, relief has also been available for specified expenditure on structures and buildings, or parts of them, where their construction is treated as commencing on or after 29 October 2018; see Practice Note:...

What is the aggregates levy? HMRC administers an environmental tax, the aggregates levy, on the commercial exploitation of aggregates across the UK. When does the levy apply? The levy becomes chargeable when both conditions below are satisfied: there is a taxable aggregate, and that aggregate is commercially exploited within the UK There are pending amendments to Finance Act 2001, s 16(2) to substitute ‘the United Kingdom’ with ‘ England, Wales or Northern Ireland’ under Scotland Act 2016, s 18(3). The Act received Royal Assent on 23 March 2016, but the commencement date has not yet been appointed, and it is expected to change in line with the introduction of Scottish Aggregates Tax from 1 April 2026. Meaning of taxable aggregate Aggregate Aggregates means: rock gravel sand It also includes substances incorporated within, or naturally occurring alongside, those materials, such as spoil, waste, off-cuts and other...