Legal Practice Notes

Article 11 of the Organisation for Economic Co-operation and Development ( OECD)'s model tax convention ( MTC) is concerned with the taxation of interest paid cross border. It specifically addresses how taxing authority is divided between: the state of residence of the person receiving the payment (the recipient state), and the state of residence of the person making the payment (the source state) This Practice Note examines: the meaning of ‘interest’ in a double tax treaty or convention ( DTT) context the model convention approach to the taxation of interest targeted anti-treaty shopping provisions variations on this approach in DTTs, and the practical contexts in which an assessment of the interest article will arise The EU Interest and Royalties Directive, which exempts from withholding tax all interest payments between associated companies of different Member States, and which was...

FORTHCOMING CHANGE relating to UK transfer pricing legislation: On 29 April 2025, the UK government released draft legislation for technical consultation setting out a series of proposed revisions to the UK transfer pricing framework, together with related amendments to the rules on permanent establishment and the diverted profits tax. Headline measures include: the withdrawal of UK-to- UK transfer pricing, save for targeted exceptions designed to deter tax arbitrage; changes to the participation condition; and a range of updates to provisions that regulate financial transactions. The draft text follows the Conservative government’s initial policy consultation on reform launched in 2023, and the Labour government’s Autumn Budget 2024 announcement of further consultations. A further consultation, also launched on 29 April 2025, proposes limiting the current SME exemption to small enterprises only, and introducing a new filing obligation for...

This Practice Note The UK government has long aimed to make the country one of the world’s most appealing places for innovation and enterprise. To achieve this, it has introduced a range of tax incentives that support innovative companies and their investors, spanning every stage of a business’s life cycle. These include: R& D tax reliefs the patent box business asset disposal relief (formerly entrepreneurs’ relief) amortisation deductions for companies acquiring intellectual property capital allowances for purchases of: knowhow patents plant and machinery venture capital trusts enterprise investment scheme seed enterprise investment scheme This Practice Note outlines the UK perspective on key tax considerations when deciding how to structure an...

ARCHIVED: This Practice Note has been archived and is not maintained. During the coronavirus ( COVID-19) outbreak, the UK government brought in a range of measures to assist individuals and businesses negatively affected by the pandemic. Several measures involved funds paid directly by central or local government with no requirement to repay, ie grants rather than loans. For further details on these schemes, see Practice Note: Coronavirus ( COVID-19)—tax implications [ Archived]. Guidance on these schemes stated that recipients should recognise such grants as taxable income, as they effectively substituted business income that would otherwise have been earned. On 29 May 2020, the government released draft legislation, a tax information and impact note, and explanatory notes for consultation. This was ultimately enacted as section 106 and Schedule 16 to the Finance Act 2020 ( FA 2020). The legislation’s purposes were: to treat...

This Practice Note This Practice Note explains the typical scope of a UK tax opinion prepared by tax lawyers for a UK tax resident securitisation company participating in an asset-backed securitisation ( ABS, sometimes called a true sale securitisation). In essence, an ABS is a structure in which a company (the originator) converts value by selling its assets to an orphan special purpose vehicle ( SPV) to generate cash. The SPV finances that purchase by issuing listed notes to investors, and the assets supporting the securitisation are referred to as securitised assets... A distinct corporation tax regime applies to entities that meet the criteria below: Qualify as securitisation companies; and Meet two further conditions: The unallowable purposes test; and The payments condition This regime is...

When a sole trader, or a person carrying on a business as a partner, opts to incorporate, the assets of that enterprise are moved into a, generally, newly created company. This movement amounts to a transfer, disposal or supply for VAT, capital gains tax, income tax, stamp duty land tax ( SDLT) and capital allowances purposes, and may result in a tax liability for the individual effecting the transfer at that time in respect of the assets transferred......

The way consideration payable for the acquisition of shares is structured is not always straightforward. In many transactions, how the consideration payable for a share purchase is arranged is far from simple. Quite often, payment is postponed, deferred or made conditional upon the satisfaction of specified contingencies. The structure and timing of such payments are therefore rarely straightforward. Most of the time, this reflects the buyer’s desire to: be satisfied that, when the deal completes, the company is in fact worth what the buyer believes it is worth at that point in time In such circumstances, sale agreements commonly include a price adjustment mechanism, typically calculated by reference to a set of accounts that are prepared as at the completion date. Any further sum payable (or any repayment due) is only settled once those accounts have been prepared, finalised and agreed, which can be several months after...

The senior accounting officer ( SAO) regime Introduced under Schedule 46 to the Finance Act 2009 ( FA 2009), the senior accounting officer ( SAO) regime is designed to ensure qualifying companies maintain adequate tax accounting arrangements so that the correct tax liabilities are reported to HMRC. It applies to financial years beginning on or after 21 July 2009. The regime’s objective is supported by: a qualifying company’s obligation to notify HMRC of the identity of its SAO or, where there were successive SAOs in the relevant financial year, each individual who served as SAO for any part of that year the SAO’s main duty to take reasonable steps to ensure the qualifying company has appropriate tax accounting arrangements in place the SAO’s obligation to submit a certificate for each financial year confirming that appropriate tax accounting...

This Practice Note addresses the following areas: the legal framework for save as you earn ( SAYE) options an explanation of what an SAYE scheme is the qualifying criteria and conditions that an SAYE scheme must satisfy which companies are permitted to operate an SAYE scheme who can be offered or granted SAYE options the required level of the exercise price when an SAYE option can properly be exercised the events or circumstances in which an SAYE option will lapse the rules that apply to the associated savings arrangement scaling down any additional requirements that apply to SAYE schemes self-certification duties and notification requirements the tax treatment of SAYE options, and the tax reporting obligations The law governing SAYE options The statutory provisions for SAYE options comprise: sections 516–519 of the...

FORTHCOMING CHANGE: Announced on 26 November 2025 within Budget 2025, from April 2029 only the first £2,000 a year of pension contributions made under a salary sacrifice arrangement will be exempt from National Insurance contributions ( NICs). Employee contributions through salary sacrifice above £2,000 per year will incur both employer and employee NICs, meaning any amount over £2,000 will, for NICs, be treated like other employee workplace pension contributions. Employer contributions are unaffected, and income tax relief is unchanged. Employers will be required to report the total salary given up via existing payroll software, and HMRC has committed to engage with stakeholders. HMRC will provide further guidance before April 2029. The National Insurance Contributions ( Employer Pensions Contributions) Bill 2026 will insert a new subsection into section 4 of the Social Security Contributions and Benefits Act 1992, enabling the government to make...

Public takeovers When a company seeks to purchase another company (‘target’) whose shares are admitted to trading on a regulated market or on a multilateral trading facility in the UK (eg the Main Market of the London Stock Exchange or AIM, respectively), the deal is usually termed a public takeover. Because shareholdings in listed companies are more dispersed than in private companies, a series of regulatory obligations applies to the conduct of public takeovers. These are outlined in Practice Note: The Panel and the regulatory framework of takeovers. Those requirements significantly influence how the acquisition proceeds and, as a result, the tax considerations that arise. This Practice Note focuses on the target company’s role in that process from a tax perspective, as well as the involvement of a tax lawyer advising the target. For guidance on the tax position of target...

At the outset of IP development, a company might earn revenue from qualifying IP rights yet still fail to turn a profit. Alternatively, it may report profits that are below a routine return on the costs of generating that income. Where the patent box computation gives rise to a relevant IP loss ( RIPL)—see the Practice Note on calculating patent box relief (new rules)—the company cannot claim patent box relief for the loss-making trade in that accounting period. Instead, it must: set off the RIPL: first, against any patent box profits from another trade carried on by the company, and secondly, against any patent box profits of another group company for the relevant accounting period, and to the extent a balance...

The patent box The patent box is an optional regime that delivers an effective 10% corporation tax rate on worldwide profits derived from qualifying patents and comparable intellectual property ( IP) rights. Its full advantages were introduced in stages over a five-year period, concluding on 1 April 2017. To meet BEPS Action Plan 5 requirements, the patent box rules were amended on 1 July 2016 to introduce an R& D fraction restriction, which can reduce the value of patent box claims. A series of ancillary amendments was also made to ensure the restriction was implemented correctly. Those whose election into the patent box took effect before 1 July 2016 were permitted to continue claiming under the earlier (grandfathered) regime until 30 June 2021, in relation to qualifying IP applied for before 1 July 2016 (see Practice Note: Patent...

The UK’s rules on hybrid and other mismatches Since 1 January 2017, the UK’s hybrid and other mismatch rules (described in this Practice Note as the hybrid rules) have been in force, designed to neutralise tax mismatches arising from how a hybrid instrument or hybrid entity is treated for tax. Although the hybrid rules typically apply to cross-border dealings involving two or more jurisdictions, they can also apply to transactions that are entirely UK domestic. They specifically address: deduction/non-inclusion mismatches ( D/ NI mismatches), i.e. where a payment under a hybrid mismatch arrangement is deductible in the payer jurisdiction for tax purposes but is not included in the taxable income of a payee or a related party investor; and double deduction cases ( DD cases), i.e. where a payment under a hybrid mismatch arrangement gives rise to more than one tax...

ARCHIVED : This Practice Note has been archived and is not maintained. In October 2013, Jersey, Guernsey and the Isle of Man each entered into inter‑governmental agreements ( IGAs) with the UK to implement the automatic exchange of tax information. Owing to the way their disclosure provisions and timetable closely mirror the US Foreign Account Tax Compliance Act, these arrangements are often referred to as ‘ UK FATCA’. With effect from January 2015, the IGAs require financial institutions in the Isle of Man, Jersey and Guernsey to submit to HMRC automatic financial information returns covering UK‑resident individuals, partnerships and companies. Information relating to the 2014 and 2015 calendar years had to be provided by 30 September 2016, and thereafter reporting falls due within nine months of the end of the relevant calendar year each year. These IGAs are expected to be replaced by the Common...

Firms sometimes extend low-interest (or interest-free) borrowing to directors or staff as part of a remuneration package, or on particular occasions, to assist the individual with major financial outlays. As with any other form of employment reward, where a loan is made by a third party rather than by the employer, the disguised remuneration rules in Part 7A of Income Tax ( Earnings and Pensions) Act 2003 ( ITEPA 2003) must be considered first, since those provisions take precedence over most mechanisms for charging employment income to tax (including the benefits code). For further information, see: Disguised remuneration and EBTs—overview and, also, regarding the loan charge within the disguised remuneration rules, refer to Practice Note: Disguised remuneration—history of the loan charge. If no third party is involved (eg where the employer itself advances the loan), or an exemption from the disguised...

Qualifying R& D expenditure (pre-1 April 2024) This Practice Note sets out the scope of qualifying expenditure for two R& D relief schemes, each subject to detailed commencement and transitional provisions: the research and development relief for small or medium-sized enterprises ( SMEs) for accounting periods beginning before 1 April 2024—see Practice Notes: SME R& D relief—additional deduction (pre-1 April 2024) and SME R& D relief—tax credit (pre-1 April 2024); and the R& D expenditure credit scheme applying to accounting periods beginning before 1 April 2024—see Practice Note: R& D expenditure credit (pre-1 April 2024). Together, this Practice Note refers to these as the pre-1 April 2024 schemes. For information about the reliefs generally applying to accounting periods beginning on or after 1 April 2024, see Practice Notes: The merged R& D expenditure credit (post-1 April 2024) and Enhanced relief for R&...

Charge to UK corporation tax on property income The charge to UK corporation tax extends to profits arising from both UK and overseas property businesses, and this Practice Note concentrates on how that charge applies in relation to income. A property business is one that derives income from land, and broadly covers every transaction undertaken with that aim and purpose. A UK-resident company is generally within corporation tax on the profits of its UK and overseas property businesses, except to the extent profits are excluded from charge under the foreign permanent establishments exemption. Before 6 April 2020, a non- UK resident company was not, in general, within corporation tax on a UK property business, though it could potentially instead be charged to UK income tax under the non-resident landlords scheme. From 6 April 2020, a non- UK resident company falls within corporation tax on both its UK...

Why does it matter? Corporate groups are commonplace, i.e. multiple companies under shared ownership. UK corporation tax is largely computed per company, which can, in certain cases, create inequitable tax outcomes for entities within the same group. As each company is taxed in isolation, outcomes may, in some cases, appear distortive and unfair for businesses within the same group. Consequently, the UK has introduced various tax provisions designed to remove or reduce these effects. Elsewhere, this can be addressed by taxing the whole group as a single entity. In the UK, by contrast, a suite of targeted measures grants defined reliefs to group members. Chief among these are the group relief rules, which permit companies in a group to surrender specified losses to other qualifying members, allowing groups greater flexibility in how losses are deployed than stand‑alone companies enjoy. This Practice Note sets out what...

FORTHCOMING CHANGES : At Budget 2025, the government stated it intends to legislate via the Finance Bill 2026 (also called the Finance ( No 2) Bill 2024–26) to introduce fresh HMRC powers to combat fraud by firms operating under the CIS. Drawing from the VAT rules that limit input tax recovery where a supplier knew, or ought to have known, that a supply was linked to the fraudulent evasion of VAT, the forthcoming CIS provisions will: enable the instant removal of a business’s gross payment status render a business accountable for tax lost, and permit a penalty of 30% of the lost tax to be charged to the business, its directors and other connected individuals where it is demonstrable that the business knew, or should have known, it entered a transaction tied to the fraudulent evasion of tax In addition, the...