UK Tax Snapshot
Spring 2026
UK tax developments with cross-border relevance, curated by Macfarlanes' Tax team
Welcome to the latest edition of our UK Tax Snapshot which offers insights into UK tax developments that have cross-border interest.
Boosting the UK’s long-term economic growth remains a key objective for the Government. The Spring forecast, delivered by the Chancellor of the Exchequer on 3 March 2026, reaffirms the Government’s commitment to this driving purpose. The Government recognises that tax certainty is an important factor in supporting UK investment and so this edition reviews the Government’s plan to create a dedicated HMRC tax certainty service for taxpayers that make major UK investments. We note that clarity on another important tax issue - whether VAT on share sale costs can be recovered - has recently been provided by the UK’s highest court in HMRC v Hotel La Tour and we give our views on that decision too.
Revenue-raising continues to be a high priority with transfer pricing a continuing subject of HMRC activity. We look at how multinationals should prepare for new transfer pricing rules that will require in-scope businesses to submit annual returns from 1 January 2027. We also consider HMRC’s latest transfer pricing guidance which indicates that the tax authority will take a more prescriptive approach to the use of benchmarked arm’s length price ranges.
Finally, we offer our thoughts on the OECD’s Pillar Two “Side-by-Side” deal which, essentially, carves US-headed multinationals out of the global minimum tax, as well as the OECD’s new guidance on cross-border remote work.
In this edition
The Chancellor’s Spring Statement
The Spring Statement, delivered by the Chancellor on 3 March 2026 was purposefully designed to be a low-key affair with no new tax rises or reforms announced. The forecast published by the Office for Budget Responsibility (OBR) acknowledged that the UK’s long-term fiscal outlook remains challenging. Expected GDP growth for 2026 is 1.1%, down from 1.5% in 2025, with the OBR noting that a number of factors (including the conflict in the Middle East and recent changes in US tariff policy) could have a significant impact on their forecast. Accordingly, whilst no new tax rises materialised yesterday, further fiscal announcements later this year cannot be ruled out.
Taxpayers should not lose sight of other upcoming tax reforms, announced at the 2024 and 2025 Autumn Budgets. Key measures coming into force on 6 April 2026 for private clients can be found in an update prepared by Partner, Paul Hardwick and Senior Knowledge Lawyer, Clare Wilson.
Tax certainty for major investment projects – a new HMRC service
Recognising the importance of tax certainty in encouraging investment in the UK, a dedicated HMRC service will launch this summer with the aim of providing greater certainty to taxpayers (and their advisers) on how UK corporation tax, VAT, SDLT, income tax, the pay-as-you-earn (PAYE) regulations and the construction industry scheme will apply to new UK investment. The service will apply to investments with a qualifying expenditure of £1bn or more over the lifetime of the project.
Partner, Gregory Price and Associate, Finn Halton offer their thoughts on the Government’s plans and explore some of the other channels that exist in the UK tax system to secure tax certainty.
No VAT recovery on costs relating to a fundraising share sale
The Supreme Court (the UK’s highest court) confirmed in HMRC v Hotel La Tour that there is no general “fundraising exception” enabling a taxpayer to recover VAT on professional costs when selling a subsidiary. The taxpayer company had tried to argue that it was entitled to recover the VAT element of its advisers’ fees because those fees were incurred in connection with the sale of shares and the purpose of the sale was to fund taxable activity. The Court rejected this argument. The fees were directly and immediately linked to an exempt supply (the share sale) and the VAT on those costs was irrecoverable, notwithstanding the reason for the sale.
Read the thoughts of Senior Counsel Chris Mortimer and VAT Specialist Lucy Green on the Court’s decision.
Transfer pricing compliance – new reporting rules and compliance approaches
New rules that are expected to come into force for accounting periods starting on or after 1 January 2027 will require in-scope multinationals to file an International Controlled Transactions Schedule (ICTS).
The ICTS will comprise an annual filing requirement that captures specific factual information about relevant cross-border related party transactions in a standardised format. The information will be used for risk assessment by HMRC compliance teams, prior to the opening of tax enquiries. UK resident businesses and foreign businesses with UK permanent establishments will be within scope and while the precise thresholds have yet to be determined, the Government estimate that around 75,000 businesses will be affected by the new rules.
Separately, updated HMRC guidance details out a more structured approach to how HMRC and taxpayers should apply benchmarked arm’s length price ranges, in particular what should happen if a taxpayer finds that their results fall outside a benchmarked range.
Partner, Sarah Ling and Transfer Pricing Lead, Wai Wan explain these developments and consider how taxpayers and their advisers should respond in the following articles: Countdown to the International Controlled Transactions Schedule and HMRC guidance raises the bar for benchmarking studies.
Best practice in Mutual Agreement Procedures (MAP)
The OECD has updated its Manual on Effective Mutual Agreement Procedures (MEMAP). Whilst the manual is non-binding, and jurisdictions are not compelled to adopt all or any of the OECD’s recommendations and best practices, it nonetheless provides a valuable framework for improving the efficiency and effectiveness of MAP globally. It will be interesting to observe whether the standards presented by the OECD ultimately serve to support taxpayers accessing MAP and resolve cross-border tax disputes more efficiently.
Our transfer pricing specialists, Wai Wan and Bahar Eken, explain more about the publication and why this represents a practical step forward in international tax dispute resolution.
OECD "Side-by-Side" deal
The major international tax development from the beginning of the year is the OECD’s “Side-by-Side” deal that grants a significant exemption from the Pillar Two rules for US-headquartered multinationals (and in time, possibly other jurisdictions). The publication of detailed rules is a welcome step that draws one chapter to a close, though it is clear the saga has some way yet to run.
In an article published in Bloomberg by Partner, Gregory Price and Associate, Elvira Colomer Fatjo, we explore what the deal means for non-US groups.
Update OECD guidance on permanent establishments and remote working
In further work undertaken by the OECD, a recent update of its commentary on the Model Tax Convention is intended to provide clarity on when remote work may create a permanent establishment of the home country employer. The update covers many of the types of cross-border work we see in practice, but some uncertainties remain.
Partner, Gregory Price and Associate, Edward Hughes provide commentary on the practical impact of the updated guidance.
This edition was edited by Head of Tax Policy, Rhiannon Kinghall Were and Senior Knowledge Lawyer, Elizabeth Keeling.
If you have any questions about the issues discussed, do not hesitate to reach out to Rhiannon, Elizabeth or any of the Macfarlanes contributors to the snapshot.