Author: Glenn

HMRC has been consulting on proposals to modernise the tax rules governing distributions and repayments of capital from companies. The consultation was published on 23 June 2026 and closed on 14 September 2026.

The proposals look at the treatment of ‘new consideration’ and ‘repayments of capital’, distributions from non-UK companies and the interaction between the distributions and loans to participators regimes. They also include reforms to demergers, Purchase of Own Shares (POS) relief and the Transactions in Securities (TIS) rules. The consultation focuses on situations where the shareholder is within the charge to Income Tax. The proposals are not intended to directly affect corporate shareholders.

Currently, where a company carries out a reduction or return of share capital, the amount received by a shareholder is generally treated as a distribution to the extent it exceeds the capital originally contributed. However, existing rules allow for various arrangements usually involving holding companies and share reorganisations to extract value while paying CGT rather than Income Tax.

HMRC proposes to address this by ‘freezing’ the amount of capital attributed to shares in future holding companies at the amount originally subscribed for the investment. This could mean that more of a payment from a share buyback or other return of capital is treated as a taxable distribution rather than a capital receipt. The government recognises that the proposal might potentially lead to unfair outcomes in certain circumstances.

Concerns have been raised by parties including the ICAEW about the potential impact on companies of the proposed changes, including those relating to reductions of share capital. HMRC will analyse the consultation responses before deciding whether to proceed and may consult further on specific reforms.

Employers operating employee share schemes may now be receiving penalties from HMRC for failing to submit their employment related securities (ERS) end of year returns on time.

ERS schemes are used to provide employees with shares, options and other securities as rewards or incentives. Employers must submit an annual ERS return for every scheme registered with HMRC, including a nil return where there have been no reportable events. The deadline for 2025-26 returns was 6 July 2026.

A £100 late filing penalty is automatically issued where a return was not submitted by the deadline. If the return remains outstanding three months after the deadline, a further £300 penalty applies. Another £300 penalty applies if it is still outstanding six months after the deadline. HMRC may also charge daily penalties from nine months after the original deadline.

Employers who have received a penalty must still submit the outstanding annual return or nil return. This also applies where a penalty is being appealed. If a scheme has ceased, the employer must enter the final event date and submit the return for the tax year in which the scheme ended.

HMRC has updated its guidance on how individuals and organisations can apply for a certificate of residence or letter of confirmation to prove UK tax residence.

A certificate of residence can be used to claim tax relief in another country where UK residents pay tax on foreign income. It confirms to the overseas tax authority that the applicant is UK resident. A certificate can be issued where there is a double taxation agreement with the country concerned and the applicant is entitled to treaty benefits.

A letter of confirmation may instead be appropriate where there is no double taxation agreement or proof of UK residence is required for another purpose. The overseas tax authority decides whether relief from foreign tax can be granted.

The online service is available to individuals and sole traders, companies, partnerships, trusts, charities, public bodies, pension schemes and collective investment schemes. Agents can also apply directly on behalf of taxpayers.

Applicants need to provide details including the country the certificate is required for, the relevant double taxation agreement, type of income and period covered. A future date cannot be requested.

Further information is required where a tax return has not yet been filed, including days spent in the UK days during the tax year or years where a certificate is required. 

The government is considering changes to the voluntary National Insurance contributions (NICs) system following a call for evidence published earlier this year.

Voluntary NICs allow individuals to fill gaps in their National Insurance record where they have not built up a qualifying year through compulsory contributions or National Insurance credits. They can help individuals build entitlement to the State Pension and, depending on the class paid, certain contributory benefits.

The call for evidence considered whether the current system delivers fair outcomes, how voluntary NICs interact with National Insurance credits and whether changes are needed to eligibility, pricing and access. The government also sought views on partial-year gaps, information and guidance, and contributions for periods spent abroad. The call for evidence closed on 15 September 2026. The feedback to the document will help inform the government’s consideration of possible future reforms.

Changes have already been put in place restricting access to making Voluntary NIC for people living or working outside the UK. Since 6 April 2026, voluntary Class 2 NICs can no longer generally be paid for periods abroad. New applications for voluntary Class 3 NICs for periods abroad now require either 10 continuous years of UK residence or 10 qualifying years of National Insurance contributions, subject to specific exceptions and transitional arrangements.

The changes do not prevent qualifying individuals from paying voluntary NICs for tax years before 2026-27. Existing overseas Class 3 payers can also continue to make contributions under transitional rules.

A limited company usually pays Corporation Tax on the profit, known as a chargeable gain, when it sells or otherwise disposes of a business asset.

Business assets can include land and property, equipment & machinery and shares. The rules also apply to most unincorporated associations and foreign companies with a UK branch or office. Sole traders and business partners usually pay Capital Gains Tax instead when they sell business assets.

To calculate a chargeable gain, companies normally deduct the amount originally paid for an asset from its sale proceeds. Certain costs associated with buying, selling or improving the asset, such as legal fees and Stamp Duty, can also be deducted. Market value may need to be used where an asset is given away or sold for less than its market value in order to benefit the buyer.

For assets acquired before December 2017, companies can usually use the Indexation Allowance to reduce the gain for inflation up to December 2017. The allowance does not apply to disposals after December 2017 for the period after that date.

Capital losses can generally be deducted from chargeable gains but cannot be used to reduce trading income or other profits. Losses may also be restricted where capital allowances have been claimed. Different rules apply to intangible assets such as intellectual property and goodwill.