Practical points: business tax December 2025

Employment taxes

Subsistence expenses wrongly treated as tax-free for temporary workers

The Court of Appeal (CA) dismissed the taxpayer’s appeal on the basis subsistence expenses were wrongly treated as tax-free for temporary workers with no permanent workplace.

The taxpayer operated an umbrella company for temporary workers mainly in the education, health and social care sectors. The taxpayer argued that the workers were employed under a single overarching employment contract and that the workplace of a temporary worker attended for each assignment was a ‘temporary workplace’. This meant that they were entitled to the reimbursement of their travel and subsistence expenses.

The First-tier Tribunal (FTT) concluded mutuality of obligation did not exist between assignments which negated the existence of a single employment.

The CA dismissed the three grounds for appeal made by the taxpayer and upheld the decision of the Upper Tribunal and FTT. It concluded that a continuous umbrella contract cannot constitute a ‘single employment’. As a result, the second ground was also dismissed on the basis there was no entitlement to make the reimbursement. The CA also concluded the assignments were each separate employments and that the loss of tax was ‘brought about carelessly’.

Mainpay Ltd v HMRC [2025] EWCA Civ 1290

From Tax Update November 2025, published by S&W Partners LLP

Upper Tribunal win for HMRC on employment income

The Upper Tribunal (UT) has found that an amount paid to a taxpayer after ceasing employment was taxable as employment income. It was earned while the taxpayer was a UK tax resident despite the payment being physically made whilst being a non-UK resident.

A taxpayer received a payment from his former employer under a stock appreciation rights (SARs) plan following a corporate exit, and after his employment had ceased. He claimed split year treatment for the tax year in which the payment was received and treated the income on his tax return as foreign earnings not taxable in the UK. This resulted in a tax repayment. HMRC issued a closure notice on the basis the payment was taxable in the UK.

The taxpayer argued that the SARs were valuable contractual or property rights and the payment came as a result of this ownership, not as a reward for the performance of his employment duties. The payment was received in the overseas part of the split year and therefore he contended that the payment should be excluded income.

HMRC maintained that the payment fell within the meaning of general earnings, it was earned when the taxpayer was UK resident and therefore the payment is taxable in the tax year in which it was received.

The First-tier Tribunal (FTT) agreed with HMRC, finding that the payment was earnings as the SARs had been granted in connection with his employment and was done so to incentivise employees. The conditions of the SARs contained a clause in relation to good and bad leavers where bad leavers forfeited all SARs upon the termination of their employment.

As the income was earned when the taxpayer was UK resident, it was taxable in the UK.

At the UT, the taxpayer appealed both the finding that the payment arose from his employment, and that it was for the part of the year in which he was UK resident. The UT found for the FTT on both issues, after consideration of the case law. On a realistic appraisal of the facts, having regard to the substance of the position, the taxpayer’s earnings were the value of the payment received, not the value of the share options at date of grant. The payment was ‘for’ UK duties and not excluded under split-year rules.

Saunders v HMRC [2025] UKUT 374 (TCC)

From Tax Update November 2025, published by S&W Partners LLP

VAT

Supplies of nursing staff

1st Alternative Medical Staffing Ltd (FAMS) supplied nurses and care assistants to NHS and private hospitals and care homes. FAMS accounted for VAT on their commission only, not on the amount paid to the nurses/care assistants, on the basis that FAMS was acting as agent. HMRC disagreed, and issued assessments for periods from 2014 to 2016, on the basis that VAT was due on the entire amount charged.

In separate judicial review proceedings, the High Court and Court of Appeal held that FAMS could not rely on a 2004 HMRC letter that it was acting as agent, as HMRC’s policy had changed, as set out in a number of public statements. Also, FAMS could not retrospectively rely on the Nursing Agencies’ Concession, which allows employment businesses supplying health professionals as principal to treat supplies of medical staff as VAT exempt. The concession needed to be applied when invoices were issued.

The case has now returned to the First-tier Tribunal (FTT), and the FTT has held that FAMS’ supplies were not VAT exempt. Supplies that are not themselves supplies of medical care are exempt if they are ‘closely related’ to medical care and supplied by a state-regulated institution. The FTT found that FAMS was not a state-regulated institution. While this finding disposed of the appeal, the FTT went on to find that FAMS’ supplies also did not meet the conditions for being ‘closely related’ to medical care. The FTT dismissed FAMS’ appeal.

1st Alternative Medical Staffing Ltd v HMRC [2025] UKFTT 1320 (TC)

From the Weekly VAT News dated 17 November 2025, published by Deloitte

VAT and hospital car parking

Northumbria Healthcare NHS Foundation Trust considered that its provision of paid-for hospital car parking was not chargeable to VAT. HMRC disagreed, and the First-tier Tribunal (FTT) and then the Upper Tribunal dismissed the Trust’s appeals. The Court of Appeal found in favour of the Trust on the basis that the Trust was not a taxable person in respect of this activity as it was acting as a public authority under a ‘special legal regime’, and that this would not lead to a significant distortion of competition.

The Supreme Court (SC) has overturned this judgment. When determining whether a public body is acting under a special legal regime, the question is whether there is a legal obligation that governs or materially affects the way the body’s activity must be carried out. The Department of Health guidance on hospital car parks that the Trust followed did not impose legal obligations. Accordingly, the SC concluded that the Trust was not acting under a special legal regime. Given this finding, the distortion of competition point did not arise, but the SC went on to address it and found that to treat the Trust as non-taxable would distort competition. The car parking was not restricted to hospital users, and the FTT had found that there was actual competition between the Trust’s car parks and nearby parking provided by private operators. This conclusion was one that the FTT was entitled to reach on the evidence before it. HMRC’s appeal was allowed.

Northumbria Healthcare NHS Foundation Trust v HMRC [2025] UKSC 37

From the Weekly VAT News dated 3 November 2025, published by Deloitte

Import VAT recovery by a non-owner

TSI Instruments Limited imported scientific equipment into the UK for repair and servicing. TSI claimed the import VAT it paid on importation as input tax. HMRC considered that, in accordance with its internal manual VIT13300, TSI was not entitled to input tax recovery, as it was not the owner of the goods, and assessed TSI for £8.5m. The First-tier Tribunal (FTT) has rejected TSI’s appeal against HMRC’s assessments.

TSI argued that the import VAT could be recovered on the basis that there was a direct and immediate link between the costs of importation and TSI’s taxable transactions, being the repair services. In other words, import VAT could be claimed not only where there is a link between the cost or value of imported goods and a taxable person’s outputs, but that the link can also be established where the taxable person bears the costs of importation.

The FTT disagreed, finding that, under EU and UK law, TSI was not entitled to claim the import VAT as it was not the owner of the goods, and the cost or value of the imported goods was not reflected in the price of the repairs carried out by TSI. The FTT considered that although the FTT’s 2023 decision in the case of Piramal Healthcare UK Limited also concerned import VAT recovery by a non-owner, the decision was of limited assistance, as it did not consider the distinction between the costs of importation and the cost or value of the goods imported. The FTT dismissed TSI’s appeal.

TSI Instruments Limited v HMRC [2025] UKFTT 1278 (TC)

From the Weekly VAT News dated 3 November 2025, published by Deloitte