Corporation tax
‘Wholly and exclusively’ appeal regarding unapproved pension scheme dismissed
The Court of Appeal (CA) has dismissed the appeal of two taxpayers in the case of AD Bly Groundworks and Civil Engineering Limited, on whether large accruals arising following implementation of an ‘unfunded unapproved retirement benefit scheme’ (UURBS) were allowable for corporation tax purposes. Under the UURBS, the appellants promised to provide directors and key employees with pension amounts in the future, calculated by reference to the estimated profits for the relevant year – ranging between 80% and 100% of the companies’ estimated profits before tax. Between 2012 and 2014, the companies made accounting provisions for the liability and claimed deductions to reduce their corporation tax liability. HMRC, however, considered the expenses were not incurred ‘wholly and exclusively’ for the purposes of the trade, and thus were not allowable under s54, Corporation Tax Act (CTA) 2009.
The First-tier Tribunal (FTT) found that the primary purpose for making the accruals was to reduce the liability to pay corporation tax without incurring any actual expenditure, and after analysing the relevant case law, it agreed that the expenses were not incurred ‘wholly and exclusively’ for the purposes of the trade. The CA, like the Upper Tribunal before it, agreed that this was a case of a payment being made with the object of artificially reducing the companies’ taxable profits, and that the FTT was entitled to conclude that the expense was not incurred wholly and exclusively for trading purposes. The CA described the FTT’s conclusion on the facts, that “the UURBS was adopted as a tax saving scheme and the provision of pensions was “at best” an incidental aim” as fatal to the taxpayers’ case. Whilst not necessary to dismiss the appeal, the CA also considered and dismissed a backup argument from HMRC that the expenditure would have otherwise been disallowed as being within the scope of s1290, CTA 2009 (‘Employee benefit contributions’).
From the Business Tax Briefing dated 21 November 2025, published by Deloitte
VAT
VAT treatment of maintenance services
The First-tier Tribunal (FTT) has considered the VAT treatment of maintenance services supplied in respect of a number of blocks of flats. The issues were whether the services were supplied to the lessors or the lessees of the flats (referred to as ‘the direction of supply issue’), and whether the services could be considered as part of the exempt supply of land (the ‘fusion of supplies issue’).
The FTT has held that the supply of the maintenance services was made to the lessors, and not the lessees. The FTT also held that the supply of maintenance services was not part of a single supply of land by the lessors to the lessees, nor were the maintenance services ancillary to the supply of land, such that they could take on the character of an exempt supply of land for VAT purposes. Accordingly, the supply of maintenance services was a separate, standard-rated supply. On the basis that there remained an outstanding point on the EU law principles of legitimate expectation and legal certainty, the FTT stayed the appeal pending the release of the Upper Tribunal’s decision in the appeal against the FTT decision in the case of Chelsea Cloisters Management Limited.
From the Weekly VAT News dated 8 December 2025, published by Deloitte
VAT exemption for welfare services
The First-tier Tribunal (FTT) has again considered the VAT treatment of health and welfare services. While the circumstances of the case are relatively niche, the statutory interpretation issues are potentially of wider interest. Cascade Care Limited provided residential and supported living services to adults with mental health conditions and learning difficulties. Cascade argued that the services it supplied in Wales fell outside the VAT exemption for welfare services supplied by a state-regulated private welfare institution, on the basis that its services were regulated under the Welsh legislature, which was not included in the definition of “state-regulated”. HMRC rejected Cascade’s contention, and Cascade appealed to the FTT.
The FTT has held that the exemption applied. It agreed with HMRC that it was clearly Parliament’s intention “to capture all entities that could … enact primary legislation”. Applying the principle from the case of Inco Europe that courts were allowed to read legislation in such a way as to correct an “obvious drafting error”, it was permissible for the FTT to read the legislation as if it included Welsh primary legislation, meaning that Cascade’s services in Wales were indeed “state-regulated”. Therefore, the FTT dismissed Cascade’s appeal. Following the case of JD Wetherspoon, this is the second occasion this year in which the FTT has applied the Inco principle in HMRC’s favour in a VAT appeal.
From the Weekly VAT News dated 24 November 2025, published by Deloitte
Practical Points
Every month, the Tax Faculty publishes short, practical pieces of guidance to help agents and practitioners in their day-to-day work.
