Are changes coming to UK transfer pricing rules?

On 28 April 2025, HMRC announced a consultation period in respect of significant changes to the UK’s Transfer Pricing, Diverted Profits Tax and Permanent Establishment legislation as part of the government’s Spring tax update.

In this article, we will review the key proposed changes and the considerable impact they will have on fast-growing international businesses. The consultation period will close on 7 July; therefore, we recommend that interested parties submit their representations as soon as possible.

How could the UK transfer pricing rules change in 2025?

The UK Transfer Pricing (“TP”) rules require taxpayers to price transactions between connected parties on an ‘arm’s length’ basis. Affected taxpayers should determine a price that independent parties would agree to under comparable conditions and, if necessary, make adjustments in their tax returns for any amount that is not arm’s length. 

The proposed changes aim to enhance HMRC’s visibility of cross-border related-party transactions and align the UK’s approach more closely with that of other countries.

Reform of the Small and Medium Enterprises Exemption

UK-based Small and Medium-sized Enterprises (SMEs) are currently exempt from applying TP in many cases. A group qualifies as an SME if it has no more than 250 staff and either its turnover does not exceed €50 million, or its balance sheet does not exceed €43m.

HMRC is proposing to narrow the scope of this exemption so that it applies only to small businesses. The proposed definition would include groups with no more than 50 staff and either turnover or balance sheet not exceeding £10m.

Are there any additional transfer pricing reporting requirements?

HMRC is also proposing a new disclosure requirement for businesses which do not fall within the SME exemption. Groups which have aggregate foreign related-party transactions of at least £1m must disclose all cross-border related-party transactions over £100k to HMRC through a new International Controlled Transactions Schedule (“ICTS”).

The level of detail being proposed in the ICTS is substantial: for each transaction, businesses must disclose information about the counterparty, the transaction type, the TP method, and, where relevant, the profit level indicator. For related-party financing transactions, businesses must also disclose the applicable interest rates, as well as the opening and closing balances of the transaction.

What is the impact of the proposed changes?

The proposed reform of the SME exemption could lead to a significant increase in administrative and compliance burdens for medium-sized businesses brought within the full UK TP rules for the first time. They will be expected to review the nature, methodology and pricing of their intragroup transactions and prepare appropriate documentation. This will inevitably lead to higher compliance costs for affected businesses, alongside the potential for additional information to be requested during enquiries.

To make matters worse, the introduction of the ICTS will impose additional reporting obligations. Although the consultation proposes features to help limit these obligations (e.g. a higher de minimis threshold for businesses already subject to detailed TP documentation requirements), gathering information, configuring internal reporting systems and building in additional time to year-end reporting cycles will be required.

Tax teams in medium-sized businesses are already stretched and wear many hats on a day-to-day basis. These proposals will require further resources to be devoted to disclosure than ever before, and HMRC will likely continue with its approach of data-led tax audits by using ICTS data to undertake additional risk assessments on taxpayers that have previously not been required to disclose their related party transactions.

Are there changes coming to the Permanent Establishment rules?

The proposals aim to better align the UK domestic definition of a permanent establishment under CTA 2010 with the definition outlined in the 2017 OECD Model Tax Convention. There is a proposal to align the definition of dependent agent permanent establishment and clarify the definition of fixed place of business permanent establishment, excluding construction sites lasting less than 12 months from the scope. The UK’s current c. 150 in-force double tax treaties would not be affected by this change, but any UK taxpayers not covered by a treaty would be.

Profit attribution is currently governed by CTA 2009 and CTA 2010. The proposed updated legislation would include specific references to the supporting OECD documentation, which can be used to determine an appropriate attribution of profits, including the approach set out in the 2010 OECD Report on the Attribution of Profits to Permanent Establishments, commonly referred to as the ‘Authorised OECD Approach’.

What changes are coming to the Diverted Profits Tax?

The consultation document proposes that Diverted Profits Tax (“DPT”) should be repealed and replaced with a new charging provision for ‘Unassessed Transfer Pricing Profits’ (“UTPP”) under Corporation Tax, which would carry a 6%-point uplift in the rate of tax. The changes are presented to provide businesses with a more straightforward compliance process and better access to Double Tax Treaty benefits whilst retaining the essential features of the current DPT regime. The removal of a separate notification requirement will be welcomed by many. However, the proposal that a UTPP assessment can be issued with or without a CT notice of enquiry may still result in uncertainty for businesses.

How can businesses plan for these proposed changes?

Businesses should plan and prepare for these potentially consequential changes. We recommend that you review the current financial performance and future year forecasts to determine whether your business would fall outside the narrower scope of the new small company exemption. If so, undertake a detailed review of all existing intragroup transactions, determining the appropriateness of these intragroup charges and their pricing by reference to the OECD TP guidelines. Furthermore, businesses should ensure that their intragroup transactions are adequately documented and supported by appropriate intercompany agreements.

How can we help?

At AAB, we have a team of specialists with extensive experience advising SMEs, fast-growing companies, and larger corporates across all sectors on transfer pricing and international tax matters.

If you would like to understand how the proposed changes discussed above could affect your business, or if you would like to discuss your business’s concerns before the consultation period closes, please do not hesitate to get in contact with Erica Fitchie, Edwin Goi or your usual AAB contact.

FRS 102: Revenue Recognition- what’s changing?

As accounting standards evolve, staying informed about the updated FRS 102, particularly in relation to revenue recognition, is crucial for your business. The Financial Reporting Council has introduced significant amendments to UK GAAP, including a new revenue recognition model. These changes will take effect for accounting periods commencing on or after January 1, 2026, although early adoption is permitted. Our experienced team of accounting and financial reporting professionals are here to help you navigate these new revenue requirements to ensure you stay compliant and well-positioned for success.

Overview of Amendments to FRS 102

The updated FRS 102 introduces a significant change in revenue recognition under UK GAAP, adopting a new five-step model aligned with International Financial Reporting Standards (IFRS 15), with some simplifications. The new approach emphasises recognising revenue when a business satisfies its performance obligations by transferring control of goods or services to the customer, replacing the previous focus on the transfer of risks and rewards.

This update provides more explicit guidance on contract revenue, particularly in situations with multiple performance obligations or long-term contracts. These changes aim to improve how businesses allocate and recognise revenue, offering a more structured process that ensures financial reports are clearer, more accurate, and easier to understand. For companies with more complex customer contracts, this update could have a substantial impact on how revenue recognition is handled.

The Five-Step Revenue Recognition Model

At the heart of the new guidance is a structured five-step model designed to help businesses systematically recognise revenue as they satisfy performance obligations and deliver goods or services to customers. The steps are:

  1. Identify the customer contract(s).
  2. Identify the performance obligations within the contract (i.e., the goods or services promised).
  3. Determine the transaction price — the amount of consideration expected in exchange for the goods or services being sold.
  4. Allocate the transaction price to each performance obligation.
  5. Recognise revenue when (or as) each performance obligation is satisfied.

This model provides a methodical framework for revenue recognition, requiring careful assessment at each step, particularly where contracts involve multiple elements or complex terms.

How Should Revenue Be Recognised Under the Updated FRS 102?

Revenue can be recognised either at a point in time or over time, depending on the nature of the contract and its performance obligations:

  • Point-in-time recognition occurs when control of goods or services passes to the customer.
  • Over time, recognition applies when performance obligations are satisfied progressively, such as in construction contracts or ongoing service agreements.

Businesses must determine the appropriate revenue recognition method early in the contract lifecycle, especially when multiple performance obligations are involved that may be fulfilled over different periods. While simpler contracts may see little change, more complex agreements will likely require a comprehensive review of existing income recognition processes to ensure compliance with the updated FRS 102.

Key Differences Between FRS 102 and IFRS 15

The updated revenue recognition model in FRS 102 closely aligns with IFRS 15 but includes several key simplifications designed to reduce complexity and better suit UK GAAP reporting requirements. The main differences are summarised in the table below:

Aspect FRS 102 IFRS 15
Time Value of Money Policy choice not to adjust for the time value of advance payments Must adjust if a significant financing benefit exists
Allocation of Variable Consideration and Discounts Less prescriptive; more judgment allowed Detailed criteria for allocation
Costs to Obtain a Contract Can capitalise or expense costs; costs recoverable within one year may be expensed Must capitalise incremental, recoverable costs unless amortised within one year
Disclosure Requirements Simplified, reduced reporting burden More extensive disclosure requirements
Transition Practical Expedients Greater use of hindsight is allowed when estimating variable consideration and contract modifications Practical expedients are available, but more limited use of hindsight

How Do the Changes in FRS 102 Impact Small Businesses?

For many small businesses, the updated FRS 102 may not result in significant changes to revenue recognition, as contracts tend to be straightforward. However, it remains vital to fully understand the new rules to ensure compliance, especially since the Small Companies Regime within FRS 102 is also being updated.

We recommend that small businesses carefully review their current revenue recognition processes to ensure they align with the revised standards.

What Disclosures Are Required for Revenue Recognition?

The updated FRS 102 introduces more precise and more detailed disclosure requirements related to revenue recognition from customer contracts. Key disclosures include breaking down revenue by categories such as type of goods or services, geography, and customer type. Businesses must also disclose contract-related balances like receivables and contract liabilities, explain performance obligations and payment terms, and describe the methods used to recognise revenue over time. Policy choices, such as the treatment of the time value of money, should also be disclosed.

These requirements, along with other detailed provisions, aim to provide users of financial statements with a better understanding of how revenue and contract balances impact a company’s financial position under the revised standards.

Preparing for the 2025 Transition: Key Steps and Common Pitfalls to Avoid

With the updated revenue recognition rules set to take effect in 2026, early preparation is crucial to ensure a seamless transition and compliance. To help your business get ready, focus on these critical areas:

  • Review existing customer contracts carefully to identify all performance obligations clearly. Missing or misidentifying these can lead to incorrect revenue recognition and reporting errors.
  • Assess how contract revenue will be recognised under the new five-step model, ensuring revenue is recorded accurately when performance obligations are satisfied. Failure to do so can result in misstated income and compliance issues.
  • Update your internal policies and staff training to reflect the new revenue recognition rules. Misunderstandings regarding transaction price allocation or revenue timing can lead to inconsistencies and inaccuracies in financial statements.
  • Prepare for the enhanced disclosure requirements introduced by the revised FRS 102. Failing to address these risks can lead to non-compliance and compromise transparency for your stakeholders.

By focusing on these critical areas early, you can ensure compliance with the updated standards and maintain transparent, accurate financial reporting. Our experienced team is ready to guide you through the transition, assisting with understanding the new requirements, updating your processes, and fulfilling your disclosure obligations with confidence.

We are here to help you manage the transition smoothly. If you would like to discuss how these amendments may impact your business or need support in navigating the changes, please contact Alexandra Wheelan , Jordan Taylor or your usual AAB adviser. 

VAT recovery on pension investment costs: what’s changed?

Yesterday, HMRC issued Revenue and Customs Brief 4 (2025), marking a major shift in the long-running saga of VAT recovery on pension investment costs. For businesses and trustees alike, this is more than a technical tweak—it’s a chance to simplify compliance and potentially access significant retrospective VAT recovery.

A Quick Recap: The PPG case & VAT recovery on Pension Investment costs

It all begins with the 2013 PPG Holdings case (C-26/12), where the Court of Justice of the European Union ruled that employers could, under certain conditions, recover VAT on both the administration and investment management of defined benefit pension schemes. This challenged HMRC’s long-standing position that only administration costs were recoverable by employers.

In response, HMRC introduced a patchwork of options to facilitate recovery, including:

  • Tripartite contracts between employers, trustees, and service providers
  • VAT grouping to bring trustees and employers under one VAT registration
  • Management services agreements where trustees recharged services to employers

While these models offered a route to recovery, they were often administratively burdensome and legally complex. Many businesses struggled to implement them effectively, and HMRC’s guidance evolved slowly and cautiously.

HMRC’s New Policy: VAT deduction on the management of pension funds

As of 18 June 2025, HMRC has confirmed a new, simplified policy:

  • Employers can now treat all VAT on investment management services related to occupational pension schemes as their input tax and recover VAT, subject to the usual input tax rules (i.e. depending on whether the cost is incurred for exempt or taxable activities)
  • The concept of dual-use between employers and trustees has been dropped
  • VAT-registered trustees may also recover VAT on their costs, where they make taxable supplies (e.g. charging the employer for scheme management)
  • A four-year retrospective window is available for eligible claims
  • Businesses may need to update their partial exemption methods to reflect the new treatment

This is a significant departure from the previous regime and removes the need for many of the contractual workarounds that had become standard practice.

How will the new VAT recovery on pension investment costs impact you?

If you are an employer funding a defined benefit pension scheme or a VAT-registered trustee, this change could materially affect your VAT position.

Key implications include:

  • Simplified recovery: No more need for tripartite contracts or VAT grouping just to access input tax
  • Cashflow opportunity: Potential to reclaim VAT on historic costs going back four years
  • Compliance refresh: Existing partial exemption special methods (PESMs) may need to be reviewed and resubmitted to HMRC
  • Contractual clarity: Businesses should revisit how pension-related services are contracted and invoiced

Now VAT recovery on pension investment costs has changed- What should you do next?

  • Identify affected schemes: Focus on defined benefit arrangements and any schemes where investment management costs have been incurred
  • Review historic VAT treatment: Assess whether there’s scope to submit retrospective claims
  • Evaluate current PESMs: Ensure your partial exemption method reflects the new policy and doesn’t under-recover
  • Engage stakeholders: Coordinate with finance, tax, legal, and pension teams to align on the next steps
  • Speak to HMRC if needed: Where changes to PESMs are required, early engagement can smooth the process

How AAB Can Help

As VAT advisors, we are here to help you manage this transition and make the most of the opportunity. That includes:

  • Reviewing historic costs and preparing retrospective claims
  • Assessing and updating PESMs to reflect the new treatment
  • Unwinding legacy arrangements like VAT grouping or management services agreements where they are no longer needed
  • Supporting trustees in understanding their recovery rights and obligations
  • Engaging with HMRC where method changes or clarifications are required

This is a rare moment where VAT policy has become less complicated. Businesses that act now can not only improve compliance but also recover real value. If you would like support on these changes, please get in touch. Let’s make the most of this shift.

At AAB, our VAT experts have years of experience helping businesses manage the complex VAT landscape and support with legislative and policy changes. If you have any questions, please don’t hesitate to get in contact with Gabrielle Bird or your usual AAB Contact.

Making Tax Digital (MTD): 4 steps to help you prepare

From 6 April 2026 , Making Tax Digital (MTD) for Income Tax Self-Assessment will become mandatory for individuals with annual gross income of over £50,000 from self-employment and/or property income. This will be lowered to £30,000 from 6 April 2027 and £20,000 from 6 April 2028. If you are both self-employed and receive property income, it is the total gross income from both sources. 

You can choose to follow the rules voluntarily, even if you are not legally required to do so. At the time of writing, partnerships are not included. 

HMRC will review 2024/25 self-assessment returns to identify individuals with gross income over £50,000 from self-employment and/or rental income. If this applies to you and you submit your tax return by 31 January 2026, you’ll receive a letter from HMRC in February 2026 confirming your obligation to comply with MTD from 6 April 2026. 

If you know you’ll need to follow the rules, start getting ready now rather than waiting for HMRC’s letter to come in. Doing so could leave you with little to no time to prepare for the significant changes. HMRC has a tool to help you check when you’re required to follow MTD. 

If you start self-employment or receive rental income on or after 6 April 2025, you’ll fall under MTD once your annual gross income exceeds the threshold. In this case, you must follow the MTD rules from 6 April after the relevant 31 January Self-Assessment filing deadline. Alternatively, you will need to apply for an exemption from MTD, as detailed below. 

Exemptions to MTD

Taxpayers can apply for an exemption to opt out of MTD if: 

  • It’s unreasonable or impractical for them to use electronic communications or keep electronic records due to reasons like age, disability, or location. 
  • They are a practising member of a religious society whose beliefs prevent the use of electronic tools.

The application process to apply for an exemption is not yet available. 

The following are automatically exempt from MTD for Income Tax and will not need to apply for an exemption: 

  • Non-resident companies 
  • Trustees, executors, and administrators 
  • Foreign businesses of non-UK domiciled individuals 
  • Foster carers 
  • Individuals without a National Insurance Number 
  • If you are VAT registered and you have been granted exemption from Making Tax Digital for VAT by HMRC, you will be automatically exempt. 

WHAT IS MTD FOR INCOME TAX?

Under MTD, self-employed individuals and landlords are required to keep digital records and submit quarterly returns to HMRC, detailing their income and expenses. A final declaration is due at the end of the tax year, where you will need to inform HMRC of any other taxable income you received during the year. Ensure you use one of the HMRC-approved software providers from the growing list. 

The quarterly updates are cumulative and must be submitted by the filing deadlines set out below: 

Quarter  Reporting Period  Reporting Period (calendar quarter)  Filing deadline 
1  6 April – 5 July  1 April – 30 June  7 August 
2  6 July – 5 October  1 July – 30 September  7 November 
3  6 October – 5 January  1 October – 31 December  7 February 
4  6 January – 5 April  1 January – 31 March  7 May 

WHEN ARE UPDATES FOR MTD DUE?

The first quarterly update under MTD for Income Tax is due by 7 August 2026, covering the quarter ending 5 July 2026 or 30 June 2026, where a calendar quarter election is in place. If you want your update periods to align with month-end and your software supports it, you must elect this before submitting the first update of the relevant tax year. The election stays active until you choose to revert to standard periods. To revert, cancel the election in your software before submitting the first update of the tax year you want to switch back. 

Separate quarterly updates are required for each trade or property business. For jointly held property, only the taxpayer’s share of income (not expenses) must be reported. 

An end-of-tax-year Final Declaration will combine all sources of income, reliefs, and allowances to calculate the final tax liability, due by the usual 31 January deadline. The Final Declaration effectively replaces the Self-Assessment tax return for those fully within the scope of MTD.  

There are no changes planned to the timing of tax payments; the current system of payments on account and balancing payment remains. 

Who Needs to Comply?

  • Self-employed and landlords with turnover >£50,000 (from April 2026)
  • Self-employed and landlords with turnover >£30,000 (from April 2027) 
  • Self-employed and landlords with turnover >£20,000 (from April 2028) 

KEY REQUIREMENTS FOR MTD COMPLIANCE

To help you navigate the process smoothly, we’ve outlined the key actions you need to take to stay compliant and avoid any last-minute surprises. 

1. Use MTD-Compatible Software

You are required to use software that integrates with HMRC’s systems. The software must: 

  • Keep digital records of income and expenses 
  • Provide quarterly updates  
  • Submit tax returns directly to HMRC 

2. Keep Digital Records

You must maintain digital records of: 

  • Income 
  • Expenses 
  • VAT (if VAT-registered) 
  • Tax adjustments 

3. Quarterly Updates

You must submit quarterly updates to HMRC for real-time tax tracking. For clarity, no payment of tax will be due at this point. 

4. Digital Links for VAT

For VAT returns, you must establish a clear digital audit trail, ensuring that there is no manual copying of data between systems. 

WHAT ARE THE BENEFITS OF MTD?

MTD isn’t just another HMRC regulation – it offers real benefits for self-employed individuals and landlords. Here’s why it’s worth embracing: 

  • Fewer Errors, Less Stress- digital records reduce errors from manual entry, lost paperwork, or miscalculations, making your tax figures more accurate and lowering HMRC penalty risks.
  • Saves Time on Admin- automated calculations and direct submissions reduce spreadsheet work. 
  • Quarterly updates prevent last-minute tax filing stress. 
  • Better Cash Flow Management- quarterly updates give you a clearer view of your tax liabilities, reducing surprises. 
  • Easier VAT & Tax Filing- MTD-compatible software automates submissions with no data re-entry needed. 
  • More Business Insights- Real-time financial data helps track profits, expenses, and growth opportunities, with some software offering forecasting tools for future planning. 
  • Future-Proofing- Digital tax is here to stay, and MTD prepares you for future changes and keeps you ahead of the curve. 

Ultimately, MTD can simplify reporting and help you stay on top of your tax liability.  

HOW CAN YOU EFFECTIVELY PREPARE FOR MTD?

Getting ready for MTD doesn’t have to be a last-minute panic. Here’s how to prepare effectively and stay ahead of the changes: 

  1. Check if MTD applies to you- MTD for Income Tax starts in April 2026 for self-employed individuals or landlords earning over £50,000. It will be extended to those earning over £30,000 from April 2027 and over £20,000 from April 2028.
  2. Sign up for MTD- If you must comply with MTD from April 2026, you can sign up early online, choosing the 2026/27 tax year during sign-up. If you wish to be part of the testing process, choose the 2025/26 tax year. 
  3. Choose MTD-Compatible Software- Use software that records transactions, generates reports and submits returns directly to HMRC. If you’re unsure, check HMRC’s list of approved software.
  4. Switch to Digital Records- Start recording income and expenses digitally. Many software packages allow you to snap photos of receipts and categorise expenses automatically. 
  5. Plan for Quarterly Updates- Unlike the current system, MTD requires quarterly tax updates. Set reminders to stay on top of your submissions. 
  6. Test the System Before It’s Mandatory- Start using MTD software now to get familiar with it and resolve any issues before it becomes mandatory.
  7. Stay Informed About MTD Changes- Keep an eye on HMRC for any changes to MTD rules or deadlines. 

Making the switch to MTD may seem challenging at first, but taking the time to get organised now will save you time and stress later. If you have any questions about the changes or how they’ll impact you, please don’t hesitate to reach out to Kirsty Ringland, Mark McCluskey or your usual AAB contact. 

Due Diligence: Dealing with Price Adjustments for Digital Debt

Digital debt is a phrase that we are hearing more and more regularly, especially in the space of technology due diligence. The world has changed. To stay relevant most of the leading companies in the world rely heavily on technology and data for their operations.

Companies like Tesla, Uber and Revolut are often discussed as examples of “digital disruptors” — agile, transformative upstarts that have utilised technology to create revolutionary new services that consumers are finding irresistible. As a result, mid-market companies across a vast range of industries are finding themselves under threat, and many aren’t ready to respond.

As these companies continued to focus on financial engineering instead of innovation, they all began to accumulate what we refer to as digital debt.

What is Digital Debt?

Digital debt refers to the consequences a company faces when it fails to invest adequately in its technological infrastructure or innovation. This can lead to a loss of competitiveness, decreased efficiency, and a lack of adaptability in the rapidly evolving digital landscape. Just like financial debt, digital debt accumulates over time and can impair a company’s ability to innovate and compete effectively in the long run. Considering digital debt when acquiring a business is crucial because it directly impacts the company’s future performance and potential for growth.

Impact of Digital Debt on Acquisitions

Technology Due Diligence has become an essential feature in the acquisition process. When purchasing a business digital debt can arise from outdated systems, legacy software, or inadequate cybersecurity measures. Assessing the target company’s technology infrastructure is crucial to understanding and mitigating these issues, ensuring a smoother integration process.

It’s important to negotiate a fair purchase price that reflects the additional investment or resources needed to address the digital debt and bring the technology up to the desired standard. Adjusting the consideration for digital debt involves evaluating the extent of technological challenges within the target company. It’s important to consider factors like outdated systems, cybersecurity risks, and the cost of upgrading.

7 Practical steps to address the Digital Debt challenge:

  • Clearly define responsibilities for addressing digital debt in the purchase agreement, outlining timelines and milestones. This proactive approach helps manage risks and ensures a more accurate valuation of the business considering its technology challenges.
  • Conduct a risk assessment to identify potential vulnerabilities in the target company’s digital infrastructure. This evaluation can help quantify the impact of debt on the overall business operations and financial performance.
  • Factor in the time and resources required for a smooth transition and negotiate a realistic timeline for addressing the identified issues. Involve your own IT team early in the due diligence process to ensure a comprehensive evaluation and effective integration plan, minimising disruptions and maximising the value of the acquisition.
  • Look to create agreements with the help of legal and technology experts that provide safeguards and contingencies, protecting your investment against unforeseen digital challenges. Comprehensive understanding and strategic negotiation are key to effectively adjusting consideration for digital debt.
  • Assess the scalability of the existing IT infrastructure and its alignment with your long-term business goals. Determine whether the digital debt can be turned into an opportunity for innovation and improvement.
  • If the target company’s technology assets hold strategic value, incorporate this into the consideration. Seek expert advice on the potential impact of digital debt on customer relationships and data security, addressing these aspects in the negotiation process.
  • Explore potential synergies between your existing technology assets and those of the acquired business to streamline integration efforts.

By taking a holistic and strategic approach, you can optimise the adjustment of consideration for digital debt and enhance the overall success of the acquisition. If you have any queries about technology due diligence, or due diligence in transactions, please do not hesitate to get in contact with Ashok Thomas, or a member of our Corporate Finance Team.

This blog is part of our Due Diligence series! If you’ve missed the first of the series don’t worry our first blog on due diligence is here.

R&D Tax Claim Notification: What the New Rules Mean for You

WHAT IS THE NEW R&D TAX CLAIM NOTIFICATION RULE?

If your company is planning to claim R&D tax relief, the R&D tax claim notification rule is something you need to know about. Introduced in April 2023, this rule means some businesses must notify HMRC before they submit a claim. Why is this so important? Because if you miss the deadline, you could lose the relief for that accounting period altogether.

WHO NEEDS TO SUBMIT AN R&D TAX CLAIM NOTIFICATION?

The rules mainly target “new claimants”, – but the definition is broader than you might expect. If your company hasn’t claimed R&D tax relief in the past three years, or if it’s your first time claiming, you’ll likely need to submit an R&D tax claim notification.

This applies to all companies with accounting periods starting on or after 1 April 2023. So even if you’ve claimed before, it’s worth checking your status. A notification is required if your company is:

  • Making its first-ever claim, or
  • Hasn’t submitted a claim within the last three years (counting back from the end of the relevant notification period).

WHEN DO YOU NEED TO MAKE AN R&D PRE-NOTIFICATION?

You’ll need to notify HMRC within the relevant “notification period” – this starts on the first day of your accounting period and ends six months after it finishes.

Examples:

  • Year ended 31 December 2024
    • Notification period: 1 January to 30 June 2025
    • Deadline: 30 June 2025
  • Year ended 31 March 2025
    • Notification period: 1 April to 30 September 2025
    • Deadline: 30 September 2025

EXCLUDED CLAIMS – A COMMON MISTAKE

Not all historic claims count towards the three-year lookback. This can catch companies out.

If your R&D claim was:

  • Filed on or after 1 April 2023,
  • Related to an accounting period that began before 1 April 2023, and
  • Submitted as an amendment to a previous return –

…it won’t count towards your three-year history. That means you may still need to submit an R&D tax claim notification, even if you’ve made claims in the past.

Also, if you’re preparing claims for multiple years at once, you could be caught twice. We recommend checking every year.

CAN I STILL CLAIM R&D TAX RELIEF WITHOUT PRE-NOTIFICATION?

Yes, but only if you file your R&D claim within six months of the end of the accounting period.

R&D CLAIM FILING TIME LIMITS – REMAIN UNCHANGED

You still have two years from the end of your accounting period to submit an R&D claim. That hasn’t changed.

WHAT THE 2024 HMRC CHANGES MEAN FOR YOU

The 2024 reforms introduced a merged scheme for accounting periods starting after 1 April 2024. For some companies, this opens up new eligibility to claim R&D tax relief. A key change involves who can claim for work done under contract. Now, it’s usually the customer – the one commissioning the R&D – who can claim. That could mean you’re eligible when you weren’t before.

If this change affects you, you may need to submit an R&D tax claim notification to secure your claim. It’s crucial to review this early.

WHAT INFORMATION IS NEEDED TO NOTIFY HMRC OF AN R&D CLAIM?

To file an R&D tax claim notification, you’ll need:

  • Your Unique Taxpayer Reference
  • Contact details for the senior person responsible for the claim
  • Details of any agents involved
  • The start and end dates of the accounting period
  • A summary of your planned R&D activities – including what you’re trying to achieve

KEY TAKEAWAYS

  • Miss the notification deadline and you could lose your R&D tax relief for that year – permanently.
  • Check your R&D tax claim notification requirement for every accounting period.
  • Review your eligibility under the new merged scheme.

At AAB, we combine deep technical expertise with a commercial mindset to deliver robust, value-driven R&D tax solutions. With a proven track record across a wide range of sectors and a strong focus on compliance, we help businesses make the most of their innovation activity. Our experienced, multi-disciplined team includes both engineers and accountants, working together to ensure every claim is thorough, accurate, and successful. Our engineers identify qualifying projects and build the technical case, while our accountants handle the financial details. This joined-up approach gives you the technical expertise of engineers and the financial acumen of accountants. Delivering peace of mind, reduced risk, and help securing the full benefit you’re entitled to. We’re committed to guiding clients through the R&D tax process with clarity, confidence, and measurable results at every step.

If you have any queries about the changes to R&D tax claims or making a claim, please do not hesitate to get in contact with Ross Parsler or your usual AAB contact.

Foreign Income and Gains Regime: Everything you need to know

The somewhat controversial concept of ‘domicile’ to establish UK tax liability has now been abolished. Instead, the Labour government has introduced an alternative tax break, aimed at those who, are perhaps long-term British expats, interested in returning to the UK, or foreign nationals who are also interested in living here for a short time, and who might have previously benefitted from the ‘Non Dom’ tax reliefs associated with offshore sources. 

This new Foreign Income and Gains regime, ‘FIG’, is pretty simple, in that it offers complete UK tax exemption on overseas income and gains. It follows that this could provide very significant tax relief, which any new UK ‘arriver’, should take full advantage of, (that is, assuming they do indeed qualify).  As mentioned, the exemption principle is simple enough, however, the qualification criteria, period available, and reporting application may not be quite so straightforward. It’s therefore important to be cautious and double-check how this applies to bespoke circumstances.  

Who can qualify for the Foreign Income and Gains Regime?

FIG is only available to individuals who were previously non-UK tax residents for 10 consecutive tax years before they arrive in the UK, and as outlined above, the overseas sources exemption applies for a maximum of 4 tax years.   

The exemption only applies to overseas income and gains that also actually arise after 6 April 2025. 

For anyone who became newly tax resident before 6 April 2025, the 4-year ‘clock’ will start in the tax year they first became tax resident. It follows that to benefit at all from FIG, the earliest tax year you can become a UK tax resident is 2022/23. Essentially, then, 2022/23, 2023/24 and 2024/25 tax years will use up 3 of the 4 available years, leaving 2025/26 as the only year when FIG can actually be claimed. 

Who are the Biggest Winners?

Those who will benefit most from the FIG regime will be new arrivals to the UK after 5 April 2025. So long as they have the 10 consecutive years of non-residence behind them, these individuals should be able to benefit for the full 4 years-worth of FIG and pay no tax on their qualifying overseas income and gains.  

Which overseas income and gains will qualify for the FIG regime?

Qualifying overseas income includes:  

  • Most types of foreign investment income, e.g. dividend/interest. 
  • Foreign pension income 
  • Foreign property income 
  • Foreign social security benefits 
  • Profits of a trade carried on wholly outside the UK 
  • Royalties and other income from intellectual property 
  • Sale of foreign assets 

Which sources will not qualify for FIG?

There are some excluded sources which are not eligible for a FIG claim, these include;  

  • Chargeable event gains from Offshore Life Insurance Bonds,  
  • Foreign earnings 
  • Foreign-specific employment income.   

Overseas Employment Income is one of the trickier areas and is one where the concept of domicile will continue to play a part in the UK tax system. We discussed the changes previously when we deliver into the new residence regime replacing domicile

We would always recommend seeking professional advice in relation to specific income sources when considering if it is qualifying for FIG. 

Are there any tax drawbacks to consider?

When a FIG election is made, the individual will lose their entitlement to the UK tax-free personal allowance, currently £12,570 (2025/26) and their Capital Gains Tax annual exemption, currently £3,000 (2025/26).  

It is therefore important to consider these points and establish which method of calculation produces the most tax-efficient result.   

The claim for FIG is not automatic and must be made annually via the self-assessment tax return.  The claim for each tax year is an independent assessment and can be chosen based in the most tax-efficient manner.   

What will HMRC expect from a FIG claim?

Somewhat disappointingly, HMRC appear to be insisting that any future Tax Returns which make a claim for FIG relief to also include full details of the overseas income and gains relative to the exemption claim each tax year.  

Whilst this may not sound unreasonable, these individuals could have multiple, long-term overseas investments, some or all of which may not be neatly fit into the UK tax legislation in terms of readily applying the correct notional UK tax treatment. For example, a discretionary investment portfolio, managed for +20 years overseas, will potentially require analysis of every fund/bond/security, to then identify if subject to UK income tax or instead capital gains tax.

If the latter is the case, then multiple ‘share pool’ calculations, essentially collating every single acquisition and disposal for each individual security for those +20 years, will be needed. It will be necessary to identify every transaction from inception to date, converting at each point to GBP. Only then can any gain on sale be calculated according to UK tax rules. 

All these additional calculations will be required by HMRC, despite there being no actual UK tax due. 

Anything else to consider?

For those who have never had to file a UK tax return, they will have to register for self-assessment in order to be able to make the claim. If you have just become tax resident in the current tax year, 2025/26, you must first register with HMRC to file a UK Tax Return on or before 5 October 2026 (6 months after the tax year end). Thereafter, the 2026 UK Tax Return must be submitted to HMRC before 31 January 2027. 

Our Private Client International Tax team are perfectly placed to help with any questions or reporting relating to the new FIG regime. Please do not hesitate to get in touch with Carol Edwards, Annabel Jagger or your usual AAB contact if you would like to discuss how we can help. 

4 Tips When Choosing Whistleblowing Software

Why Case Management Matters in Whistleblowing Software

Good whistleblowing software does not just collect reports. It helps you manage them clearly, confidentially, and consistently. Without proper case management in place, reports can fall through the cracks, responses can be delayed, and the trust you have worked hard to build with your employees across your business can quickly unravel.

Whether you are managing a complex investigation or a simple policy concern, your business needs a system that tracks every step, keeps communication secure, and ensures cases are dealt with fairly. That is what gives employees the confidence to come forward and raise concerns.

Case management is not just helpful, it is crucial for ensuring the whistleblowing process functions effectively. It involves a structured approach to handling disclosures, from initial reporting to resolution, ensuring fairness, consistency, and protection for all involved.

Here are four essential tips to consider before you commit to choosing your whistleblowing case management platform:

1. Is the Case Management System User-Friendly?

If the case management process is confusing or overly technical, it creates barriers, not just for the person reporting, but for the team managing the case, too. For employees, simplicity is key. They need to feel confident that they can raise a concern quickly and anonymously if needed. If the process feels daunting or unclear, they are less likely to raise an issue, and that silence can be costly.

The best whistleblowing Case Management software makes the entire process seamless. From submission to closure, every step should be intuitive, transparent, and structured in a way that builds trust.

2. Can You Track and Manage Cases Confidentially?

Confidentiality is not optional when it comes to whistleblowing – it is essential. If employees do not trust that their identity or concern will be handled discreetly, they will not report the issue. That is why any whistleblowing software must offer secure, compliant case management from start to finish.

A secure Case Management system should include encrypted data storage, strict access controls, and clear audit trails. Sensitive information must be protected at every stage. The personal data should be managed in line with data protection compliance.

3. Does It Allow for Consistent and Fair Case Handling?

Fair outcomes start with fair processes. Good whistleblowing software supports fair case handling by standardising the process. That means predefined workflows, clear timelines, and built-in checks to make sure nothing is missed.

Consistency also makes it easier to demonstrate your organisation’s commitment to doing the right thing. Whether it is an internal audit or an external investigation, you will have a clear, traceable record of how every case was handled.

4. How Easily Can You Report, Review, and Resolve?

An effective whistleblowing system does not just collect reports; the journey to resolution needs to be clear, secure, and well-structured, with the following key elements included:

  • Reporting – The process should be simple and accessible. Whether an employee is on a desktop computer or a mobile device, they should be able to raise a concern without fuss or fear.
  • Review – Case handlers need the tools to assess reports quickly, assign responsibility, and gather the facts, all while protecting confidentiality.
  • Resolution –The software should support clear outcomes, document every step, and keep everything in one secure place.

More Than a Tick-Box Exercise

Whistleblowing software is not just a compliance requirement; it is a crucial part of building a culture where people feel safe to raise concerns and confident that they will be heard. That is why choosing the right tool is not about ticking boxes. It is about finding a solution that genuinely supports trust, transparency, and accountability.

How can AAB Help?

AAB offers a comprehensive, independent whistleblowing service designed to empower employees to report concerns confidentially and without fear. Their 24/7 whistleblowing services support organisations of all sizes from SMEs to enterprises by providing multiple reporting channels, secure case management, multilingual reporting options, and expert guidance on ethical compliance. This service not only helps in identifying and addressing workplace issues promptly, but also fosters a culture of transparency and accountability.

AAB delivers whistleblowing solutions to companies globally. Speak with our team today and receive a whistleblowing quote. Alternatively, for more information, contact Sean McAuley or Louise Cheyne.

What Do Northern Ireland businesses want in the Spring Statement?

With Chancellor Rachel Reeves set to deliver the Spring Statement tomorrow (26th March), business owners across Northern Ireland (NI) will be watching closely. The October 2024 Autumn Budget brought significant changes—some beneficial, others burdensome—particularly for small and medium businesses trying to navigate an already challenging economic landscape.

As we reflect on how businesses have coped, there’s also an opportunity to push for fresh, forward-thinking policies. What should be on the wish list? Let’s explore what we need—and what we dare to dream for—in the upcoming Spring Statement and beyond.

Red Tape: Key challenges the October 2024 Budget had on NI businesses

1.Higher employer costs

The increase in Employer National Insurance Contributions (NICs) from 13.8% to 15% and the reduced threshold from £9,100 to £5,000 have placed financial pressure on employers, forcing some SMEs to reconsider expansion plans—or even cut jobs to stay afloat.

2.Capital gains and Inheritance tax changes

The rise in CGT rates (from 10% to 18% for basic rate taxpayers and 20% to 24% for higher rate taxpayers) has made succession planning more expensive. Meanwhile, the £1 million cap on business and agricultural property reliefs could lead to forced sales of family-run businesses.

3.End of Non-Domiciled tax status

The scrapping of the non-domiciled tax regime aims to bring in more revenue but could make Northern Ireland less attractive to foreign investors and highly skilled expatriates.

4.Increased public funding – But will it benefit businesses?

The additional £1.5 billion allocated to the Northern Ireland Executive is welcome, but business leaders are still waiting to see whether any of this will translate into direct support for the private sector.

Rocket Fuel: An NI’s Business Wishlist for the Spring Budget

Northern Ireland’s business community is resilient, innovative, and fiercely independent—but let’s face it, the tax system isn’t exactly built for speed. With economic uncertainty still lingering, we need bold moves, not just cautious tweaks. So, if chancellor Rachel Reeves really wants to ignite growth, investment, and entrepreneurial spirit, here’s a wish list that might sound ambitious—but isn’t that the point?

1. Tax breaks for innovation and sustainability

Many NI businesses are at the forefront of renewable energy, AI, and agri-tech, but investing in the future comes with high upfront costs.

Wish list idea: “Innovator’s tax credit”—a turbo-charged version of R&D tax relief for AI, automation, green energy, and export-driven tech. This would help SMEs compete globally and drive the economy forward.

2. The tax-free hiring incentive

Hiring should be a sign of success, not a financial risk. The NICs hike has made expansion tougher for small businesses.

Wish list idea: A two-year NICs “growth exemption”—where SMEs creating new full-time jobs pay zero employer NICs on those roles for the first 24 months.

3. A “Brexit Buffer” for Northern Ireland’s unique position

Post-Brexit trade rules remain a headache for businesses trading with both Great Britain and the EU.

Wish list idea: A special tax status for NI businesses, with simplified VAT rules and tariff exemptions for SMEs trading cross-border.

4. A Digital Tax System that’s actually user-friendly

HMRC’s digital systems are clunky and time-consuming, making tax compliance a nightmare.

Wish list idea: A “Business tax dashboard”, where firms can see all obligations in one place, get automated updates, and even receive AI-driven insights on how to reduce liabilities.

5. Business Rates Reform: If not relief, then at least fairness

Unlike England, NI does not have sector-specific business rates relief, meaning high-street retailers and the hospitality sector continues to struggle.

Wish list idea: A “fair tax” model, where small brick-and-mortar businesses get an automatic rate cut if their revenues drop below a certain threshold.

6. The “tax-free first million” for startups

Startups face immediate tax pressures before they even turn a profit.

Wish list idea: The “tax-free first million” initiative—where new businesses pay zero corporation tax on their first £1 million in turnover during their first three years.

7. A “work anywhere” tax break to attract global talent

With remote work becoming the norm, NI could attract global professionals and investors.

Wish list idea: A “work anywhere” tax incentive—reduced income tax for remote workers who relocate to Northern Ireland, boosting the local economy.

What’s next?

The Spring Statement could be an opportunity to break free from short-term fixes and set the stage for long-term success. Will we see bold, business-friendly policies that fuel growth? Or just more tax tweaks that keep small businesses in survival mode?

Let’s stop playing it safe and start betting on Northern Ireland’s potential.

If you have any queries about this article, please do not hesitate to get in contact with Malachy McLernon, or your usual AAB contact.

 

Gender Pay Gap Reporting: How can HR Professionals Drive Change

Gender pay gap reporting has been a legal requirement for many UK employers since 2017, yet it remains a hot topic amongst us HR professionals. With public and organisational scrutiny of pay disparities showing no sign of easing, the responsibility to deliver transparent, accurate, and meaningful reports has never been greater.

In today’s world, the Gender Pay Gap remains a significant barrier to equality. Despite advancements in many areas, discrepancies in pay between genders persist, hindering not just individuals but organisations and the economy overall. A diverse workforce, where everyone is paid fairly, is a more innovative, creative, and productive one. Hence, addressing the gender pay gap is not just ethically right, it’s a practice we would consider commercially astute too.

As we approach another reporting deadline, are you confident you’re not just meeting the requirements but leveraging the process to make a meaningful impact?

Gender Pay Gap Reporting Requirements for Employers

The process of gathering and submitting gender pay gap data is not a simple task. It requires meticulous data collection, sorting, and analysis. Payroll software can support this, but our experience tells us that often the numbers can be more complex to manage than initially expected and shouldn’t be underestimated.

The Gender Pay Gap data must be accurate and submitted on time:

  • Public Sector Employers: Public sector organisations must report by 30 March each year.
  • Private Sector and Voluntary Organisations: Private companies and voluntary organisations have until 4 April each year to report their data.

Submitting your data is just the initial, surface-level requirement. The real work lies in interpreting the data and crafting a narrative around what it means for your organisation in practice. This narrative is crucial because it provides context for the numbers and can help explain why the gap exists, what steps are being taken to close it, and how it aligns with the company’s broader diversity and inclusion goals. It’s the most visible part of your submission and is likely to be scrutinised by your employees, investors, competitors, media, and the public. So, getting it right is essential!

What HR Professionals Can Do to Drive Change

Understanding the regulations and publishing your report is just the start. To truly tackle the gender pay gap, HR teams must think strategically. Here are some practical steps to consider:

  1. Conduct a Deeper Analysis
    Don’t stop at the mandatory calculations. Dig into the data to understand the root causes of pay disparities in your organisation. Is it a lack of women in senior roles? Are specific departments skewed heavily male or female?
  2. Create a Narrative
    When publishing your report, include a clear narrative that explains the numbers and outlines your action plan. This can help contextualise the data and reassure stakeholders that you’re addressing any issues.
  3. Prioritise Career Development for Women
    One of the most common causes of pay gaps is the underrepresentation of women in senior roles. Review your talent pipelines and invest in leadership development programmes targeted at women.
  4. Review Recruitment Practices
    Biases in recruitment can perpetuate pay gaps. Audit your hiring practices to ensure you’re attracting diverse talent pools and offering equitable starting salaries.
  5. Introduce Flexible Working Policies
    Care responsibilities often disproportionately affect women, making it harder for them to progress in their careers. Flexible working arrangements can help create a more level playing field for all.
  6. Monitor Progress Regularly
    Gender pay gap reporting isn’t a one-and-done task. Regularly track your progress and adjust your strategies as needed. Consider setting internal benchmarks to measure improvements year-on-year.

The Future of Gender Pay Gap Reporting

While the regulations currently apply to organisations with 250 or more employees, there have been calls to lower the threshold, bringing smaller employers into scope. Similarly, there is growing momentum for ethnicity pay gap reporting, which could soon become mandatory. Staying ahead of these changes will require HR teams to adopt a proactive, data-driven approach to pay equity which, whilst a time-consuming task, can help HR professionals drive change in their organisations, and lead to creating more inclusive and diverse workplaces.

Gender pay gap reporting may feel like a compliance exercise, but it’s so much more than that. It’s an opportunity to reflect on your organisation’s culture, policies, and practices. The numbers are important, but what you do with them and how they are communicated give opportunities to bring real benefits to organisations, their internal teams, and when attracting new talent.

As you prepare your next report, take the time to go beyond the legal requirements. Engage with leadership, communicate transparently with employees, and focus on building a workplace where everyone can thrive. If you have any queries about gender pay gap reporting please do not hesitate to get in contact with Rachel Coupland or your usual People team contact.