Every week, we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely, as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles, this content is general in nature and should not be used as the sole basis for making decisions.
The Marshmallow Saga
This was a case where HMRC thought that Mega Marshmallows were standard-rated as sweets, but the manufacturers contended that they were zero-rated, more like ordinary foodstuffs. The question went all the way to the Court of Appeal before being sent back to the start, the First Tier Tribunal, for the latest decision.
Mini marshmallows are zero-rated as they are viewed as being for cooking (used to decorate cakes or hot drinks), whereas normal-sized marshmallows are standard-rated as these are eaten straight from the bag.
So we end up with a case that comes down to not what the product is, but the manner in which it is marketed and eaten. Mega Marshmallows are sold primarily for toasting or melting and not for being eaten in the fingers.
Remember the Jaffa cake case. In 2014, there were also the chocolate-covered marshmallow treats called snowballs. It was decided that the snowballs could be treated as zero-rated cakes.
This is yet another absurdly expensive VAT food case, with barristers on both sides, and this time involving a dispute over excessively large marshmallows, which won the day as they require cooking or roasting on a barbecue or open fire using skewers, and presumably tongs, not by hand alone for various reasons.
HMRC and Director’s Loan Accounts
HMRC is consulting on the introduction of draconian reporting requirements on directors’ loan accounts and participator loans to connected companies. The move is designed to target the enormous small business tax gap.
The proposals to clamp down on potential abuse of close company loans to participants will affect owner-managed businesses and small companies, although HMRC has not yet put a figure on the number likely to be affected by the rule change. Likewise, there is no timetable for the changes, although it is likely to be introduced quickly as it is part of the government’s wider anti-tax avoidance strategy.
The government is proposing to extend the requirement in future to include instances where close companies release or write off loans to their participants. It will also require much more detail on dividend transactions and gains.
HMRC Whistleblower Reward Scheme
The introduction of financial incentives for whistleblowers from April 2026 is likely to change how tax risks reach HMRC. While the department has long received tip-offs from employees, competitors and other connected parties, a clearer reward structure may increase both the volume and seriousness of disclosures.
Under the scheme, informants may receive between 15% and 30% of recovered tax where their information leads to recoveries exceeding £1.5m.
One immediate consequence of the scheme is likely to be an increased incentive for individuals with knowledge of a company’s tax affairs to report concerns directly to HMRC. Employees in finance or accounts teams, former directors, minority shareholders and business partners may all have visibility of transactions they consider questionable, even where the underlying tax position is defensible.
Once a disclosure is made, HMRC may use the information as intelligence to open enquiries or begin gathering further evidence.
HMRC’s guidance on reporting serious tax avoidance or evasion also advises potential informants not to investigate the activity themselves, alert people that a report will be made, or encourage anyone to commit a crime in order to obtain further information.
The introduction of financial incentives for whistleblowers reinforces HMRC’s broader shift towards intelligence-driven enforcement. Rather than emerging solely through routine compliance activity, tax risks may increasingly come to light through individuals with operational knowledge of a business.
National Living Wage
The national living wage for over-21s will increase by 50p per hour from 1 April to £12.71 from £12.21, while the national minimum wage goes up by 8.5% to for 18 to 20-year-olds to £10.85 per hour from £10, narrowing the gap with the NLW.
This will mean an annual earnings increase of £1,500 for a full-time worker on the national minimum wage, and marks further progress towards the government’s goal of phasing out 18 to 20-year wage bands and establishing a single adult rate.
For a full-time worker on the national living wage, that means an increase in pay of £900 a year, and a £1,500 increase for someone on the national minimum wage, working full-time.
Rates effective 1 April 2026
| Type | NMW rate | Increase £ |
| National Living Wage (21 and over) | £12.71 | 50p |
| 18-20 year old rate | £10.85 | 85p |
| 16-17 year old rate | £8.00 | 45p |
| Apprentice rate | £8.00 | 45p |
| Accommodation offset | £11.10 | 44p |
Alongside this, from 6 April, the lower earnings limit and waiting period will be removed for statutory sick pay (SSP), while paternity leave and unpaid parental leave will become a day one employment right.
From the new tax year 2026-27, statutory sick pay will have to be paid from the first day of absence, instead of the fourth day as it is currently, and low earners will become entitled to SSP as the lower earnings limit is removed, increasing costs for employers.
It will be payable to all eligible employees regardless of their earnings, payable from the first full day of sickness absence and paid at 80% of an employee’s average weekly earnings (AWE) or the uprated weekly flat rate of £123.25, whichever is lower. Based on government estimates, the extension of sick pay is expected to cost employers £420m a year.
Business Property Relief
Comparatively little has been written about the changes to the BPR regime and their likely impact on non-farming business owners.
As from 6 April 2026, BPR and APR will be available at 100% on qualifying property, subject to a combined limit of £2.5m of BPR and APR property for inheritance tax (IHT) purposes.
Anything in excess may qualify for 50% relief (provided the other conditions are met). Any unused allowance is transferable between spouses/civil partners.
Property that qualifies for 100% BPR includes:
- A sole trader business, or interests in partnerships or limited liability partnerships (LLPs);
- Securities giving control of unquoted companies nottraded on a recognised stock exchange; and
- Unquoted company shares nottraded on a recognised stock exchange.
Generally, the asset must have been held by the donor for at least two years.
For an interest in a business to qualify for BPR, the business must be a trading business and not consist wholly or mainly of making or holding investments.
In contrast to inheriting BPR property on death, a lifetime transfer between spouses will not result in the spouse inheriting the donor’s ownership period. They will need to hold the property for the required two-year period in order to qualify for the relief.
Whilst the increased £2.5m allowance reduces the immediate impact of the changes for some business owners, the changes do nonetheless mean that many estates and trusts will face higher IHT liabilities than before (or a liability where there may previously have been none).
Some will need to obtain valuations for the first time in order to calculate their likely tax exposure, with a view to working out how to fund that cost.
Splitting the ownership of business assets could lead to a valuation benefit in terms of a possible joint ownership or minority discount. Many valuable businesses could therefore benefit (at least from an IHT mitigation point of view) by being split into smaller parts, although other factors, such as the obvious loss of control, will need to be weighed against that benefit.
General planning points
- Obtain updated valuations of assets qualifying for BPR. Consideration should be given to whether any appropriate discounts (eg, minority or joint ownership) should apply, as the valuation of assets qualifying for BPR will become ever more important. Splitting ownership may also become more important.
- Consider whether existing life policies intended to cover IHT will still cover the full amount following the introduction of the new rules.
- For BPR assets worth more than £2.5m, it will be crucial to consider funding the anticipated IHT liability as part of the overall business/estate/trust planning. Every case will be different, and it is therefore important that you take advice specific to your personal circumstances.
Reclaiming VAT on Company Cars
Generally, VAT recovery on the purchase of a motor car is wholly blocked.
To recover VAT, the vehicle must be used exclusively for business purposes and not be ‘available for private use’.
If the company leases the car, the ‘block’ can be reduced, and partial recovery is possible. A standard 50% block applies to the input VAT on the lease payments (to account for private use).
This means the business can reclaim the remaining 50% of the VAT.
If the lease includes a separately invoiced maintenance charge, the business can typically recover 100% of the VAT on that maintenance element (subject to the normal input tax recovery rules).
If the lease contract is terminated early, these fees are treated as further consideration for the lease, so the 50% block will also apply to them.
If acquiring the vehicle via personal contract purchase (PCP) or hire purchase (HP), further steps must be considered to determine if the agreement is categorised as a supply of goods in the case of the purchase of a car, or as a supply of services for the lease of a car, for VAT purposes.
With private use involved, purchasing allows for 0% VAT recovery, whereas leasing allows a standard 50% recovery on the rental fee and potentially 100% on maintenance. Therefore, leasing can be more advantageous for VAT recovery in this scenario.
New Invoice Payment Deadline
The new rules will come into force sometime after April 2027.
A major shakeup of late payment rules will impose maximum payment terms of 60 days, and interest will be charged on all late payments at 8% above the Bank of England base rate, so 11.75% under the current rate.
Legislation will be introduced as soon as parliamentary time allows.
This will affect large businesses with turnover above £54m, balance sheet threshold above £27m and/or 250 employees.
There will be a 60-day cap on payment terms on all large firms when paying smaller suppliers, and mandatory interest on late payments, with a requirement for all commercial contracts to include statutory interest set at 8% above the Bank of England base rate.
The proposed legislation will also ban the withholding of retention payments under the terms of construction contracts, with ongoing consultation over this change.
Questions?
If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at alan.long@thelongpartnership.co.uk.
