Introduction

Chancellor of the Exchequer Rachel Reeves set out tax-raising measures worth up to £26 billion in the Autumn Budget on 26 November 2025.

The increases will be achieved through a range of measures, including extending the freeze on Income Tax thresholds for a further three years.

Tax increases

In addition to maintaining Income Tax thresholds, taxes on property, dividend and saving income will be increased.

The Budget also announced employee and employer National Insurance contributions (NICs) on salary sacrifice pension contributions above £2,000 a year and introduced a tax on homes valued at £2 million or more.

That is my choice

On spending, Ms Reeves took action to cut energy bills, freeze rail fares and end the two-child benefit cap.

Ms Reeves said: ‘I can tell you today that, for every family we are keeping our promise to get energy bills down and cut the cost of living with £150 taken off the average household energy bill from April.
‘Money off bills, and in the pockets of working people. That is my choice.’

Personal Tax

Tax bands and rates

The basic rate band remains at £37,700, with the higher rate threshold remaining at £50,270. The additional rate threshold remains at £125,140. The freeze of these thresholds will continue until April 2031. The NICs Primary Threshold and Lower Profits Limit remain at £12,570. The NICs Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 up to April 2031 as well. Other employer NICs relief thresholds aligned to the Upper Earnings Limit will also be maintained at this level.

The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK.

Scottish residents

The tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland from that paid by taxpayers resident elsewhere in the UK. The Scottish Income Tax rates and bands apply to income such as employment income, self-employed trade profits and property income.

The rates and bands for 2026/27 will be announced in the Scottish Budget. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK.

Welsh residents

Since April 2019 the Welsh Government has had the right to vary the rates of Income Tax payable by Welsh taxpayers (other than tax on savings and dividend income). For 2025/26 the tax payable by Welsh taxpayers is the same as that payable by English and Northern Irish taxpayers. This will continue for 2026/27.

The personal allowance

The Income Tax personal allowance is fixed at the current level of £12,570 and will remain frozen until April 2031.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. This means that there is no personal allowance where adjusted net income exceeds £125,140.

The government will increase the married couple’s allowance and blind person’s allowance from 6 April 2026 by the CPI rate for September 2025 of 3.8%.

Tax on property income

Property income is any income from letting land and buildings.
Individuals have a Property Allowance. This exempts property income of £1,000 or less. Property income over £1,000 can be offset either by the £1,000 Property Allowance or by deducting relevant expenses.

The government is introducing the following separate tax rates for property income from 2027/28:

• 22% for basic rate taxpayers
• 42% for higher rate taxpayers
• 47% for additional rate taxpayers.

Tax on savings income

Savings income is income such as bank and building society interest.
The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of Income Tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

Savings income within the allowance still counts towards an individual’s basic or higher rate band and so may affect the rate of tax paid on savings above the Savings Allowance.
Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. This will remain at £5,000 until 5 April 2031. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000.

The current tax rates on savings income will be maintained for 2026/27. From 6 April 2027, there will be a 2% increase in the applicable tax rates. The basic rate will increase to 22%, the higher rate will increase to 42% and the additional rate will increase to 47%.

Tax on dividends

Currently, the first £500 of dividends is chargeable to tax at 0% (the Dividend Allowance). This £500 is retained for 2026/27.
These rules apply to the whole of the UK.
From 6 April 2026, there will be a 2% increase in the ordinary and upper rates of Income Tax applicable to dividends. The additional rate will remain unchanged at 39.35%
Dividends received above the Dividend Allowance will be taxed at the following rates for 2026/27:

• 10.75% for basic rate taxpayers
• 35.75% for higher rate taxpayers
• 39.35% for additional rate taxpayers.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

Income Tax ordering rules

The Income Tax ordering rules will change from 6 April 2027. The personal allowance will be deducted from employment, trading or pension income first. Currently, individuals can choose which income the allowance is offset against.

Pension tax limits

For 2026/27:

• The Annual Allowance (AA) is £60,000.
• Individuals who have ‘threshold income’ for a tax year of greater than £200,000 have their AA for that tax year restricted. It is reduced by £1 for every £2 of ‘adjusted income’ over £260,000, to a minimum AA of £10,000.
• The Lump Sum Allowance, which relates to the general maximum that may be able to be taken as a tax-free lump sum, is £268,275.
• The Lump Sum and Death Benefit Allowance, which relates to the general maximum that may be able to be taken as a tax-free lump sum in certain circumstances, is £1,073,100.

Individual Savings Accounts

For 2026/27, the limits are as follows:

• Individual Savings Accounts (ISAs) £20,000
• Junior ISAs £9,000
• Lifetime ISAs £4,000 (excluding government bonus)
• Child Trust Funds £9,000.

These limits will remain frozen until 5 April 2031.

From 6 April 2027, the annual ISA cash limit will be set at £12,000. The remaining £8,000 will be designated for stocks and shares ISA investment. This restriction will not apply for those over the age of 65, where the cash ISA limit will remain at £20,000.

Employment

National Insurance contributions

Employees

For 2025/26 the rates of Class 1 employee NICs are 8% and 2%. The employer rate is 15%.

The Secondary Threshold is the point at which employers become liable to pay NICs on an individual employee’s earnings and is currently set at £5,000 a year from 6 April 2025. The government announced that this will be maintained at this level until April 2031.

The Employment Allowance allows eligible businesses with employer NICs bills to deduct £10,500 from their employer NICs bill.

The self-employed

For 2025/26 the rates of Class 4 self-employed NICs are 6% and 2%. These rates remain the same for 2026/27.

For Class 2 NICs from 6 April 2025:

• Self-employed people with profits of £6,845 and above get access to contributory benefits, including the State Pension, through a National Insurance Credit, without paying Class 2 NICs.
• Those with profits under £6,845 who pay Class 2 NICs voluntarily to get access to contributory benefits, including the State Pension, will continue to be able to do so.

Changes for 2026/27

The government will increase the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) from 2026/27. For those paying voluntarily, the government will also increase Class 2 and Class 3 NICs for 2026/27.

The LEL will be £6,708 per annum (£129 per week) and the SPT will be £7,105 per annum. The main Class 2 rate will be £3.65 per week and the Class 3 rate will be £18.40 per week.

Employer NICs relief for veterans

The government will extend the employer NICs relief for employers hiring qualifying veterans to April 2028.

This means that businesses continue to pay no employer NICs up to annual earnings of the Veterans Upper Secondary Threshold of £50,270 for the first year of a veteran’s employment in a civilian role.

National Living Wage and National Minimum Wage

The government has announced increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW) which will come into force from 1 April 2026. The rates which will apply are as follows: 

The apprenticeship rate applies to apprentices under 19 or 19 and over in the first year of apprenticeship. The NLW applies to those aged 21 and over.

Taxable benefits for company cars

The rates of tax for company cars are amended for 2026/27:

• the charge for zero emission cars rises from 3% to 4%
• the charge for other cars with emissions below 75g/km increases by 1%
• the maximum benefit of 37% remains.

The government has confirmed increases to the benefit in kind rates for company cars for tax years up to and including 2029/30.

The government announced that it is introducing a temporary easement to mitigate the increasing benefit in kind tax liabilities of plug-in hybrid electric vehicle (PHEV) company cars due to new emission standards. The easement will apply retrospectively from 1 January 2025 to 5 April 2028. Transitional arrangements will apply to certain PHEVs until 5 April 2031.

Car fuel benefit charge

The government will increase the car fuel benefit charge from 6 April 2026.

Company vans

The government will increase the Van Benefit Charge and the Van Fuel Benefit Charges from 6 April 2026.  

Mandating the reporting of benefits in kind via payroll software

The government confirms that the use of payroll software to report and pay tax on benefits in kind will become mandatory, in phases, from April 2027. This will apply to income tax and Class 1A NICs.

Tackling tax non-compliance in the umbrella company market

To tackle the significant levels of tax avoidance and fraud in the umbrella company market, the government will make recruitment agencies responsible for accounting for PAYE and Class 1 NICs on payments made to workers that are supplied via umbrella companies.

Legislation will be introduced to make employment agencies or end clients joint and severally liable for any amount required to be accounted for under the PAYE provisions, where an umbrella company forms part of a labour supply chain. Further legislation will be introduced which will impose an equivalent joint and several liability for NICs purposes.

This will allow HMRC to pursue an agency in the first instance for any payroll taxes that a non-compliant umbrella company fails to remit to HMRC on their behalf.  The end client will be liable if contracting directly with an umbrella company.

Where there is no agency, the responsibility will fall to the end client business.

This will take effect from 6 April 2026. The measure will protect workers from large, unexpected tax bills caused by unscrupulous behaviour from non-compliant umbrella companies.

Ending contrived car ownership schemes

The government is amending the benefit in kind rules so that vehicles provided through employee car ownership arrangements will be deemed to be taxable benefits when made available on restricted terms.

Under these arrangements an employer or a third party sells a car to an employee, often via a loan with no repayment terms and negligible interest, then buys it back after a short period.

These arrangements mean those benefiting don’t pay company car tax, which other employees pay, and so this measure will seek to level the playing field.

Arrangements existing prior to commencement will continue without a change in treatment until the earlier of the arrangement being varied, renewed, or 6 April 2032.

There will also be an exemption from the benefit in kind rules for vehicles provided on arm’s length terms within the motor industry.

The government has confirmed its intention to delay the operative date to 6 April 2030.

Changes to salary sacrifice for pensions from April 2029

The government is changing how salary sacrifice for pension contributions works.
Salary sacrifice is when you agree to reduce your gross salary or sacrifice a bonus and, in return, your employer pays the same amount into your pension.

From April 2029, only the first £2,000 of employee pension contributions through salary sacrifice each year will be exempt from NICs. Contributions through salary sacrifice, like all pension contributions, will still be exempt from Income Tax (subject to the usual limits).
Employers and employees can still make contributions above £2,000 through salary sacrifice arrangements. However, employee contributions above this amount will be subject to employer and employee NICs like other employee workplace pension contributions.
Employers will need to report the total amount sacrificed through their existing payroll. All employer pension contributions will continue to be free of NICs.

Employees, as well as employers, will pay NICs on the amount above £2,000 for employee contributions through salary sacrifice.

Employees who choose to salary sacrifice to receive Tax Free Childcare or Child Benefit can keep doing so.

Expanding workplace benefits relief

This measure will introduce new legislative exemptions for the reimbursement of eye tests, flu vaccines and home working equipment.

Under current law, the exemption only applies where the employer provides the benefit directly. This change will ensure that reimbursements are treated in the same way.

This will have effect on or after 6 April 2026.

Removal of tax relief on non-reimbursed homeworking expenses

This measure will remove the tax relief available to employees who have incurred additional household costs if they are required to work from home. These costs include increased household utility costs and business telephone calls.

It will only apply to those employees who have not had these costs reimbursed by their employer.

This will not impact the existing ability for employers that reimburse employees for costs relating to homeworking where eligible without deducting Income Tax and NICs.

This will take effect from 6 April 2026.

Business

Corporation Tax

The government has confirmed that the rates of Corporation Tax will remain unchanged, which means that, from April 2026, the rate will stay at 25% for companies with profits over £250,000. The 19% small profits rate will be payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.

Comment
The government has committed to capping the main rate of Corporation Tax at 25% for the duration of the Parliament.

The penalty for taxpayers submitting a Corporation Tax return late will double for returns for which the filing date is on or after 1 April 2026.

Capital allowances

The Full Expensing rules for companies allow a 100% write-off on qualifying expenditure on most plant and machinery (excluding cars) as long as it is new and unused. Similar rules apply to integral features and long-life assets at a rate of 50%.

The government will reduce the main rate Writing Down Allowance (WDA) from 18% to 14% per year from 1 April 2026 for Corporation Tax purposes and 6 April 2026 for Income Tax purposes. For businesses with chargeable periods which span 1 April (Corporation Tax) or 6 April (Income Tax), a hybrid rate will apply. The WDA on the special rate pool remains at 6% per year.

For expenditure incurred on or after 1 January 2026, the government will introduce a new first year allowance (FYA) of 40% for all businesses on main rate assets, including most expenditure on assets for leasing. Cars, second-hand assets and assets for leasing overseas will not be eligible.

The Annual Investment Allowance is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit remains at £1 million.

The 100% FYA for qualifying expenditure on zero-emission cars and the 100% FYA for qualifying expenditure on plant or machinery for electric vehicle chargepoints have been extended to 31 March 2027 for Corporation Tax purposes and 5 April 2027 for Income Tax purposes.

Targeted Research and Development Advance Assurance Service

The government will pilot a targeted advance assurance service from spring 2026. This will enable small and medium-sized enterprises to gain clarity on key aspects of their Research and Development (R&D) tax relief claims before submission to HMRC. A summary of responses to the advance clearance consultation will also be published.

Advance Tax Certainty Service

A new Advance Tax Certainty Service will be launched in July 2026. This will provide major investment projects in the UK with certainty on the application of tax law to their specific circumstances. Qualifying project expenditure must be at least £1 billion. Subject to full initial disclosure of all material facts, a clearance will bind HMRC for five years, and may be renewed for a further five years.

Enterprise Investment Scheme and Venture Capital Trusts investment limit increase and restructure

The government has announced significant changes to the limits applying to the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) from 6 April 2026. The gross assets requirement that a company must not exceed for EIS and VCTs will increase from £15 million to £30 million immediately before the issue of the shares, and from £16 million to £35 million immediately after the issue. The annual investment limit that companies can raise will increase from £5 million to £10 million. For Knowledge-Intensive Companies (KICs), the annual investment limit will increase from £10 million to £20 million. The company’s lifetime investment limit will increase to £24 million and for KICs to £40 million. The Income Tax relief that can be claimed by an individual investing in VCTs will decrease from 30% to 20%.

Expanding the eligibility limits of the Enterprise Management Incentives scheme

The government is also increasing certain limits relating to the Enterprise Management Incentives (EMI) scheme. For EMI contracts granted on or after 6 April 2026, the employee limit will increase from 250 employees to 500 employees, the gross assets test will be increased from £30 million to £120 million, and the company share option limit will be increased from £3 million to £6 million. The limit on the exercise period will increase to 15 years, and will also apply retrospectively to existing EMI contracts which have not already expired or been exercised.

UK Listing Relief

The government has announced an exemption from the 0.5% Stamp Duty Reserve Tax (SDRT) charge on agreements to transfer securities of a company whose shares are newly listed on a UK regulated market. This measure will have effect for agreements to transfer made on or after 27 November 2025. The exemption will apply for a three-year period from the listing of the company’s shares. The exemption will not apply to the 1.5% SDRT charge, or where the transfer forms part of a merger or takeover where there is a change of control.

Capital Taxes

Capital Gains Tax

Capital Gains Tax rates

The Capital Gains Tax rates remain unchanged for 2026/27.

Capital Gains Tax annual exemption

The annual exempt amount will remain at £3,000 for 2026/27.

Employee Ownership Trusts

The current relief available for qualifying disposals by business owners selling their shares to Employee Ownership Trusts (EOTs) is a 100% exemption of any gain. From 26 November 2025, the relief will only exempt 50% of the gain. Business Asset Disposal Relief and Investors’ Relief will not be available where the 50% exemption has been claimed. The remaining 50% of the gain on disposal will not form part of the disposer’s chargeable gain. Instead, 50% of the gain will be held over and deducted from the trustees’ acquisition cost. This will mean that it will come into charge on any subsequent disposal or deemed disposal of the shares by the trustees of the EOT.

Incorporation Relief

The government will introduce a requirement for taxpayers to actively claim incorporation relief for transfers of a business to a company on or after 6 April 2026. The relief previously applied automatically.

Business Asset Disposal Relief

The rate applying for individuals claiming Business Asset Disposal Relief and Investors’ Relief will increase to 18% for disposals made on or after 6 April 2026.

Carried interest rates and reform

From April 2026, all carried interest will be taxed within the income tax framework. A multiplier of 72.5% will be applied to any qualifying interest brought within the charge.

Inheritance Tax

Inheritance Tax nil rate bands

The nil rate band has been frozen at £325,000 since 2009 and will continue to be frozen until 5 April 2031. An additional nil rate band, called the ‘residence nil rate band’ is also frozen until 5 April 2031 at the current £175,000 level, as is the residence nil rate band taper starting at £2 million.

Unused pension funds and death benefits

The government will bring unused pension funds and death benefits payable from a pension into a person’s estate for Inheritance Tax (IHT) purposes from 6 April 2027.

All death in service benefits payable from registered pension schemes will be excluded from the value of an individual’s estate for IHT purposes.

The personal representatives will be responsible for paying any IHT due on unused pension funds and death benefits in a person’s estate. However, pension beneficiaries of registered pension schemes will be able to request the pension scheme administrator pay their IHT liability directly to HMRC in specific circumstances. They may also direct scheme administrators to withhold 50% of taxable benefits for up to 15 months.

Comment

The rules may potentially have significant effects for those with pension funds.

For example, John made contributions to his private pension scheme. At the date of his death, aged 90, the pension fund is valued at £400,000. The remainder of his estate is valued at £1,000,000.

Currently, the IHT bill is £270,000. This will rise to £430,000 under the new rules.

Agricultural Property Relief & Business Property Relief

From 6 April 2026, agricultural and business property will continue to benefit from the 100% IHT relief up to a limit of £1 million. The limit is a combined limit for both agricultural and business property. Such property in excess of the limit will benefit from a 50% relief.
The £1 million limit applies per person and is refreshed every seven years. From 6 April 2026, this allowance will be transferable between married couples or civil partners. This will include where the first death was before 6 April 2026.

There may be a further £1 million allowance for trusts in certain situations but the rules are complex.

The £1 million limits for both individuals and trusts will be frozen until 6 April 2031.

Comment

There has been a great deal of press reflecting the unhappiness of farmers with these changes. However, the changes are much broader and potentially affect the owners of many SMEs in the UK. Early IHT planning becomes critical under the new rules.

The transferability of the allowance between spouses/civil partners seems to be recognition of taxpayer concerns.

Cap for excluded property in trusts

With effect from 6 April 2025, the government has retrospectively put in place a cap of £5 million for excluded property held in trust as at 30 October 2024. This cap applies to settled property which was excluded property situated outside the UK at the time of the relevant charge. The £5 million cap applies to each ten-year cycle.

Other Matters

The VAT registration threshold

From 1 April 2026 the VAT registration threshold remains at £90,000 and the deregistration threshold at £88,000.

Making Tax Digital for Income Tax Self Assessment

The government is committed to delivering Making Tax Digital for Income Tax Self Assessment, which starts in April 2026 for those with qualifying income over £50,000. The government will expand the rollout of the programme to those with incomes over £30,000 in April 2027 and £20,000 in April 2028. However, the government will not proceed with Making Tax Digital for Corporation Tax.

Enforcement and tax collection

The government has announced a variety of compliance initiatives, which include the following:

• investing further in HMRC’s debt management work and publishing a new tax debt strategy which outlines plans to deliver year-on-year reductions to the overall tax debt balance as a percentage of tax receipts
• requiring Income Tax Self Assessment taxpayers with Pay As You Earn (PAYE) income to pay more of their Self Assessment liabilities in-year via PAYE from April 2029
• investing in HMRC to modernise the tax system and help taxpayers get their taxes right first time through greater digitalisation. This investment will improve how HMRC uses information from third parties, and to build new technology to increase the use of data-driven prompts to help taxpayers avoid errors when submitting tax returns
• investing £64 million over the next five years in HMRC’s existing partnerships with private sector debt collection agencies to collect more tax debt.

In addition, from April 2029 businesses will be required to issue all VAT invoices as e-invoices, with a roadmap on implementation to be published next year.

Comment

The government is attempting to close the tax gap by pursuing those who try to bend or break the rules, collecting more unpaid taxes and modernising the tax system. This is designed to take the total additional revenue raised by closing the tax gap this Parliament to £10 billion in 2029/30.

High Value Council Tax Surcharge

The current Council Tax system uses property values from 1991. From April 2028, properties valued at £2 million or more will be liable to a new High Value Council Tax Surcharge (HVCTS).

The HVCTS will be staggered depending on the value of the property. For property over £2 million, the annual charge will be £2,500. For property valued between £2.5 – £3.5 million, the annual charge will be £3,500 and for those properties valued between £3.5 – £5 million, the annual charge will be £5,000. Properties valued in excess of £5 million will have an annual charge of £7,500.

The surcharge will be collected alongside the existing Council Tax due for the property.

Employment

The government is working to extend right to work checks to cover businesses hiring gig economy and zero-hours workers. This will restrict the ability of employers to take advantage of illegal workers and ensure that legitimate businesses acting lawfully will not be undercut on labour costs by those who exploit the system.

The government will set up a dedicated ‘hidden economy’ team within the new Fair Work Agency from April 2026 to take action in sectors known to have breaches of employment rights legislation alongside illegal working and tax issues. The team will initially target hand car washes but will then move onto other high‑risk areas.

Electric Vehicle Excise Duty

The government is introducing Electric Vehicle Excise Duty (eVED), a new mileage charge for electric and plug-in hybrid cars, which will come into effect from April 2028. Drivers will pay for their mileage alongside their existing VED.

The government will work closely with industry and motoring representative groups on the delivery of the new tax.

The tax paid by EV drivers will be around half the fuel duty rate paid by the average petrol/diesel driver, with a reduced rate for plug-in hybrid drivers. When eVED takes effect in April 2028, an average EV driver will pay around £240 per year or £20 per month.

Other vehicle types, such as vans, buses, motorcycles, coaches and HGVs, will be out of scope of eVED when it is introduced, with the transition to electric power for these vehicle types being currently less advanced than for cars.

Other points

Other announcements made by the government include:

• the £35,000 threshold for Winter Fuel Payments will be maintained for this Parliament
• the government is seeking views on the effectiveness of existing tax incentives, and the wider tax system, for business founders and scaling firms, and how the UK can better support these companies to start, scale and stay in the UK.

Practical tax tips to guide you through the tax system and help you plan to minimise your liability.

This guide is designed to provide you with an overview of the key tax rules from seven perspectives – that of the family; the employee; the person running their own business; the taxation of investments; disposals and CGT; property matters; and, finally, the potential liability on your estate at death.

Please use the guide to help you identify planning opportunities, pitfalls to avoid and areas where you may need to take action and then contact us for further advice.

Tax Planning Tips & Checklist 2024

But there is clarity now on its way…

Back in April 2019 we mentioned some further tax traps if you are resident in the UK and you exchange contracts to sell a residential property from 6 April 2020…..?

Bombshell Number One

Bombshell Number Two

• Make a special return within 30 days of completion, and
• Pay the estimated tax due within 30 days of completion

1. If you exchange on say 31 March 2020 but complete on 8 April 2020, you should just inform HMRC about this before 6 October 2020 and make your tax return to show the gain by 31 January 2021 and pay the tax by 31 January 2021.
2. If you exchange on say 7 April 2020 but complete on 12 June 2020, you must make your special return and pay the estimated gains tax by 12 July 2020. When you make your “normal” tax return you take in to account the tax you paid earlier under the 30 day rule. You make your “normal” return by 31 January 2021.
3. If you exchange on say 5 April 2021 but complete on 12 June 2021, you must make your gains return and pay the estimated gains tax by 12 July 2021. When you make your “normal” tax return for 2020/2021 you take in to account the tax you paid earlier under the 30 day rule. This means the estimated tax you paid during 2021/22 is referred back to your tax due for 2020/21.

• The 30 day rule payment is only an estimate because when you complete you may not know about other possible gains or losses to be made in that tax year that have not yet occurred.
• When you calculate the estimated tax you can take account of all tax reliefs available before the return is made such as losses in earlier years and your capital gains tax annual exemption.
• You can’t get back any estimated tax overpaid until your “normal” tax return is submitted. So, if you over-estimate tax payable for say June 2020, you can’t recover it until late April or May 2021 at the very earliest.
• There will be penalties for not making returns and for sending returns in late.
• HMRC will know about transactions by receiving data from HM Land Registry.
• It will pay you to estimate your 30 day gains tax as accurately as you can.
• You only have to make these special returns if you owe gains tax on the disposal.
• A gift to a spouse or civil partner is tax free if you are not separated in the year of giving.
• Gifts to family (as well as friends) are usually subject to capital gains tax.
• If you make a gift of property you will have to pay the tax due within 30 days, with no cash proceeds available to fund the tax bill.

Got a No Deal Brexit? Get a Package of Problems!

If the UK leaves the EU without a deal, some important changes are being put forward by HMRC about the tax paid for parcels from abroad. These changes would affect most of us, whether we run a business or buy goods as individuals.

If There’s a Parcel, There’s a Charge!

At the moment, there’s a £15 rule. This says that if the value of your parcel is not more than £15 then neither seller nor buyer pays any UK VAT Import Duty. This rule covers many small items bought from non-EU countries via websites like eBay and Amazon, for instance.

This £15 rule will disappear, so if you receive an item from say China worth £10, the seller will have to pay UK VAT Import Duty. The same goes for anything coming from the rest of the world, excluding the Republic of Ireland, where specific rules will apply. The chances are the sellers will pass this cost on to UK buyers otherwise their profit is reduced.

There will also be separate rules for alcohol, tobacco and perfume under Excise Duty arrangements.

When Does the Buyer Start Paying?

The VAT Import Duty is paid by the seller if the value is £135 or less. If more than £135 it is payable by YOU, the buyer, but the seller can collect this on your behalf. If not, you have to register for this with HMRC, even if you are not a business. If you don’t register the only guidance so far is that your parcel may well be delayed. Hopefully, this will not occur often, as couriers will also be able to collect the Duty on behalf of Buyers.

If the VAT Import Duty is introduced, it may discourage some worldwide offshore sellers from selling low-value goods to the UK, and discourage some UK buyers from buying items exceeding £135 in value.

Does this mean they will buy instead from UK retailers? Not necessarily, although the UK Government, according to HMRC, is doing this to prevent UK retailers from being undercut by VAT-free goods from entering the market.

This also raises further questions about the integrity of some offshore sellers. For example, if goods are advertised by an offshore seller for whatever value, how do we know that the seller has registered legitimately with HMRC? If parcels arrive at the UK without a valid registration number, they may be delayed, and who will pay the VAT duty?

The HMRC “Key Messages” document is short on detail for UK buyers of parcels exceeding £135 in value. Presumably, HMRC is hoping that most sellers will pay the VAT Import Duty regardless of the value of the parcel.

The HMRC Line is…

“There will be two ways for sellers outside the UK to pay the UK import VAT on parcels to the UK HM Revenue and Customs (HMRC). Sellers can register for the UK HMRC new online service and are encouraged to do so now so they are ready to use it if the changes are introduced. Alternatively, they can pay a parcel operator that offers a service to pay the UK import VAT to HMRC on the sellers’ behalf.”

And:

“If sellers do not follow the new UK import VAT rules, parcels may be delayed or stopped from entering the UK. In addition, the UK buyer may have to pay extra tax and fees, and the seller may have to pay a penalty of £1,000.”

All Around the Houses, Once Again!

In our last blog on this topic, we looked at what can happen when you think that the house you’ve sold at a gain is tax-free and you get it wrong.

Normally when you live in a house that you own, selling it with a gain will usually be tax-free and this tax relief is called Principal Private Residence relief. However, there are further tax traps now on the way.

We are telling you about these now because there’s a consultation period about this until June this year.

So, What are These New Traps Being Set?

Firstly, at present, the last 18 months of ownership is always disregarded for tax as long as you’ve lived in the house at some time as your Principal Private Residence. Under the new proposed rules, this period will be reduced to 9 months.

Put simply, if you owned your house for 7 years and 9 months and lived in it for the first 4 years only, the tax-exempt period will become 4 years and 9 months instead of currently 5 years and 3 months. Therefore nearly 39% of the gain (36 months out of 93 months) would be taxable.

On a house selling at a large capital gain, the extra tax at 28% could be significant. For example, using the situation above, if the gain on sale is £200,000 the tax bill could increase by say £3,612 just by exchanging contracts on 6 April 2020 instead of 5 April 2020.

There Are a Few Exceptions Planned

We should add though that the present 36-month exemption period will be retained for disabled owners or those who live in residential care.

Secondly, if you presently have let the house out as well as living in it, you can reduce your gain further by claiming “lettings relief”. This relief is worth up to £40,000 off the capital gain amount. At 28% this was a tax saving of up to £11,200!

Under proposed changes, you will only be able to claim this extra “lettings relief” if you lived in the house at the same time as your tenant. However, if you live in your house as your main home, that period is covered anyway by the existing Principal Private Residence tax relief. We can only assume that this new arrangement only applies when you do not live there as your main residence.

Homeowners who move and then let out their former home could be significantly hit by this change in capital gains tax relief. It seems to us this is another attempt to discourage private landlords wishing to let out residential property, coinciding also with reduced tax reliefs on mortgage interest.

These Are “Coming Soon”

These two significant changes to capital gains tax are due to come into effect from 6 April 2020.

If you are contemplating selling your house next year, it may be wise to exchange contracts before the new changes are introduced. The tax reliefs surrounding residential property ownership are complex and if you would like to have more detailed information and advice, please do call us.

“If You Don’t Ask, You Don’t Get…”

Is an adage that HMRC probably knows all too well at the moment. Due to a failure of the HMRC self-assessment system, some taxpayers haven’t been informed of the amount of tax to pay on account by 31 January 2019. This problem won’t be fixed before 31 July 2019.

It’s not a new problem, though. The same thing happened when in July 2018, payments due for 31 July 2018 were not being notified. Anyone in self-assessment with less than 80% of their tax collected at source, for example through PAYE, paying more than £1,000 through their tax return per year needs to make a payment on account.

This will apply to most self-employed individuals but also possibly landlords and increasingly company directors who take out a lot of income from their company as dividends.

Let’s Consider a Typical Self-Assessment Case

For example, Barbie, a self-employed marriage guidance counsellor, paid income tax of £9,000 for 2017/18, of which £7,500 had been paid on account in two equal instalments on 31 January 2018 (£3750) and 31 July 2018 (£3750).

She had to pay the balancing payment of £1500 by 31 January 2019. However, she should also make a payment on account for 2018/19 of £4,500 by 31 January 2019, equal to half of her 2017/18 total tax liability (£9000).

Still With Us? Hang On: It’s Worth It

The professional tax and accountancy bodies have complained to HMRC and apologies have been received but there is apparently no way HMRC can identify those affected and remind them!

HMRC has said it cannot resolve the problem of missing tax demands in time for the 31 July 2019 payment date. If you did not receive a tax demand for 2018-19 due by 31 January 2019 you may have only paid the balance of tax due for 2017-18.

Going back to Barbie, she would have therefore incorrectly paid just the £1500 instead of £6000 (£1,500 plus the first £4,500). If Barbie fills out her own tax return now for 2018-19 it will not show she has paid the £4500 in January 2019 and also another £4500 due for July 2019.

But it Only Delays the Inevitable

The result of this is that Barbie will have a much larger tax bill to pay in January 2020 when the balance of tax due is payable. You are probably saying … “why not just pay the amounts without a demand”. It is possible that the payment will be accepted but also likely that it will be returned by the HMRC computer as “not due”.

HMRC has confirmed that if the demands for payments on account have not been made the taxpayer will not be charged interest as long as full payment of all the tax due for 2018/19 is made by 31 January 2020.

In these circumstances, it may be wise to park the money in a savings account until HMRC can sort themselves out. If you do get charged interest, your tax agent can take this up with HMRC to get the situation reversed.

This is the latest of a long list of errors with HMRC’s computer systems. Earlier this year we learned that penalty notices for not submitting the 2017-18 tax returns on time were going to be delayed until April 2019. Normally they are issued in February.

Because of this, some taxpayers will be unaware they’ve clocked up additional penalties for continuing failure to submit returns. So, HMRC will probably have to wait longer for those tax returns.

Now, we don’t condone not sending in your tax return on time, but the lesson again to HMRC is “If you don’t ask, you don’t get”!

If you were hoping to get Entrepreneurs’ Tax Relief when you make a Capital Gain on business assets there are new rules coming in if you make a disposal after 5 April 2019. These could make a substantial difference to what you take home after a successful share sale.

The Ownership Period Lengthens

The ownership period to qualify, will rise from one to two years. So at present, a disposal of shares in a company trading from say 1 January 2018 could qualify if sold. From 6 April 2019 to 31 December 2019, they will not.

One key trigger here is when the business actually started to trade. This can be before any income is received, but it can’t start until mere preparations to trade have ended. If you are in a dilemma about this, contact us but it is essential to keep records of everything you do leading up to getting that first payment at your bank.

Not only that, the October 29th, 2018 Budget adds two new conditions immediately to change the definition of a “personal company”. This restricts relief to shareholders to those who have a genuine material stake (at least 5%) in the company.

To get back to basics, a claim to the relief on shares or business asset gains needs the company to be the taxpayer’s “personal company”. They must be an employee or officer of that company, or of another company in the same trading group.

So, what is a “Personal Company”, Then?

Under the old rules you must hold at least 5% of the ordinary share capital and you must hold at least 5% of the voting rights which are exercisable by virtue of that shareholding.

These rules will stay but now you must also have a right to at least 5% interest in the distributable profits and you must have a right to at least 5% of the net assets due to the equity holders on a winding-up of the company.

Unfortunately the people responsible for writing this in to law have caused confusion that will be very difficult to match with what the Chancellor said in his statement. This is important because what the Chancellor intended needs also to be what the law actually says. The law trumps the Chancellor!

A New Government Amendment on Entrepreneur’s Relief

The Government has now made an amendment and this adds a much clearer alternative test for a “personal company” based on the shareholder’s entitlement to proceeds. In the event of a hypothetical sale of the whole company by asking if the shareholder is entitled to at least 5% of the proceeds in the event of the disposal of the whole company.

It assumes that the entire company is sold for its market value on the date of disposal of the shares/ assets which are the subject of the claim. This is important because in reality this is not what happens, quite often. This new test can be used instead of asking if you have a right to at least 5% interest in the distributable profits and a right to at least 5% of the net assets due to the equity holders on a winding-up of the company.

This Already Applies to Disposals

Unfortunately if you made a disposal between 29 October 2018 and 20 December 2018 you must still apply the criteria: “Do I have a right to at least 5% interest in the distributable profits and a right to at least 5% of the net assets due to the equity holders on a winding-up of the company?”

Those who have built up their own company by way of ordinary shares with full voting rights and full rights on a winding-up should not be affected.

Employees who have acquired shares through employee share schemes, particularly EMI shares, may find they have suddenly lost their right to entrepreneurs’ relief, as employee shares tend to be issued with restricted rights, though not always.

Restricted rights often apply to directors and managers taking shares from a management buyout because often the financiers of the deal will have a different class of shares.

If uncertainty remains, then let’s talk about it. Simply pick up the phone and speak to the Maven Team on 023 8061 4404 or contact us via the website and we can help you navigate any uncertainty.

Check Your PAYE Code, Now!

Now is the time to check your PAYE code if you are an employee or a private pensioner because there’s only a short time to get any mistakes corrected.

There is some confusion. A lot of people don’t actually know what PAYE, is even though they know what the letters mean. How many times do you hear people say: “I’ve paid my tax under PAYE.” But, it isn’t is a tax.

At best, PAYE is a relatively crude method of collecting “some tax”. Mainly the tax that people pay under PAYE is what they should pay. But also, fairly often, it isn’t. The minute that you add complications to the mix, problems can occur and you either pay too little or too much tax. Which is why HMRC are increasingly reviewing PAYE tax deducted and sending out tax bills or tax refunds.

Sometimes both of these can be wrong because people do not check their tax calculation sent to them. It wrong to think “HMRC have sent this to me so it must be right”, but thousands of people do just that.

Here’s a list of common situations that can make your “PAYE”go wrong:

• Employment benefits in kind not being reported or reported too late
• Not telling your employer if you have a Student Loan
• Not following up a P45 when you change jobs
• Getting a bonus – HMRC may then restrict your tax allowance if they think it’s a pay rise
• Not claiming fixed rate expenses like uniform allowances or professional subscriptions
• Changing a company car, especially when you “upgrade”
• HMRC including other income in your tax code, like bank interest and rental profits.
•  Having more than one job-some tax allowances can go unused or are duplicated!

Act on PAYE Now to Avoid Disappointment

For 2018-19, there is still time to get the tax code adjusted in time for the next payday but as we move closer to March, the opportunity may recede especially if your employer runs their payroll in the middle of March.

For 2019-2020 HMRC will soon be issuing tax codes starting from the new tax year 6 April 2019 and the best option is to get it right from the outset.
If you get a private pension, check the PAYE Code for that too. If you have a job but are already getting State Pension, check that the restriction in your PAYE code is as per your State Pension for 2019-2020.

Read the Notes on the Coding Notice, called a “P2”.

So, There’s a Problem, What Next?

Once you’ve discovered an error it is advisable to phone the tax office. Have your National Insurance number and Employer PAYE reference ready because you will be asked for this.

The number is 0300 200 3300. Be prepared to wait, because one wait is far better than writing in, as it will take far too long to get a reply assuming you even receive one. If you do speak to HMRC, make sure you take a detailed note of what is said, and make sure the code is changed as promised.

What if HMRC or the Employer didn’t handle PAYE properly? If this has happened, the tax year may have already ended. You might get a tax demand or an unexpected bit of tax to pay when you do your “Self-Assessment” tax return.

In those circumstances, by concession, it may be possible to get out of paying, but the rules are pretty complex and it may be prudent to get advice from your accountant or give us a call if you don’t have an adviser yet.

With Less Than 4 Months To Go, Making Tax Digital for VAT is Looking Like a Car Crash Waiting to Happen….

These aren’t our works. Making Tax Digital (‘MTD’) for VAT is in a mess! The ‘car crash’ reference was uttered recently after the House of Lords economic affairs finance bill sub-committee had heard from tax experts and business representatives. Surely the people in the know are businesses and tax experts rather than civil servants?

The former expressed concerns about the way that the programme has been implemented and communication between HMRC and small businesses. Committee member Lord Lee was heard to say:

‘The evidence we have had is absolutely overwhelming in that there is huge under-preparedness. The firm impression we have at the moment is that we are heading for a giant car crash.’

The Committee said it should be delayed by at least one year and the government should wait until April 2022 before extending it to other taxes so that lessons can be learned.

The Lords Assert Themselves

The Lords may enjoy that “Marmite” status with the public but there’s no denying that many of them are seasoned business owners, lawyers and experienced politicians. They say that many businesses will not be ready for the introduction of MTD for VAT in April 2019. They believe that HMRC has inadequately considered the needs and concerns of smaller businesses.

They conclude that neither the government nor HMRC have listened to the warnings in the committee’s report on MTD for business in March 2017, now over 20 months ago.

The Chairman Lord Forsyth of Drumlean said:

“HMRC has neglected its responsibility to support small businesses with MTD for VAT. It is not listening to small businesses, while offering a six-month deferral for many in the public sector.

“Small businesses will not be ready for this significant change to their practices if it is introduced on 1 April, particularly with Brexit taking place three days earlier. The government must delay its introduction.”

And There’s More

Other report findings include:

• Only HMRC is confident that all one million businesses will be ready for MTD for VAT in April.
• The costs to businesses of MTD for VAT will be far more than HMRC’s impact assessment.
• HMRC must publish how its communication and support systems will meet the needs of taxpayers and agents across different levels of digital capability and skills.
• So far, no free software products have been offered.
• The penalties regime could be fairer and encourage taxpayers to remedy defaults promptly. For example offering a longer grace period before fines for late payment are applied.

According to one survey by a large firm of Accountants, only 36% of businesses are prepared for the new regime and 48% have no plan in place. The rest do not even know about it.

Small Businesses are Completely Unprepared

Small businesses are the most unprepared, having used spreadsheets for many years. They often use a self-employed or part time employed book keeper who may hand back the figures to the business owner. They often file VAT returns themselves using HMRC software.

As mentioned previously, this HMRC software will start to disappear from next April. Does your book keeper know about MTD and have they put plans in place for you?

Bridging software provides “Digital Links” between the spreadsheet and the HMRC computer that receives your return over the internet. The digital link will read your spreadsheet electronically and you do nothing more.  Digital link software is now in development, but when will it be ready?

The more robust long term way forward may be cloud accounting because this produces business accounts “as you go”, not just a VAT return.

To discuss being ready for MTD VAT do give us a call for a chat without obligation.