Adrian Mooy & Co - Accountants Derby

There are many possible situations in which a person may make a loan to a family member, for example, a parent may lend money to an adult child to provide them with a deposit for a property. Where the parent has a personal or family company and there are unextracted profits in the company, it may seem sensible for the company to lend the money rather than for the parent to do so personally. However, this may have tax consequences which can be easily overlooked.

Loans to participators

Where the company is a close company (broadly one under the control of five or fewer people) as most personal and family companies are, the loans to participators rules need to be considered. Under these rules, a tax charge will arise on the company on any amount of the loan which remains outstanding nine months and one day after the end of the accounting period in which the loan was taken out.

The charge (known as the ‘section 455 charge’) is payable at the rate of 33.75% of the outstanding loan balance. This is the same rate as the upper dividend tax rate.

Associates

The reach of the loans to participators rules is wide. The recipient of the loan does not need to be a participator (broadly a shareholder) for the charge to apply – it also applies where the loan is made to an associate of the participator. This includes a relative of the participator, which for these purposes means a spouse or civil partner, a parent, grandparent or remoter forebear a child, grandchild or remoter issues or a sibling. It also applies where a loan is made to a partner of a participator.

Example

Louise is the director and sole shareholder of her personal company, L Ltd. The company makes a loan of £100,000 to Louise’s daughter Sophie to help her get on the property ladder. The loan is interest free. It is made on 1 January 2025.

The company prepares accounts to 31 March each year. If the loan remains outstanding on 1 January 2026 (as is the expectation), despite the fact that Sophie is not a participator in L Ltd, the company will need to pay section 455 tax of £33,750 on 1 January 2026.

The tax will become repayable nine months and one day after the end of the accounting period in which the loan is repaid, so in that way it is a temporary tax. However, it may be a significant cost to the company in the interim.

Benefit in kind charge

If the loan balance exceeds £10,000 at any point in the tax year, a benefit in kind charge will also arise as the loan is made to a member of the director’s family or household. The charge will be based on the difference between the interest payable at the official rate and that actually paid, if any. The company will also pay Class 1A National Insurance on the taxable amount.

Planning issues

While it is possible to make a loan from a personal or family company of up to £10,000 for up to 21 months tax-free, tax consequences will arise where the loan is for a higher amount and/or is made for a longer period.

This does not mean it will never be beneficial to make a loan to a family member – it is a question of weighing up the cost of paying the section 455 tax and tying up the associated funds until after the loan has been repaid against the interest that the family member may pay if they were to borrow the money elsewhere. The section 455 tax will be repaid if the loan is repaid, while any interest paid on a third-party loan will not. The cost of the benefit in kind charge should also be factored in

A question often asked is: “Can I give all my assets to my children and avoid inheritance tax (IHT)?”.

The short answer is yes, but to avoid the tax, you need to live seven years from the gift and cannot benefit from the asset after the gift. If you continue to ‘enjoy’ the gifted assets, this is treated as a gift with reservation of benefit (GROB) and remains in your estate for IHT purposes.

Family home

Due to the GROB anti-avoidance rules, it is therefore not possible to simply transfer your home to your children and continue to live there.

Nor could you give a rental property to your children but continue to receive the rental income.

In either scenario, the property remains in your IHT estate.

All is not lost

There are, however, some relaxations to these rules relating to property, which can be useful if structured correctly:

(a) Paying rent - If you pay full market rent for the use of the property after you have given it to your children, this takes it outside of the GROB rules. Note that you will need to continually monitor the level of rent to make sure it is at a market rate, and your children will need to pay tax on their rental income.

If you stop paying the rent, then the house immediately becomes a GROB and is back in your estate, so you need to be prepared to continue paying rent until you die or move out of the house.

(b) Joint Occupation - The GROB rules do not apply if you give away a share of a property and occupy it jointly with the donee. So, you could give a share of the house to your child and cohabit with them. This is not a GROB, and after seven years, the value of the gift is outside of your estate.

However, you need to make sure you share the running costs of the house between you, proportionate to the share gifted. Again, the child would need to continue to live with you until your death to avoid it subsequently becoming a GROB.

(c) No Occupation - A further exemption exists for a gift of a share of a property which you do not occupy.

This could be useful if you wanted to gift a former home or a rental property to your children and you do not want or need to live in it in the future.

Have your cake and eat it too?

The final exemption (where you do not live in the property) has no restriction on receiving the ongoing rent. So, you could transfer (say) 50% of a rental property to your children but agree with them that you would continue to receive (say) 85% of the rent.

As this is a gift of a share of the property and you do not occupy the property after the gift, there is no GROB even though you receive more than your 50% share of the rent. You will, of course, need to pay income tax on the rent you receive (i.e., the 85%), with your children being taxable on the rent they receive.

Practical tip

If you have a holiday home or rental property and rely on the income to fund your expenditure, consider transferring part of the property to your children and retaining the bulk of the income. Assuming you survive seven years, you can get a substantial amount of value out of your estate without losing the benefit of the rental income. Remember that you may have to pay capital gains tax on the gift if the property has appreciated in value, and if there is a mortgage on the property you will have to deal with the bank and potentially stamp duty land tax (or equivalent taxes in Scotland or Wales, if applicable) on the transfer too.

The way that many landlords will report details of their income and expenses to HMRC is changing from April 2026 onwards. This is when Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) comes into effect. Landlords who fall within the scope of MTD for ITSA will need to keep digital records, use MTD-compatible software and send quarterly updates to HMRC. This will impose new compliance obligations on them and change the way in which they interact with HMRC.

Start date 1: 6 April 2026

MTD for ITSA will apply to unincorporated landlords and sole traders with trading and/or property income of £50,000 or more from 6 April 2026. When determining a landlord’s MTD start date, it is important to take account of both rental income from unincorporated property businesses and also trading income from unincorporated businesses (such as those operated as a sole trader). However, any rental income from property companies can be ignored. The key figure is the total of both rental and trading income, so a landlord with rental income of £10,000 and trading income of £45,000 will be within MTD for ITSA from 6 April 2026 while a landlord with rental income of £49,000 who has no trading income will have a later start date. The relevant income will be that for 2024/25, as reported on the Self Assessment tax return which must be filed by 31 January 2026.

It is important that landlords with an April 2026 start date make sure that they know how MTD for ITSA will affect them, and that they are ready to comply from 6 April 2026 onwards.

Once within MTD for ITSA a landlord remains within it, even if their income falls to below the trigger threshold, unless it remains below the trigger threshold for three successive tax years.

Start date 2: 6 April 2027

Landlords running unincorporated property businesses will be brought within MTD for ITSA from 6 April 2027 if they have rental income and/or trading income from an unincorporated business of £30,000 or more.

Other landlords

The Government plan to bring unincorporated landlords and unincorporated businesses with rental and/or trading income of £20,000 or more into MTD for ITSA by the end of the current Parliament. As of yet, no date has been set for those whose income is below this level.

Obligations

Currently, where rental income is more than £1,000 (and the landlord is not within the rent-a-room scheme), they must report their taxable profits to HMRC on the property pages of their Self Assessment tax return by 31 January following the end of the tax year to which it relates. They must keep records of their income and expenses, but can do so in a way that suits them.

Under MTD for ITSA this all changes. The landlord will need to keep digital records and use software that is compatible with MTD for ITSA to report simple summaries of income and expenses to HMRC on a quarterly basis. The quarters run to 5 July, 5 October, 5 January and 5 April, although taxpayers can report to calendar quarters instead (30 June, 30 September, 31 December and 31 March). HMRC publish details of commercial software that fits the bill. They have also said that they will make free software available for those with the most straightforward affairs.

After the final quarterly update for the year has been submitted, the landlord will need to make a final declaration to finalise their income tax position for the tax year. This is like the current tax return and it is at this stage that the taxpayer will claim reliefs and allowances, and also reflect other income that they may have which is not within the MTD process, such as savings and investment income and income from employment. The landlord will also need to make a declaration that the information is complete and correct, as is currently the case on the Self Assessment tax return.

There is no change to the way in which tax is paid under MTD for ITSA, only the way in which income is reported.

There are various ways in which profits can be extracted from a personal or family company. A popular and tax-efficient extraction strategy is to pay a small salary and to extract further profits as dividends as long as the company has sufficient retained profits.

One of the advantages of paying a salary is to secure a qualifying year for state pension and benefit purposes. A person needs 35 qualifying years when they reach state pension age to receive a full state pension and at least ten qualifying years to receive a reduced state pension. If the director does not yet have 35 qualifying years, it is worth paying a salary which is sufficient for the year to be a qualifying year.

A year will be a qualifying year if an individual has qualifying earnings subject to National Insurance that are at least 52 times the lower earnings limit. Payments of salary and bonus are liable to Class 1 National Insurance. By contrast, dividends do not attract National Insurance.

For 2025/26, the lower earnings limit is set at £125 per week. Thus, it is necessary to pay a salary or bonus of at least £6,500 (52 x £125) for the year to be a qualifying year.

Where earnings are between the lower earnings limit and the primary threshold, which for 2025/26 is aligned with the personal allowance at £12,570, primary contributions are payable at a notional zero rate. This means that the director or employee benefits from a qualifying year for state pension purposes without having to actually pay any primary Class 1 National Insurance contributions.

However, the same is not true for the employer. The reduction in the secondary threshold to £5,000 from 6 April 2025 means that the secondary threshold is now below the lower earnings limit and, unless the employment allowance is available to shelter employer contributions, paying a salary equal to the lower earnings limit will come with a secondary Class 1 National Insurance bill.

Personal companies where the sole employee paid above the secondary threshold is also a director do not benefit from the employment allowance. Consequently, where a salary is paid which is of a level which is sufficient for a year to be a qualifying year for state pension purposes, secondary contributions will be payable. On a salary of £6,500 (the minimum needed for a qualifying year), the associated secondary Class 1 National Insurance bill will be £225 (15% (£6,500 – £5,000)).

In a family company where the employment allowance is available, it is possible to pay a salary which is sufficient to secure a qualifying year without an associated secondary Class 1 liability.

Although it is only necessary to pay a salary of £6,500 for the year to be a qualifying year for state pension purposes, if the personal allowance is available in full, it is more tax efficient to pay a salary of £12,570, as the corporation tax deduction on the salary and secondary Class 1 National Insurance will outweigh the secondary Class 1 National Insurance bill.

Businesses must register for VAT when their turnover exceeds the registration threshold (currently £90,000). This must be done if, at the end of any month, the taxable supplies in the previous 12 months or less exceed the registration threshold or if the business expects that in the next 30 days alone their turnover will exceed the registration threshold.

Businesses whose turnover does not reach the threshold do not need to register; however, they may choose to do so voluntarily. This can be advantageous, for example, if they make zero-rated supplies but buy goods or services which are liable for VAT at the standard or reduced rate as it will enable them to recover the VAT suffered.

Start date

When a business registers for VAT voluntarily, they can choose the date from which their VAT registration takes effect. It is important that this date is chosen carefully as once the VAT registration is effective, the business can recover VAT incurred from that date but must also charge VAT on taxable supplies that it makes from that date. It is not possible to recover VAT incurred on purchases prior to the date of registration, so if the business is planning a large purchase on which they hope to recover the VAT, they should ensure that their VAT registration is effective before making the purchase.

A business can apply for their voluntary registration to be backdated by up to four years from the date that they register for VAT. Where the registration is backdated, the business will be able to recover VAT charged on taxable supplies from that date. On the flip side, the business must also account for VAT at the correct rate on all taxable supplies made on or after that date.

Amending the registration date

It is important that businesses voluntarily registering for VAT consider carefully when they want their registration to take effect as there is no automatic right to change it and there is no right of appeal if HMRC deny a request to amend the effective date of registration. Where a mistake is made in choosing the effective date of registration and this affects the pre-registration cost calculations of what the business can recover and what the business must account for, HMRC will not normally allow the registration date to be changed.

The liability for self-employed earners to pay Class 2 National Insurance contributions was abolished with effect from 6 April 2024. Now Class 2 National Insurance is a voluntary charge which self-employed earners with profits below the small profits threshold can choose to pay to secure a qualifying year for state pension and benefit purposes. Where a self-employed earner has profits in excess of the small profits threshold, they receive a National Insurance credit if their profits are between the small profits threshold and the lower profits threshold. If their profits exceed the lower profits limit, they will pay Class 4 contributions.

For 2024/25, Class 2 contributions are only payable where a self-employed earner has profits below the small profits threshold (which for 2024/25 is £6,725) and they have opted to pay Class 2 voluntarily. For 2024/25, voluntary Class 2 contributions are payable at the rate of £3.45 per week; an annual liability of £179.40.

The problem

Some self-employed taxpayers have been charged Class 2 National Insurance contributions for 2024/25 in error. The nature of the error depends on their particular circumstances. Some self-employed earners with profits in excess of the lower profits limit (set at £12,570 for 2024/25) have had a Class 2 National Insurance charge of £358.80 added to their account. This is twice the voluntary Class 2 charge for 2024/25. Self-employed earners with profits in excess of £12,570 are liable to pay Class 4 National Insurance on their profits only.

In some cases, the amount added in error is less than £358.80.

Resolving the issue

HMRC have stated that they have taken action to correct the error where the information that they hold has enabled them to do so. Some self-employed taxpayers have also reported that their Self Assessment calculation (SA302) has been amended to revert to the correct liability initially reported on their 2024/25 Self Assessment tax return.

However, incorrect Class 2 National Insurance letters will continue to be sent out until HMRC have resolved the IT issue in September. Once the problem has been resolved, HMRC will correct the remaining accounts showing a Class 2 National Insurance charge in error. Those affected will be notified when this has been done.

Where a payment has already been made in respect of the incorrect Class 2 National Insurance charge, it will either be refunded or a credit will be added to the taxpayer’s Self Assessment account.

Taxpayers have until 31 January 2026 to submit their 2024/25 Self Assessment tax return. Self-employed taxpayers who have yet to submit their return may wish to wait until this issue is resolved before doing so. Where the return has already been submitted, check the calculation and if it is wrong, make sure HMRC correct it.

Having the company pay for all your fuel might seem like a major perk. However, whether it is truly a valuable benefit depends on a number of factors, not least how the company structures its fuel policy, the type of car and how much, if any, fuel is reimbursed for private use.

Car fuel benefit

When an employer provides all the fuel for a company car, this usually triggers a car fuel benefit charge. The company fuel benefit is the value HMRC places on the fuel provided by the employer for the employee's personal use of a company car, the actual amount being dependent on the car's co2 emissions.

The same percentage figures used to calculate the car benefit charge are also used to calculate the fuel benefit charge, the relevant percentage figure being multiplied by £28,200 for 2025/26. HMRC's  fuel charge table for 2025/26 shows tax charges ranging from £846 for a car with 1 to 50 co2 emissions to £10,434 for a 160 co2 or more emission (producing a tax bill of £2,086.80 for a basic rate taxpayer; £4,137.20 for a higher rate taxpayer and £4,695.30 for an additional rate taxpayer). In addition, an employer Class 1A charge of 15% is levied. Petrol hybrid cars are treated as petrol cars for this purpose. Be aware that a small 50 co2 emission engine in a hybrid car system may generate just enough power to recharge the electric motor's battery during low-speed driving and result in a car fuel benefit.

A way round the charge

Avoiding the tax charge may seem simple; the employer avoids paying for fuel for any purpose other than for business. In practice, that may be difficult to achieve as the charge applies regardless of the actual private mileage or cost of the fuel unless the employee 'makes good' the full cost of private fuel to the employer. It is this calculation of 'full cost' which creates most problems – which is where use of HMRC's advisory fuel rates (AFR) table can assist. Importantly, should the employee contribute less than the full cost of private fuel, or the employee contributes a fixed amount per month (but less than full private use), the benefit charge still applies in full.

AFR are set by HMRC and are mainly of use in two situations. Firstly, where the business pays for all fuel (e.g. via a company fuel card or account at a petrol station) and requires the employee to reimburse it for the cost of their non-business mileage. Secondly, where an employee personally pays for fuel used in their company car and claims reimbursement from their employer for business mileage.

The AFR are intended to avoid a taxable benefit on the employee for the fuel used on business trips and avoid the company needing to calculate the actual cost of fuel per mile for each of its company vehicles. They provide a set rate for different types of vehicles (based on engine size in cc and fuel type) that ensures the fuel reimbursement is not too high or too low. As long as the amount paid does not exceed the AFR, no taxable benefit arises and no employer’s Class 1A NI is levied. The rates are based on calculations made using actual pump price data, being reviewed on a quarterly basis.

Practical point

Despite increases in car benefit charges over the years, it may still be advantageous for the company to pay for all  fuel and the employee  repay the cost of fuel used for private travel – records of private mileage incurred will prove whether this statement is correct. It may not be known until after the tax year has ended whether it is more tax efficient for the company to pay for the fuel. Therefore, a suggestion could be for the company to pay for all fuel initially and, after the tax year, calculate if doing so was tax efficient. If not, the employee needs to reimburse the company in full for all private mileage by 6 July following the tax year. Tax cases have proved that a formal agreement with the company confirming private use reimbursement is valuable.

Individuals who claim higher or additional rate relief for personal pension contributions through their tax code may now need to provide evidence in support of their claim where previously they did not need to do so. HMRC changed the rules as regards the provision of supporting evidence with effect from 1 September 2025. From the same date, HMRC ceased accepting claims by telephone; claims now must be made online or by letter.

Taxpayers who complete a Self Assessment tax return must make their claim in their tax return rather than by this route.

Eligibility

A person is eligible to claim relief if they pay tax at a rate higher than the basic rate, for example, at the higher or additional rate or, in Scotland, at the intermediate rate or above, and pay into a pension scheme where they receive tax relief at the basic rate of tax. Basic rate taxpayers who pay into a workplace pension scheme where the employer does not or will no longer claim tax relief can also make a claim, as can basic rate taxpayers who pay a lump sum into a personal or workplace pension where the scheme is not a net pay scheme (i.e. one where pension contributions are deducted from gross pay).

Information required

In order to make a claim, the claimant will need the following information:

• their National Insurance number;
• the type of pension that they have;
• the name of their pension provider;
• the net amount of pension contributions for each tax year in respect of which they are claiming tax relief; and
• their payroll number or reference (where applicable).

Supporting evidence

The claimant will also now need to provide evidence in support of their claim for each tax year for which relief is claimed. The evidence could be in the form of a letter or statement from their pension provider or a pay slip from their employer. It must include:

• the claimant’s full name;
• details of pension contributions paid in the tax year to which the claim relates; and
• where the claim relates to a workplace pension, evidence that they have received basic rate relief (20%) automatically from their employer.

Making a claim

HMRC prefer claims to be made online. This can be done by visiting the Gov.uk website (see www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments). Where the claimant is unable to claim online or the claim is made by an agent on the claimant’s behalf, the claim should be made by letter. The information and evidence set out above should be included with the letter.

HMRC should contact the claimant within 28 working days.

Claims can be amended once submitted, for example, to provide details of another pension. Where the claim was made online, the claim details can be amended online. If the claim was made by letter, the taxpayer must send a further letter setting out details of the changes.

Landlords will be impacted by Making Tax Digital when it comes into effect in April 2026.

Making Tax Digital (MTD) is going to mean big changes for the majority of landlords who submit self assessments.

You’ll need to use software to keep track of your income and expenses and to make quarterly MTD submissions.

This applies to income from rental properties or self-employment is over £50,000 a year from April 2026 and over £30,000 from April 2027.

Instead of submitting a yearly Self Assessment you’ll need to update HMRC every quarter.

Will all landlords be affected by MTD?

MTD impacts all landlords with personally owned properties earning more than £50,000 a year from rental properties or self-employment from 2026, and those earning £30,000 or more from 2027.

Property income in scope for MTD includes:

• Residential buy to lets
• HMOs and student lets
• Furnished holiday lets (FHL)
• Commercial property
• Non-UK property, such as a holiday apartment abroad

This is £50,000 of rental income, so gross profit before deducting your expenses, rather than net profit.

I own rental property in a partnership. Will MTD affect me? - HMRC has said it will announce dates for other types of partnerships, including LLPs and those with corporate partners, at a later date.

I’m a landlord that’s registered as a limited company. Will MTD affect me? - lf You own your properties in a limited company, you don’t need to worry about MTD for Income Tax yet.

Does MTD mean you need to pay tax four times a year? - No, how you pay self-assessed income tax is not changing.

How does Making Tax Digital work for joint landlords? - If the rental income is from a jointly owned property, this is based on the share of ownership - i.e. 50% if both parties have equal shares in the property. If your share of the rental income is over £50,000, then you'll be in scope for MTD from April 2026.

To conclude - if you currently complete a Self Assessment for your property income, and you earn over £50,000 from property or self-employment, you’re going to need to switch to use software to make quarterly MTD submissions from April 2026.

Latest developments in making tax digital.

We are now little more than a year away from the phased introduction of making tax digital (MTD) for income tax self assessment (MTD ITSA), as follows:

Annual aggregate turnover (all sources) Implementation date

More than £50,000                       5 April 2026

More than £30,000 and up to £50,000     5 April 2027

More than £20,000 and up to £30,000     Before this Parliament ends (2029)

This last new, lowest band was announced as part of the Autumn Statement 2024 on 30 October 2024:

‘The government will expand the rollout of MTD to those with incomes over £20,000 by the end of this Parliament, and will set out the precise timing for this at a future fiscal event.’

Up to that point, many advisers were daring to hope that MTD might perhaps baulk at going lower than the initial £50,000 per annum threshold.

Key points It is perhaps worth emphasising:

 • The thresholds are measured across one’s annual gross income across all business sources (i.e., rents are broadly lumped in alongside all trading receipts – but see also below).

 • The measurement year for testing whether one is caught for April 2026 (being the start date for those individuals in the vanguard) will be 2024/25, the actual numbers for which may only just have been finalised and filed by 31 January 2026.

 • Thus, do the results for 2024/25 (now) dictate the MTD status for 2026/27?

 • Likewise, the measurement year for whether MTD for ITSA will apply for the lower £30,000 annual threshold from April 2027 (i.e., 2027/28) will be the actual results for 2025/26.

 • But each separate trade and property business* will still need its own set of quarterly returns ‘updates’.

 • Once a taxpayer is caught by MTD ITSA, that annual aggregated business turnover will need to fall below the threshold for three successive years in order to break free of its clutches.

*Generally, all property sources are rolled into a single property business; however, one might have separate UK and offshore rental businesses or lettings in different ‘capacities’, such as sole or joint tenancies, as against a full property partnership.

Given that the annual threshold is intended to have fallen to just £20,000 by 2029, one will presumably have to hope for another means of escape, such as business cessation (see also below).

Income boxes and joint property details

HMRC will monitor taxpayers’ incomes and corresponding MTD obligations by reference to specific boxes on their submitted tax returns – the gross trading income and rental receipts sections. This should be reasonably straightforward, but a quirk has arisen in relation to joint lettings.

Landlords holding only a proportion of joint property are, of course, reliant on whoever prepares that property’s accounts for their income and expenditure details. They are also allowed to choose to include only the net income figure from joint lettings in their current-format tax returns (whether as part of a larger portfolio or not).

In July/August 2024, HMRC confirmed that this easement would continue under MTD, despite the risk of the landlord understating their ‘true’ gross annual income by potentially including only the net amounts for co-owned property letting income.

Audit trail abandoned  When the quarterly ‘update’ regime was originally devised, it was intended that each return would report only that quarter’s results, and that any amendments to previous quarters in the tax year would have to be reported in the next available return but flagged separately so that HMRC could track any changes made.

HMRC has since walked back from this approach and announced in November 2023 that each quarterly return will now hold simply ‘year-so-far’ amounts without further analysis into separate quarters, etc.

Quarterly update deadlines On 22 February 2024, the latest regulations then published included that the quarterly updates’ filing deadlines would be extended by two days, to 7 August/November/February/May, thereby aligning with the usual VAT stagger group filing deadline for calendar quarters.

End of the ‘end of period statement’ Did anyone realise that, when the Chancellor announced ‘the end of the annual tax return’ back in July 2015, what he actually planned instead was a ‘final declaration’, plus four quarterly returns (‘updates’) for each separate business of theirs, plus an annual end of period statement for each business to cover all of the usual annual tax adjustments for disallowed expenses, capital allowances, etc?

But never mind because, ever keen to cut down on taxpayers’ administrative burdens, the government has magnanimously decided to remove the proposed end of period statement and just include all those tax adjustments in the final declaration, instead.

Presumably, the government is banking on nobody spotting that the updated final declaration will now function almost exactly like the tax return whose demise was promised almost a decade ago, just now with a load of extra form-filling obligations that nobody outside of HMRC ever asked for.

Exemptions and exclusions The list of specific exemptions from MTD ITSA has grown slightly:

 • Trustees;

 • Personal representatives of someone who has died;

 • Lloyd’s members;

 • Individuals without a National Insurance number (announced Autumn Statement 2023); and

 • Foster carers (announced Autumn Statement 2023).

However, just because someone is a Lloyd’s name or foster carer does not mean that they are entirely exempt from MTD; if they have ordinary non-exempt sources, they can be ‘caught’ for those. Likewise, the National Insurance Number exemption will, for most people, last only until they receive their notification – usually just before their 16th birthday.

A wider exemption may be accepted where the taxpayer can show that they are unable to comply with the requirements of MTD, such as by reason of:

 • old age or infirmity;

 • remoteness of location (poor Internet access); or

 • religion.

It seems that, so far, HMRC has resisted the temptation to hide the ‘digital exclusion’ application process behind an online application form.

Conclusion The greatest menace in MTD is not the digital filing and reporting, but the digital record-keeping; having to set up and maintain financial records in a manner tailored more to HMRC’s wants than your own business needs. This is the other, as-yet-unseen nine-tenths of the MTD iceberg.

But in promising to drop the entry threshold to as low as £20,000 per annum, the government has signalled to taxpayers (and to software companies) how firmly it has committed us to this project. For now, there are no precise dates on when MTD for ITSA will be extended to partnerships or to companies (‘avoiding’ MTD might soon be one of the few remaining tax-based incentives to incorporate) but, again, keep in mind that partners will not automatically be safe from MTD if they also have non-partnership business interests.

HMRC requires businesses to register for VAT if their taxable turnover exceeds £90,000 in the last 12 months or is expected to exceed this threshold within the next 30 days. Registration must be within 30 days of the end of the month in which the limit is exceeded (or, if the limit will be exceeded in the next 30 days, by the end of that 30-day period). Failing to register when required could result in penalties, back payments of VAT owed and interest charges. HMRC reviews tax returns to determine whether a taxpayer should have registered for VAT, therefore application should be made within the time limit.

However, there are circumstances where HMRC may exercise discretion and will waive registration even if the application is late.

One valid reason for applying for an exception is if a business temporarily exceeds the turnover limit. For example, if a business typically has a steady turnover below the VAT registration threshold except for a one-off sale, it can apply for an exception by demonstrating that it expects its turnover to fall below the deregistration threshold of £88,000 in the following 12 months.

VAT exemption (rather than exception) can be applied for where a business primarily makes zero-rated supplies as the business will always be in a refund position. Application can be made even if the business also makes some taxable supplies.

Application process

HMRC guidance states that initial contact with HMRC must be made by phone to request both form VAT1 (application for registration) and VAT5EXC (VAT exception form). Whilst form VAT 1 can be obtained online, form VAT5EXC cannot, hence the need for the phone call. On receipt of both completed forms, HMRC will write within 40 working days confirming whether or not the exception application has been accepted.

Form VAT5EXC requires the business to confirm its operations, expected turnover and the nature of its taxable supplies. Any additional supporting information such as an explanation of the reasons for the temporary increase in turnover and turnover projections for the twelve months following the exceeded registration limit should also be submitted.

Late registration

If a business realised it has exceeded the threshold after the 30-day notification period, it can still request HMRC to exercise discretion in waiving registration. However, a business that exceeded the limit due to a temporary 'blip' will not be granted exception if it expects its supplies to exceed the registration threshold in the following 30 days.

Should the application for retrospective exception be made, HMRC is required to consider information which:

would have been available at that time; and would have led to the granting of exception from registration at the earlier date.

There is a particularly important question on form VAT5EXC that requires careful consideration as HMRC has been known to rely heavily on the answer in court:

“Please explain why you thought, at the time your turnover went over the registration limit, your turnover would be back below the deregistration limit within the next 12 months”.

In the recent case of Dawn Kaffel v HMRC [2025], the First Tier Tribunal dismissed an appeal against HMRC's decision to deny an exception, quoting the answer Mrs Kaffel stated to this question. The tribunal noted that the taxpayer, a relationship counsellor, was still experiencing exceptional demand due to Covid at the time of (late) registration and had taken no steps to reduce her future turnover. Mrs Kaffel's response to the question above referred to future plans to reduce her workload rather than giving a reason for a temporary increase. The tribunal stated that this indicated an expectation that the turnover would exceed the limit in the following twelve months.

Practical point

If a business is granted an exception, it must continue to monitor its taxable supplies on a monthly basis to determine if and when it incurs a further liability to register for VAT.

A Simple Assessment is used for taxpayers with very straightforward tax affairs. A taxpayer may receive a Simple Assessment letter from HMRC if they owe income tax that cannot be taken out of their income automatically, they owe HMRC more than £3,000 or they have tax to pay on their state pension. A person may also receive a Simple Assessment letter if they have tax to pay on their bank or building society interest.

A Simple Assessment letter will be sent by post and, where the taxpayer has a personal tax account, to their personal tax account. The letter will show the person’s taxable income, such as that from employment income, a state pension or investments, any income tax that they have already paid (for example, under PAYE) and the balance that they owe.

If you receive a Simple Assessment letter, it is important that you check that the figures shown on it are correct. For example, you can check that the figure for your employment income matches that shown on your P60. If you do not agree with the figures shown or the calculation, you should contact HMRC within 60 days of the date on the letter.

If you receive a Simple Assessment but you complete a Self Assessment tax return, you should contact HMRC (on 0300 200 3300) within 60 days of the date of the letter to get the Simple Assessment withdrawn.

Paying the bill

The deadline for paying a Simple Assessment bill depends on the date on which the letter is received. If a Simple Assessment letter for 2024/25 is received before 31 October 2025, the tax owing must be paid by 31 January 2026. However, if the letter is not received until after 31 October 2025, the tax must be paid within three months of the date on the letter.

The tax due can be paid online, by bank transfer or by cheque.

Help to pay

Taxpayers who will struggle to pay their Simple Assessment bill by the due date can now spread the cost and pay in instalments by setting up a Time to Pay arrangement. A taxpayer can set up a Simple Assessment payment plan online if they owe between £32 and £50,000 and do not have any other payment plans or debts with HMRC.

Taxpayers within Simple Assessment who want to pay in instalments but are not able to set up a plan online will need to contact them to see if they can agree an instalment plan with them.

Where an instalment plan is agreed, interest is charged on tax paid after the due date, but there are no late payment penalties.

An umbrella company is a business which may be used by a recruitment agency to pay temporary workers. However, many umbrella companies are not tax compliant and umbrella company fraud is widespread. HMRC are taking a number of steps to crack down on fraud by umbrella companies, including educating workers to spot signs of umbrella company fraud. To this end, they have recently published Spotlight 71 which highlights warning signs that an umbrella company may be involved in tax avoidance. Workers are asked to be vigilant and to check their employment contract, pay slips and salary payments for signs that something may be amiss.

Employment contract warning signs

Workers are advised to check their employment contract carefully, including the small print and any disclaimers. Factors which may indicate that the umbrella company could be involved in tax avoidance include:

• an unexpected move to a new umbrella company which happens at very short notice and with very little paperwork;
• signing a contract with one company but being paid by another company which may have a very similar name or be based overseas;
• being asked to sign a new employment contract or a different agreement, such as an annuity agreement in addition to the employment contract.

Signing more than one employment contract is not standard practice and may indicate that the worker is being moved to another scheme.

Pay slip warning signs

A worker has a legal right to a pay slip and it is prudent to check that their pay slip is as it should be. The following are warning signs that the umbrella company may not be tax compliant:

the PAYE reference, employer name or way in which the worker is being paid changes unexpectedly;

• the pay shown on the pay slip is significantly less than the worker expected to receive or had received previously;
• the amount of net pay shown on the pay slip is less than the amount paid into the worker’s bank account;
• the correct amount of tax and National Insurance has not been deducted from the worker’s gross pay;
• the worker suddenly receives a hard copy pay slip rather than one online;
• the worker is moved to a new payroll system or is unable to access the online portal of the previous umbrella company to view their pay slips.

Salary payment warning signs

The worker should also check their bank statements to make sure what they are paid ties up with the net pay amount on their pay slip. They should also check that their pay is received as a single payment rather than comprising a number of payments, some of which may not have been taxed.

A move to a new payroll system

An unexpected move to a new payroll system is a red flag. The worker may be told that nothing will change and that the move is because the current payroll has too many workers. Workers should not simply accept this – payrolls are not subject to limits.

What to do if fraud is suspected

Workers who have concerns should raise these with their umbrella company, which might be able to allay their fears. However, if they are involved in tax avoidance, the company may be unwilling to answer questions.

If a worker suspects that their umbrella company is not tax compliant, they should move to a new umbrella company as soon as possible, checking that the new company seems compliant.

Workers can also report non-compliant umbrella companies to HMRC. This can be done anonymously.

If you are new to Self Assessment and need to submit a tax return for 2024/25, you will need to register for Self Assessment. This should be done before 5 October 2025 in order to avoid a penalty and to ensure that you receive your Unique Taxpayer Reference (UTR) and Notice to File in good time. You can either register for Self Assessment yourself or appoint an agent to register on your behalf.

If you register after 5 October 2025, you may receive a failure to notify penalty.

Check whether you need to register

You may need to register for Self Assessment if you do not currently complete a Self Assessment tax return and you had a new source of untaxed income in 2024/25. This may be the case if you started a new trade, which may include a side hustle in addition to your employment, or you started renting out property, either on a long-term let or as holiday accommodation.

However, even if you have a new source of untaxed income, you will not necessarily need to register. This will be the case if, for example, all your income from self-employment (before deductions) is less than £1,000 in the 2024/25 tax year or if your property rental income is less than £1,000 in the tax year. If you let a furnished room in your own home, there is no need to register if your rental income is less than the rent-a-room limit (£7,500 where one person receives the income or £3,750 each where more than one person receives the income).

You can check if you need to send a return by using the tool on the Gov.uk website at www.gov.uk/check-if-you-need-tax-return.

Registered before

If you have previously registered for Self Assessment but did not file a return for 2023/24, you will need to sign into the Government Gateway to reactivate your account. If you are unable to do this, you can instead complete form CWF1 and send this to HMRC.

Register online

If you need to register for Self Assessment, you can do so online by visiting the Gov.uk website at www.gov.uk/register-for-self-assessment. It can take up to  21working days for your registration to be confirmed.

File your return

The deadline for filing your 2024/25 Self Assessment tax return online is midnight on 31 January 2026. Once registered, you can file your return – you do not need to wait until January. If you miss the deadline, you will receive a late filing penalty of £100.

If you did not receive your Notice to File a return until after 31 October 2025 (but you registered for Self Assessment on or before 5 October 2025), you have until three months from the date on the Notice to File in which to file your return.

Pay your tax

You must pay any tax owing for 2024/25 by 31 January 2026. If your tax bill for 2024/25 was more than £1,000, unless 80% of your tax bill for the year was collected at source (such as under PAYE), you will also need to make the first payment on account of your 2025/26 tax liability by the same date. This is 50% of your Self Assessment tax and Class 1 National Insurance bill for 2024/25.

The 2025 Budget on 26 November 2025 is expected to be crucial for the long-term implications for the UK economy – announcements of tax increases are expected. It is also expected to include further detail confirming HMRC's digital roll-out (particularly Making Tax Digital) plus further digital implementation in the form of e-invoicing.

E-invoicing has been in use in various forms for a number of years and, internationally, over 80 countries have e-invoicing mandates, with the EU planning an EU-wide requirement from July 2030. Within the UK, its use is voluntary for most businesses, although some larger corporations and those engaged in international trade have had to adopt e-invoicing systems. For example, e-invoicing is mandatory for transaction payments made to and from public entities (e.g. the NHS, government departments or local councils). HMRC is looking to expand and standardise such processing, eventually implementing a system whereby any business’s invoices are automatically submitted to HMRC.

The practicalities

E-invoices can be processed almost instantly, potentially leading to faster payment cycles. Under e-invoicing, invoices are usually in formats such as PDF, XML or JSON. The e-invoice is created by the supplier, the supplier’s software issues the e-invoice, the customer’s software receives and processes the e-invoice, and then the customer issues payment to the supplier. The result is a much faster, more accurate and more compliant invoicing cycle – often cutting days or even weeks from traditional payment timelines.

HMRC's plan

The government's aim is to standardise and broaden this system of e-invoicing across the private sector quoting 'improved efficiency, accuracy, and transparency' as the benefits for adoption in a recent consultation document. The consultation invited contributors to give their opinion as to what form(s) of e-invoicing model would work, citing methods such as four-corner (supplier->software provider->buyer), centralised or data share models.

Different models

Four-corner model: Each party (supplier and buyer) uses a certified software provider to exchange invoice data.

Centralised model: Taxpayers transmit data to a certified third party enlisted by the tax authorities to act on their behalf. These third parties approve the submissions, time-stamping each transmission.

Data sharing model: Taxpayers extract e-invoicing data from their accounting systems and transmit that information directly to HMRC in 'real time'. Each invoice is digitally signed and assigned a unique tax stamp before being sent to the customer.

Practical implementation

HMRC views e-invoicing as an extension of Making Tax Digital and will probably implement the system on a voluntary basis initially. Those taxpayers currently submitting VAT returns will be least affected as they must submit VAT returns digitally already. Making Tax Digital is being rolled out gradually, with those self employed and landlords whose gross income exceeds £50,000 mandated into the system (unless specifically exempt) as from April 2026 and those taxpayers with gross income exceeding £30,000 in April 2027 The intention is to expand further to those taxpayers with gross income of more than £20,000 in April 2028.

Taxpayers who deal in cash transactions will be most affected as they will be required to generate a digital invoice via a mobile app (with or without a customer's email), record the cash payment and ensure that the invoice is logged into their system, with the next step being transmission to HMRC.

Practical point

Reading the consultation, it would appear that HMRC is intending to mandate e-invoicing looking to build a data sharing feed to HMRC, believing that this will enable the tax authority to 'simplify tax reporting, reduce error and support businesses to get their tax right’, thereby reducing what HMRC perceives as the 'tax gap'. Critics of the system fear that imposing e-invoicing mandates could create additional compliance burdens, particularly for small businesses.

Having tenants who refuse to leave despite being given a valid Section 21 or Section 8 notice is a nightmare for a landlord and places them in the unwanted position of having to evict the tenants. To do this, the landlord will need to incur costs upfront, even if they are ultimately able to recover these from the tenants. It is important that the landlord follows the correct procedures for evicting tenants to avoid being guilty of harassment.

Costs

The landlord will need to apply to the court for a possession order. If they are not seeking rent, they can apply for an accelerated possession order which costs £404. This is usually a quicker route to recovering the property as it does not need a court hearing. The landlord may also incur associated legal or professional costs.

If the landlord is also seeking recovery of unpaid rent, they will need to take the standard possession order route. The claim can be made online and also costs £404. Again, the landlord may also incur legal costs.

The tenants have two weeks to respond after which the landlord can request the possession order. The hope is that the tenants will move out by the date stated on the possession order. If they do not do so, the landlord will need to apply for a warrant possession, which costs £148 plus any associated legal fees.

Once the warrant has been issued, the landlord will be sent notice EX96 which will state the date of the eviction. It is important that the landlord returns this form to confirm the eviction. The landlord may opt to transfer the warrant to the High Court to secure a writ of possession. This will enable a High Court enforcement officer to evict the tenants, which may result in a faster possession. This costs £123 (plus any associated legal fees), but may be worthwhile.

The landlord should keep records of all costs incurred.

Tax relief

The way in which relief is given depends on whether the costs are capital or revenue – confusingly, legal and professional costs can be either, as they follow the nature of the item to which they relate. Consequently, the way in which tax relief is given depends on why the landlord is evicting the tenant.

If a landlord is evicting a tenant for breach of the tenancy agreement and is to re-let the property once the tenant has left, the cost of evicting the tenant is revenue expenditure which can be deducted in calculating the rental profit to the extent that it is not recovered from the tenant.

However, if the landlord has issued a Section 21 notice to reclaim the property to sell, the cost of evicting the tenant is capital expenditure and is deducted as a cost of sale when working out the capital gain or loss on disposal.

If the landlord is able to recover costs under an insurance policy, the insurance proceeds must be taken into account as well as the costs.

In the event that the tenants have unpaid rent, which is recovered, either from the tenants or under an insurance policy, the recovered rent or insurance proceeds must be taken into account in calculating the taxable rental profit.