Helpsheets ... continued 49 from homepage

Starting in self-employment can feel daunting. There may be a website to create, a business bank account to open, pricing to set and possibly premises to secure. In the midst of these priorities, many new sole traders overlook a key requirement – registering with HMRC. Failing to register on time can lead to penalties, including possible backdated obligations.

Is registration mandatory?

Registration becomes mandatory when gross income exceeds £1,000 in a tax year. Termed the ‘trading allowance’, the £1,000 is income before deduction of tax-allowable expenses. From a date to be announced (but by 2029), if gross trading income is between £1,000 and £3,000, a business will still need to register but instead of submitting a full self-assessment return, there will be a simplified online system. The trading allowance itself will remain at £1,000, but the change will affect who must file a full return. Voluntary registration is possible and may be relevant should a loss be incurred.

Registration time limit

The registration deadline is 5 October after the end of the tax year in which gross trading income exceeded £1,000. If late but any tax due is paid on time (by 31 January), HMRC has indicated that penalties may not apply provided certain conditions are met. These include having a reasonable excuse, the failure not being deliberate and notifying HMRC without unnecessary delay. Voluntary disclosure generally results in lower penalties.

However, if registration is late and tax unpaid or paid late, HMRC can levy a ‘failure to notify’ penalty. Penalties range from 0% to 30% of the potential lost revenue for non-deliberate failures but can be as much as 100% of the unpaid tax, for deliberate and concealed cases. The penalty may be reduced if individuals fully cooperate with HMRC or make an unprompted disclosure.

Making Tax Digital

Penalties for failure to notify and register for self-assessment will continue to be charged as detailed above. Failure to also sign up for MTD will incur late submission penalty points rather than failure to notify penalties.

An individual or business will be charged a penalty point every time a MTD quarterly or tax return deadline is missed. If four penalty points are received, HMRC will issue an automatic £200 charge.

Backdating self-assessment

Declaration is required from the date trading commenced; this may mean submitting returns backdated to cover all relevant years.

Penalties for late filing of returns are:

£100 fixed penalty for each late return (even if no tax owed)

After three months: £10 per day (maximum charge = £900)

After six months: additional £300 or 5% of outstanding tax (whichever is  greater)

After 12 months: further £300 or 5% of outstanding tax (whichever is greater)

Note that HMRC can charge both failure to notify and late filing penalties for the same situation as they are separate offences for different obligations.

If HMRC discovers non-compliance, then it can review up to 20 years outstanding returns if the behaviour is deemed as ‘deliberate’ and six years if ‘careless’, but the usual number of backdated years is four.

Late VAT registration

Separate rules apply to VAT registration. A business must register when its taxable turnover exceeds the £90,000 registration threshold. If the business fails to register on time, HMRC may backdate the registration to the date it should have occurred. The business will then be required to pay VAT on sales made since that date, even if not charged to customers at the time. In addition, late registration penalties may be levied based on the amount of VAT due and the length of the delay, with higher penalties for longer delays or deliberate non-compliance.

Practical point

In some cases, a business that temporarily exceeds the VAT threshold can apply for an exception from registration. To qualify, it must demonstrate that its taxable turnover will not exceed the £88,000 deregistration threshold within the following 12 months. However, HMRC is increasingly refusing exceptions, particularly where businesses have not adequately monitored turnover on an ongoing basis.

Where a landlord lets a residential property (including from 6 April 2025 onwards, a furnished holiday let), they are not entitled to tax relief when they purchase domestic items, such as furniture, furnishings, household appliances, and kitchenware. Instead, relief is given for the cost of replacing the item.

For the relief to be available, four conditions must be met.

Condition A is that the individual or company seeking to claim the relief is carrying on a property business that includes the letting of a dwelling house.

Condition B is that an old domestic item that has been provided for use in the dwelling house is replaced with the purchase of a new domestic item. The new item must be provided for the exclusive use of the lessee in the let property, and the old item must no longer be available for use by the lessee.

Condition C is that the expenditure is incurred wholly and exclusively for the purposes of the trade, but a deduction would be prohibited as the expenditure is capital.

Condition D is that capital allowances must not have been claimed in respect of the item.

Where the property in question is a furnished holiday let, it is important to check whether capital allowances were claimed where the old item was purchased before 6 April 2025. Under the former regime for furnished holiday lets applying before that date, landlords were able to claim capital allowances on the purchase of domestic items for furnished holiday lets.

Relief for replacement of domestic items is not available where Rent-a-Room relief has been claimed.

The relief

Under the relief, a deduction is allowed for the cost of a like-for-like replacement and any incidental costs, such as delivery or the cost of disposing of the old item or installing the new one. Where the old item is sold, the deduction is reduced by the sale proceeds.

Where the replacement is superior to the old item, the deduction is capped at the cost of a like-for-like replacement. For example, if a fridge was replaced with a fridge-freezer, the deduction would be capped at the amount of an equivalent fridge.

Where the old item is taken in part exchange, the deduction is the excess of the part-exchange value (plus any incidental costs).

Example

George lets a flat fully furnished. He replaces the two-seater sofa with a new sofa of a similar size and standard. The sofa cost £800 and delivery was £50. He also paid £70 for the council to dispose of the old sofa.

Under the rules for replacing domestic items, George is allowed a deduction of £920.

A tax avoidance scheme marketed at landlords and why it should be avoided.

HMRC has recently published a ‘Spotlight’ (Spotlight 69) drawing attention to a tax avoidance scheme targeted at landlords.

The scheme involves the transfer of the landlord’s property business to a limited liability partnership (LLP), which is subsequently liquidated, to avoid capital gains tax (CGT) on the eventual disposal to a limited company. However, in HMRC’s opinion, the scheme does not achieve its desired objective and anyone using the scheme will be liable for interest and penalties on the tax they sought to avoid, as well as the tax itself.

Legislation introduced in Finance Act 2025 ensures that a CGT charge now arises on a member who contributes assets to an LLP which is then liquidated in their favour or in favour of a connected person.

The scheme

A typical scheme works as follows.

 1. A landlord has (usually for many years) run a property business (say, in London) as an unincorporated business.

 2. The landlord incorporates their business as an LLP.

 3. The landlord transfers their rental properties, which are often pregnant with substantial capital gains, to the LLP at market value.

 4. After a short period, the LLP is put into a members’ voluntary liquidation (MVL).

 5. If the business is continuing, the properties are then sold to a limited company owned by the landlord or a connected party.

 6. For the purposes of the MVL, the LLP is considered to acquire its assets at the time of the contribution for their market value.

Landlords are told that this will result in them paying less tax because it enables them to transfer their properties into a company free of CGT without applying ‘incorporation relief’. There is no CGT when the property is transferred to the LLP, as there is no change in the underlying ownership. Likewise, there is no CGT on the disposal by the LLP to the company, which also benefits from a tax-free uplift in the base cost.

Further, there is no stamp duty land tax (SDLT) to pay on the transfer of the properties to the LLP or from the LLP to the limited company in the above scenario, because special rules apply in respect of interests to or from a partnership. It is also claimed that the scheme will deliver inheritance tax (IHT) benefits in the form of business property relief (BPR).

HMRC’s opinion

HMRC is of the view that the scheme does not work, and has published Spotlight 69 to warn landlords not to be taken in by claims made by the promoters. In HMRC’s opinion, the alleged CGT, SDLT and IHT savings will not be forthcoming.

At the time of the Autumn 2024 Budget, legislation was published in draft for consultation to counter the avoidance of CGT via the use of an LLP which is then liquidated. The legislation was included in Finance Act 2025 and is now contained in TCGA 1992, s 59AA. It applies in relation to liquidations that commence on or after 30 October 2024 (but not to those started before that date).

For tax purposes, a partnership is generally transparent for tax purposes and assets held by an LLP are treated as if held by the members. Consequently, no CGT liability arises when assets are transferred to the LLP, as the ownership of the asset does not change. However, TCGA 1992, s 59A also provides that this treatment ceases to apply on the appointment of a liquidator. It is on this provision that the efficacy of the scheme hinges.

The anti-avoidance rules introduced by Finance Act 2025 counter this by deeming there to be a disposal when an LLP is liquidated and assets that a member has contributed are disposed of to that member or to a person or company connected with them. In the scheme as outlined above, the disposal by the LLP to a company owned by the landlord or a connected person falls squarely within the scope of TCGA 1992, s 59AA.

This means that where the liquidation was commenced on or after 30 October 2024, the LLP will be liable for CGT in the normal way on the disposal of its assets, resulting in a CGT bill for the member on the disposal to the limited company.

As the disposal by the landlord is at market value, a chargeable gain will arise on the difference between the amount that the landlord paid for the property and its market value at the date of transfer to the LLP (less costs of acquisition and disposal and any improvement expenditure). However, the CGT savings perceived by the scheme may be forthcoming where the liquidation commenced prior to 30 October 2024.

Other implications

As far as SDLT is concerned, HMRC takes the view that because of the pre-arranged steps taken in using the scheme, the provisions contained in FA 2003, s 75A need to be considered. This, too, is an anti-avoidance provision which was introduced to counter schemes that sought to reduce or eliminate an SDLT charge that was contrary to the intention of the legislation.

The anti-avoidance legislation applies where there is a disposal which involves a number of transactions and the SDLT payable is less than would have been due on a direct disposal to the eventual owner. Consequently, HMRC’s view is that SDLT would be payable as if the property had been disposed by the member to the company. The SDLT relief that would otherwise apply on the transfer by a partnership to a limited company is lost.

In the Spotlight, HMRC also highlights the potential for the company to be subject to the annual tax on enveloped dwellings (ATED), which potentially applies where a company holds residential property valued at more than £500,000.

However, there are a number of ATED exemptions that can apply, including an exemption for qualifying property rental businesses. The relief is not given automatically and must be claimed. Penalties may be charged if a return or a relief declaration is not filed on time.

It is also unlikely that BPR for IHT purposes will be available, as a rental property business is likely to fall within an exclusion for the ‘making or holding of investments’.

HMRC is also considering whether the scheme may fall foul of the general anti-abuse rule (GAAR), which can be used to counter tax avoidance arrangements that, while within the letter of the law, fall outside the intentions of parliament. Where arrangements fall within the scope of the GAAR, HMRC can make a reasonable adjustment to the tax to counter the avoidance.

However, there are taxpayer safeguards in place and the scheme must be put before the independent GAAR advisory panel before a counteraction notice can be issued.

Landlords using the scheme

HMRC strongly advises landlords using the scheme described in the Spotlight or a similar scheme to withdraw from the scheme and settle their outstanding tax liabilities. Landlords affected can contact HMRC by email at spotlight69@hmrc.gov. uk. It is also advisable that they seek professional advice.

HMRC targets promoters of tax avoidance schemes. Promoters of tax avoidance schemes must comply with the disclosure of tax avoidance schemes (DOTAS) legislation. Failure to disclose a tax avoidance scheme will result in significant penalties being charged.

Landlords looking to incorporate

Recent tax changes have led many landlords to consider whether it would be worthwhile to run their business as a property company. However, landlords should be wary of convoluted routes to incorporation that seem to promise tax savings. When transferring properties to a limited company, there is a disposal at market value. However, unless disclaimed, incorporation relief will apply, which will defer the CGT bill until the disposal of the shares received in consideration. The company will also pay SDLT on the acquisition of the properties. There can be advantages to using an LLP. However, this should be considered in its own right, rather than as an indirect route to running the property business through a limited company.

Practical tip

Schemes that seem too good to be true often are, and landlords tempted by schemes that seem to offer significant tax savings should proceed with caution and take tax expert professional advice.

Options when looking to retire from a tax perspective.

With regard to the relevant taxes, it is primarily capital gains tax (CGT) which needs consideration when a business is being sold. A business is generally free from inheritance tax (IHT) by virtue of business property relief (BPR), although from April 2026 only £1m of value can benefit from 100% relief, the excess benefiting from a rate of 50%. Once the business is sold, BPR will not apply to the cash proceeds, so that would also need to be considered.

Selling to a third party

One way to realise the fruits of one’s labour is to sell the business as a going concern to a third party in return for cash; in that instance, the business or shares are sold and the profits (often the bulk of the proceeds) are subject to CGT. Whilst the ordinary rates of CGT are 18% or 24%, (or possibly a combination), the sale of a trading business or shares of a trading company (of which the owner is also a director) will attract a rate of 14% (for 2025/26) thanks to business asset disposal relief (BADR). The same tax treatment would apply if a company were formally liquidated, rather than sold as a going concern.

If the consideration for the sale is in the form of shares in the buyer, the CGT is essentially rolled over, with the new shares standing in the shoes of the old ones – unless an option is made to treat the swap as chargeable to utilise BADR. If possible, make the most of BADR before the rate is increased to 18% in April 2026!

Sale to employees

It may be that a particular employee, or group of employees, can be trusted to take the helm from the owner. From a CGT perspective, the consequences are the same as per a third-party sale, though the consideration will usually be in cash; a business owner might sell the business to a company formed by the purchasing employees – the seller might accept some shares in that company.

Employee-ownership trust

If a direct sale to an employee or an employee company is a non-starter, it might be that the employees as a whole could buy the shares via an employee-ownership trust – a John Lewis-type model whereby a trust owns (at least) a controlling stake of the company on behalf of the employees.

If more stringent post-April 2025 criteria are met, the sale of the company shares to the trustees is treated as ‘no-gain, no-loss’ disposals – hugely beneficial to the owner, but also these trusts can provide for the longevity of the business and jobs.

Instalments

If the consideration for the business sale is in cash instalments, the CGT position will depend on whether an ascertainable total figure has been agreed for the business sale; if the consideration is ascertainable, that total is taxed upfront irrespective of when it is actually received. With HMRC’s agreement, proceeds received in instalments can also be taxed in instalments until the CGT bill is paid.

If the consideration is unascertainable, an earn-out is being received and that is taxed upfront; once the earn-out is crystallised, there is a subsequent disposal and CGT is charged (without the benefit of BADR) again on the consideration received, less the earn-out’s initial value.

Company purchase of own shares

It might be that if there’s no one else to whom one’s shares can be sold, the company can purchase its own shares from the vendor; there would need to be some other existing shareholders, as any purchased shares are cancelled.

The default position is that the consideration for those shares would be subject to income tax, but with HMRC’s acceptance, the purchase of trading company shares can be treated as a capital disposal if it’s for the benefit of the trade.

Practical tip

When considering selling up, it’s important for a business owner to consider how the sale is structured, to whom it is being sold and how the consideration is relieved as it might affect the CGT. However, it must also be borne in mind that when the business is sold, an asset which currently attracts some IHT relief is being swapped for cash, which will attract no relief.

A new 40% first-year allowance (FYA) is to be introduced from April 2026. It will apply to main rate expenditure on new assets, excluding cars. Both companies and unincorporated business will be able to benefit. The new allowance will be available from 1 January2026 for corporation tax and from 6 January 2026 for income tax.

From 1 April 2026 for corporation tax and 6 April 2026 for income tax the main rate of writing down allowance (WDA) is reduced from 18% to 14%. A hybrid rate will apply where the chargeable period spans the date of the rate change.

Utilising the new allowance

Companies have a range of options for relieving main rate expenditure in the year in which it is incurred. The annual investment allowance (AIA) provides immediate relief for qualifying expenditure on new and used assets and applies to both qualifying main rate and special rate expenditure. However, it is subject to an annual limit of £1 million.

Companies can also take advantage of full expensing to deduct qualifying expenditure on new main rate assets. Full expensing is available without limit.

Like full expensing, the new 40% FYA applies to qualifying expenditure on new main rate assets. As full expensing can be used without limit, the 40% FYA will only be of use to a company where the expenditure is outside full expensing. This will be the case, for example, for assets used for leasing.

The new 40% FYA is also available to unincorporated businesses.

The cash basis is the default basis of accounts preparation for traders. It allows capital expenditure to be deducted when computing profits unless the expenditure is of a type for which such a deduction is specifically prohibited. Cars fall into this category. Where a deduction is not allowed, capital allowances can be claimed (unless simplified expenses have been used to claim relief for mileage costs).

Capital allowances are of more relevance where the trader uses the accruals basis. Unincorporated businesses can access the AIA, but do not benefit from full expensing. The new 40% FYA will be useful to them where the AIA has been used up, and also where expenditure qualifies for the new 40% FYA but not the AIA.

Where the 40% FYA is claimed, the balance of the expenditure is relieved by main rate WDAs.

Reduction in the WDA

The rate of WDA on main rate expenditure drops from 18% to 14% from 1 or 6 April 2026. This will lengthen the period over which relief is given for expenditure on main rate assets. It will have an impact where the business opted not to claim the AIA or full expensing on qualifying main rate expenditure or, from January2026, where the new 40% FYA is claimed.

Cars, other than new zero emission cars, are not eligible for any of the FYAs. Low emission cars are allocated to the main pool. The reduction in the main rate WDA will mean that it will take businesses longer to fully relieve the cost of main rate cars than is currently the case.

Where the chargeable period spans the date on which the rate changes, a hybrid rate will apply. This will reflect the number of days in the chargeable period before the rate change and the number of days on or after the rate change. For example, where a company prepares accounts to 30 June, the hybrid rate for the period to 30 June 2026 is 17%.

The tax implications associated with gifting a property. There are various situations when one person may wish to gift a property to another. This process brings tax implications depending on the circumstances, and whether the property is a main residence or a second property.

Capital gains tax

The basic premise is that should a property be gifted or sold for less than market value, capital gains tax (CGT) will be payable by the donor if the recipient is a ‘connected person’ (i.e., a family member, family trust). This rule does not apply if the sale is at ‘arm’s length’ between two unconnected parties. Gifts to a spouse or civil partner are generally deemed to have been transferred at a value that does not create a gain or a loss. Transfers of assets between spouses or civil partners under a formal divorce or separation agreement or court order are also generally made at no gain or loss.

If the property has been the owner’s main residence for at least part of the ownership period, principal private residence (PPR) relief can be claimed, extending to the last nine months (or 36 months, if the owner has entered long-term care).

Children are deemed ‘connected’, so there is a disposal for CGT purposes of any property not covered by PPR relief; the disposal proceeds being market value at the date of the gift. The problem here is that as no money changes hands, the donor may incur a ‘dry’ CGT bill as a result of giving the property to the connected person (i.e., as there will be no disposal proceeds from which to pay the bill, the donor will need to find the money from elsewhere).

Inheritance tax

At the time the gift between individuals is made, no inheritance tax (IHT) will be payable. The gift is classified as a potentially exempt transfer and remains free from IHT if the donor lives for at least seven years from the date of the gift.

If the donor survives for more than three years the gift will form part of the donor’s estate although taper relief will be available to reduce the IHT tax payable. IHT will be payable on the gift if not covered by the nil-rate band.

Reservation of benefit

A key challenge in IHT planning involving a main residence is that the donor often wishes to continue living there.

Under the ‘gifts with reservation of benefit’ (GWR) anti-avoidance rules, any gift to a connected person risks being caught by this rule, rendering the arrangement ineffective for IHT purposes and the property being treated as remaining part of the estate upon the donor’s death.

The gift of an undivided share of an interest in land is not a GWR if either of the following conditions is satisfied:

 • The donor does not occupy the property, or occupies it to the exclusion (or virtual exclusion) of the donee for full consideration (e.g., full market rent).

 • The donor and donee both occupy the property, and the donor receives no (or negligible) benefit from the donee in connection with the gift.

While the IHT legislation does not provide a definition for ‘virtual exclusion’, HMRC’s Inheritance Tax Manual (at IHTM14333 ‘Gift with Reservation’) offers examples reflecting HMRC’s interpretation. For example, the GWR provisions will not come into play if the donor stays in the property (in the absence of the donee) for less than two weeks each year, or stays with the donee for less than one month each year. Temporary visits (e.g., whilst the donor recovers from treatment following medical treatment) and short-term domestic visits are also allowed.

Pay market rent

To mitigate the GWR charge, one strategy is for the donor to pay full market rent to continue residing in the property.

However, this comes with a disadvantage, because unless there is consistent income, any capital used to pay the rent may be depleted. The rent should be reviewed periodically to reflect market changes.

Joint occupation

In this situation, the donee can remain in the property so long as either the donor continues to meet all expenses, or the donee pays no more than their share. The occupants will basically need to strictly split all bills fairly.

Pre-owned asset charge

In an attempt to circumvent the GWR rules, a variety of complex schemes have been developed in the past, the most common being the ‘home loan’ or ‘double trust’ scheme. Over time, these schemes have been tested in the courts, leading to the introduction of the ‘pre-owned assets tax’ charge (POAT).

The POAT charge is a separate anti-avoidance measure that can apply even if the GWR rules do not. The POAT rules broadly state that if an asset is gifted or a contribution made towards the purchase of the property and the donor continues to receive some benefit, they are potentially liable to the POAT charge (e.g., money given to a child who buys a flat shortly afterwards and the parent lives in the flat).

This charge is distinct from IHT, functioning instead as an income tax charge based on the annual benefit assumed to be received by the donor from the property. To avoid the charge, a donor may elect for the property to come within the GWR rules instead, with the value of the occupation being measured by using annual rental values.

There exists a benefit threshold of up to £5,000 per annum that is disregarded; however, if the total benefit from the land (and any other items) exceeds this amount, income tax will be calculated on the entire value of the benefit (i.e., even the first £5,000 is not disregarded).

Variations of these loan schemes have been attempted by taxpayers, with HMRC challenging them before the tax tribunals. One such example (but where the taxpayer won) is the recent case Executors of Mrs LV Elborne v HMRC [2025] UKUT 59 TCC. Following this decision, HMRC is likely to expedite amendments to IHTA 1984 to counteract similar future schemes.

In 2003, Mrs Elborne sold her home to trustees of a life interest trust, in exchange for an unsecured, zero‑interest loan broadly equal in value to the home at the time when the home loan scheme was implemented. She retained a life tenancy, living rent‑free (but paying all expenses) until her death. The loan note was then gifted to the trustees of a second life interest ‘family’ trust from which Mrs Elborne was excluded from benefit, which satisfied the PET conditions by her surviving for seven years.

The executors agreed that the value of the property in the life interest trust was chargeable in the estate due to her qualifying life interest (this being a pre-2006 settlement) but claimed a reduction in value by the amount of the outstanding debt (the loan note). Furthermore, as the loan note had been gifted more than seven years before death, it could not be chargeable in her estate, unless there was a GWR. HMRC disagreed and disallowed the loan note deduction.

The Upper Tribunal ruled that no benefit had been reserved, stating that it was irrelevant to the holder of the loan note (i.e., the trustees of the family settlement) where Mrs Elborne lived.

Stamp duty land tax/ Land and Buildings Transaction Tax/ Land Transaction Tax

On making a gift, normally, no stamp duty land tax (SDLT), is due by the recipient if no money changes hands.

However, when a property is transferred with a mortgage and that mortgage is taken on by the recipient, SDLT is due on the value of the debt transferred.

The same rules exist under the Land and Buildings Transaction Tax (LBTT) in Scotland and Land Transaction Tax (LTT) in Wales.

Practical tip

In July 2025, the government published draft legislation proposing that from 6 April 2027, unused pension funds are generally included in a deceased’s estate for IHT purposes. Should the legislation be enacted in its current form, many estates that previously fell below the IHT threshold could now be caught, potentially triggering a 40% tax charge. Some financial advisers are considering equity release to mitigate this additional IHT exposure, particularly where property constitutes a significant portion of their clients’ estate. By unlocking tax-free cash, money could be gifted during the donor’s lifetime (noting the sevenyear PET rule), thereby reducing the value of their taxable estate for IHT purposes.

When an employee works from home, they may incur additional costs as a result, such as higher gas and electricity bills. The tax system offers some help where the employer meets some or all of these additional costs. However, the relief that was previously available where employees met these costs themselves is withdrawn from 6 April 2026.

Expenses reimbursed by the employer

No tax liability arises where an employer makes a payment to an employee in respect of reasonable household expenses which the employee incurs while carrying out the duties of the employment at home under homeworking arrangements. These are arrangements between the employer and the employee under which the employee regularly performs some or all of the duties of the employment from home. For these purposes, household expenses are defined as expenses connected with the day-to-day running of the employee’s home. This includes the cost of heating and lighting the work area and the metered cost of extra water, additional insurance costs and the cost of business telephone calls. However, costs that are the same regardless of whether the employee works at home or not, such as rent, mortgage costs and council tax, do not count.

Although homeworking arrangements must be in place for the exemption to apply, there is no requirement for them to be in writing. Under those arrangements, the employee must work at home rather than at the employer’s premises. The exemption will also apply to hybrid arrangements where the employee works at home on certain days and at the employer’s premises on the remaining days.

However, the exemption does not apply where the employee works at home informally, for example, to accept a delivery, or where the employee takes work home in an evening or on a weekend.

To remove the administrative burden of working out the actual extra costs, employers can instead pay employees £6 per week tax free to cover their additional household expenses. The amount is the same regardless of whether an employee works at home one day a week or five days a week.

Employers can reimburse the actual additional household costs instead where these are higher as long as evidence can be provided to justify the amount paid.

Employee meets cost

Prior to 6 April 2026, where employees incurred additional household costs as a result of working from home and these were not reimbursed by the employer, they could claim tax relief for these additional costs. An administrative easement allowed them to claim a fixed deduction of £6 per week (an annual deduction of £312). Where the easement was used, it was not necessary to provide evidence in support of the deduction.

However, as announced at the time of the 2025 Autumn Budget, this relief is withdrawn from 6 April 2026. New legislation will prevent a deduction for work expenses where those expenses relate to the additional household costs incurred as a result of working from home.

The removal of the relief will increase the tax paid by affected employees by £62.40 for basic rate taxpayers, by £124.80 for higher rate taxpayers and by £140.40 for additional rate taxpayers.

Employees who are eligible for relief for 2025/26 can make a claim online or, where they complete a Self-Assessment tax return, in their return.

A supplement applies on top of the residential stamp duty rates where a person has two or more residential properties. The supplement is set at 5% and applies where the consideration for the second or subsequent property is £40,000 or more.

However, special rules apply where a person replaces their main residence and the SDLT supplement is not payable where both of the following conditions are met:

the new property replaces the main residence; and

the former main residence is sold within 36 months of the date of completion of the main residence.

However, if the former main residence has not been sold on the day on which the purchase of the new main residence completes, the supplement will initially be payable on the purchase of the new main residence. However, if the former main residence is sold within 36 months of completion of the new main residence, a refund of the supplement can be claimed.

Example 1

Matt and Lucy own two investment properties in addition to their main residence. They sell their main residence and buy a new home which becomes their main residence. The sale of the old main residence and the purchase of the new main residence complete on the same day. SDLT is payable at the residential rates on the purchase of the new main residence. The supplement does not apply as the couple are exchanging their main residence.

Example 2

Alicia has a holiday cottage in addition to her main residence. She buys a new home nearer to her family. The sale of the new home, which costs £500,000, completes on 1 March. However, the sale of her old home is delayed and does not complete until 16 April.

As Alicia has not completed on the sale of her old home when she completes on the purchase of her new home, she must pay SDLT at the residential rates plus the 5% supplement. Her SDLT bill is £40,000 of which £25,000 is the SDLT supplement.

When the sale of her former main residence completes, Alicia can claim a refund of the £25,000 SDLT supplement.

Claiming a refund

Where an SDLT supplement is paid because the sale of the former main residence completes after the purchase of the new main residence, the supplement is refunded. The refund must be claimed – it is not given automatically. To claim the refund, the former main residence must have been sold within three years of the completion of the purchase of the new main residence. In exceptional circumstances, it may be possible to claim a refund if it took more than three years to sell the former main residence.

The refund claim can be made online and HMRC must receive the claim by the later of 12 months after the date of sale of the former main residence and 12 months from the filing date of the SDLT return for the new main residence. An SDLT return must be filed within 14 days of the completion date.

An outline of the process of voluntary disclosure of income that has not previously been declared to HMRC.

Mistakes happen. The HMRC voluntary disclosure process allows individuals or businesses to come forward and correct tax errors, omissions or undeclared income before HMRC has initiated an inquiry, having discovered the error itself. It gives taxpayers the opportunity to pay what they owe, explain how the error occurred, and often receive lower penalties for doing so.

Errors involving income tax, National Insurance contributions, corporation tax or capital gains tax can be reported, including the incorrect claiming of reliefs or deductions that should not have been claimed and failure to register for a relevant tax. However, VAT errors and non-disclosure follow a different process.

Unprompted or prompted?

A disclosure by a taxpayer of an error is unprompted if HMRC has not discovered the error. HMRC’s guidance states that the measure of whether a disclosure is unprompted is objective. The most important point to remember is that such disclosure needs to be made before HMRC gets in touch in terms of mitigating possible penalties.

Process of disclosure (a) Notification The most commonly used route for disclosure is online via the digital disclosure service (DDS). At this stage, the form serves as a notification to HMRC that a disclosure will be made, and no details are required yet. Once the business or individual has informed HMRC of their intention to disclose, HMRC will issue a unique disclosure reference number and payment reference number to use when paying the outstanding amount. (b) Disclosure Disclosure must be made within 90 days of the date that HMRC acknowledges the notification. The disclosure should include additional liabilities for each year only; resubmitting income that has already been declared is not necessary as tax has already been paid on that income. Payment must be made at the same time as the disclosure. If payment cannot be made, then arrangements must be made with HMRC by the same 90-day deadline. It is important to note that only one disclosure form is allowed per person or company. For example, if a husband and wife have undisclosed income, they must each fill out separate disclosures, indicating their respective shares of income. If HMRC requires a disclosure for a company and a director, two separate disclosures must be submitted.

Follow-up process

An acceptance letter should be issued within a couple of weeks following the disclosure (and payment). If any further action is needed, a letter will be sent to inform the taxpayer. If HMRC rejects the disclosure, they will send a letter explaining the reasons for the rejection.

How many years to disclose?

The answer depends on the reason for non-disclosure and to how many years the non-disclosure relates. If the taxpayer took care to ensure the return was correct, but still failed to pay enough tax, a maximum of four years can be disclosed. If the underpayment is due to the taxpayer’s ‘carelessness’, the maximum period is six years. However, if HMRC deem the underpayment to be due to the taxpayer’s ‘deliberate’ behaviour where they have deliberately withheld or mislead HMRC about income, the time limit can be 20 years. Should HMRC have previously issued a notice to submit a return that remains outstanding, that return must be completed and the information for those tax years must not be included on the disclosure form.

VAT disclosure

Should the net error be less than £2,000 in total, it can be adjusted on a subsequent VAT return. If the error exceeds £2,000, the business must make a separate disclosure, making payment at the same time. Non-disclosure of dividends

To avoid lengthy investigations, HMRC is conducting what they call ‘nudge campaigns’ when they are aware that shareholders have received dividends that have not been declared. These campaigns encourage taxpayers to review whether their returns are correct and complete. Affected taxpayers are instructed to use the online disclosure form.

Practical tip

If HMRC determines that the error was deliberate and the amount of tax underdeclared exceeds £25,000, it may publish the taxpayer’s name on the list of deliberate defaulters. This could (for example) potentially impact any mortgage or finance applications. Overall, specialist advice on disclosures to HMRC is highly recommended.

Where a property business is operated through a company, the profits need to be extracted if they are to be used personally. One of the ways of extracting profits in a tax-efficient manner is to pay dividends, particularly if the shareholder’s personal allowance has been used elsewhere.

All taxpayers regardless of the level at which they pay tax are entitled to a dividend allowance. For 2025/26 this is set at £500 and will remain at this level for 2026/27. There is no personal tax to pay on dividends covered by the allowance. However, as the allowance acts as a zero-rate band, it uses up part of the tax band in which in falls.

If shareholders in the property company have yet to use their 2025/26 dividend allowance in full, it is worthwhile paying a dividend to mop up the unused allowance.

However, before paying a dividend, it is important to check that the company has sufficient retained profits from which to pay the dividend. Where a class of share has more than one shareholder, dividends must be paid in proportion to shareholdings. However, if each shareholder has their own class of share (known as an alphabet share structure), dividends can be tailored to the shareholder’s circumstances.

Once the dividend allowance (and any remaining personal allowance) have been used up, dividends, which are treated as the top slice of income, are taxed at the dividend tax rate appropriate to the tax band in which they fall. For 2025/26, the dividend ordinary rate (applying to dividends falling in the basic rate band) is set at 8.75%, the dividend upper rate (applying to dividends falling in the higher rate band) is set at 33.75% and the dividend additional rate (applying to dividends falling in the additional rate band) is set at 39.35%. However, from 6 April 2026, the dividend ordinary rate and the dividend upper rate both increase by two percentage points to, respectively, 10.75% and 35.75%. There is no change in the dividend additional rate which remains at 39.35%.

Where the property company has sufficient retained profits, consideration could be given to paying a dividend prior to 6 April 2026 to beat the tax rises. This will only be worthwhile if less tax is paid if the dividend is paid in 2025/26 rather than in 2026/27. If the policy is to take dividends to use up the basic rate band and dividends of this level have already been paid in 2025/26, there is no point paying a further dividend in 2025/26 which will be taxed at the dividend upper rate if that dividend would be taxed at the dividend ordinary rate if paid in 2026/27.