Adrian Mooy & Co - Accountants Derby

Significant points

Personal tax allowances and rates on general income frozen for a further three years to April 2031

Also frozen: NICs employer threshold and upper earnings limit, and IHT nil band, to April 2031; Plan 2 Student Loan repayment threshold to April 2030

No immediate changes to reliefs on pension schemes, but salary sacrifices above £2,000 to be subject to National Insurance from April 2029

Increases in income tax rates on dividend income from April 2026, and on rental and savings income from April 2027

Only minor changes to Inheritance Tax rules announced last year

ISA investment limits and rules remain the same, but from April 2027 new £12,000 limit for cash within the £20,000

Corporation tax rates unchanged, but Writing Down Allowances reduced from April 2026; new FYA from 1 January 2026

Council tax surcharge on properties worth over £2 million to apply from April 2028

Personal Income Tax

Tax rates and allowances – 2026/27

In 2023, the previous Chancellor announced that the main personal allowance and the 40% threshold will remain at their 2022/23 levels until the end of 2027/28. In a major tax raising measure, Chancellor Reeves has extended this freeze to the end of 2030/31, in spite of stating explicitly in last year’s Budget that the normal increases in the thresholds would resume in April 2028.

This has been widely criticised as a ‘stealth tax’, in that it increases the amount collected without explicitly increasing rates or reducing allowances. For example, a person with a salary of £50,270 will pay £7,540 in income tax in 2025/26; if their income increases by 10% to £55,297 in any of the years to 2030/31, all of the increase will be taxed at 40%, and they will pay £9,551. The forecasts accompanying the Budget show expected revenue of over £12 billion from this in 2030/31, the largest tax-raising measure in the table.

The income level above which the personal allowance is tapered away also remains £100,000; it will be reduced to zero when income is £125,140, which is also the threshold for paying 45% tax. In the tapering band, the loss of tax-free allowance creates an effective marginal rate of 60%. Once again, annual increases in income will bring more people into these higher rates.

Dividend income - The dividend allowance exempts some dividend income from tax, although that income still counts towards the higher rate thresholds. For 2026/27, the allowance is unchanged at £500. As HMRC does not routinely receive information about dividends received by taxpayers, this low limit is likely to require people to file tax returns to declare even small tax liabilities on dividends.

In 2026/27, the basic and higher rates on dividend income over £500 will rise by 2% to 10.75% and 35.75%; the additional rate will remain 39.35%.

The higher rate also applies to tax payable by close companies (broadly, those under the control of five or fewer shareholders) on ‘loans to participators’ that are not repaid to the company within 9 months of the end of the accounting period. This therefore also increases to 35.75% from 6 April 2026.

Dividends arising in an ISA or a qualifying VCT are not taxed and do not count towards the allowance.

Savings income and property income - The savings allowance remains £1,000 for basic rate taxpayers, £500 for 40% taxpayers and nil for 45% taxpayers. People with savings income above these limits may have to declare it in order to pay tax.

The savings rate band remains at £5,000. Non-savings income is treated as the ‘first slice’ of income, using the tax-free allowance and the savings rate band; if any of the £5,000 band is not used by this ‘slice’, any savings income falling within that band is taxed at 0%.

The Chancellor announced an increase in the tax rates applicable to income from property and savings to apply from April 2027. The basic, higher and additional rates on rental and savings income will all rise by 2% in 2027/28 to 22%, 42% and 47%.

From April 2027, there will be new rules about the order in which certain tax reliefs are deducted from income, so that they must be set first against income which is taxable at the lower rates before they can be set against savings, rental and dividend income.

The Budget document points out that 90% of people do not pay tax on savings income; however, for those whose income from these sources exceed their tax-free allowances, it will be necessary to calculate and settle the liability each year.

These tax increases make tax-free Individual Savings Accounts even more attractive, as any income or gains arising within an ISA are tax-free.

Winter fuel payment - Earlier this year, the government relented and restored the Winter Fuel Payment to pensioners. However, it will be clawed back through the tax system from anyone with income of over £35,000. This can be avoided by disclaiming the payment in advance. The threshold of £35,000 will remain fixed for the duration of this Parliament.

Company cars

The basis for taxing company cars and fuel provided for private use is set out in the Table. Annual increases in the rates for use of the car have already been set up to 2029/30 ‘to provide long-term certainty for taxpayers and industry’. The rates are intended to provide a strong incentive to use electric vehicles, while rates for hybrids will be increased to align more closely with the rates for internal combustion engine vehicles.

The figures used to calculate the following benefits all increase for 2026/27 by 3.8% in line with inflation:

l        the benefit of free use of business fuel for private journeys;

l        the taxable amount for the availability of a van for more than incidental private use;

l        the taxable amount for an employee’s private use of fuel in a company van.

Expenses and benefits

From 6 April 2026, employees will no longer be able to claim a tax deduction for expenses of working from home, if these are not reimbursed by their employer. Employers will still be able to reimburse such costs where they are eligible without deducting income tax or NICs.

Also from 6 April 2026, the income tax and NICs exemption for employer-provided benefits will be extended to cover reimbursements for eye tests, home working equipment, and flu vaccinations.

Enterprise Management Incentive (EMI) Scheme

Under this scheme, employees and directors can be granted options over shares in the company for which they work. No Income Tax or NICs arise if options are exercised within ten years of being granted. Other conditions apply.

For eligible companies, the following maximum limits will apply to EMI contracts granted on or after 6 April 2026:

l        the total value of company options that can be unexercised at any time will be increased from £3 million to £6 million;

l        gross assets will be increased from £30 million to £120 million;

l        the number of employees will be increased from 250 to 500 employees.

The maximum value of unexercised options an individual employee can hold remains £250,000.

The limit on the exercise period will be increased from 10 years to 15 years. Existing contracts can be amended without losing the tax advantages the schemes offer.

Image rights payments

From 2027/28, all image rights payments related to an employment will be treated as taxable employment income and subject to income tax, employer NICs and employee NICs. This will affect sports people who set up image rights companies to accumulate payments for the rights and follows a recent case involving the former England football captain Bryan Robson, which HMRC lost.

Thresholds and rates

There has been a great deal of debate about the effect on employment and business of the increases in employer NICs that took effect on 6 April 2025 following the Chancellor’s first Budget in October 2024. In the present Budget, no changes were announced – the £5,000 threshold for secondary contributions will remain fixed until April 2031 (in the 2024 Budget, the Chancellor said this figure would rise with inflation after April 2028). The Upper Earnings Limit for employee contributions is linked to the 40% income tax threshold, and is therefore also fixed to the same date.

The Lower Earnings Limit and Small Profits Threshold will be increased for 2026/27 in line with inflation at 3.8%.

Class 2 NICs

It has been possible to ‘buy in’ to the State pension by paying voluntary Class 2 NICs in certain circumstances. The Budget included measures to restrict the availability of this route to a State pension for people resident outside the UK with effect from 6 April 2026. There will be a wider review of voluntary NICs in the new year

Savings and Pensions

Individual Savings Accounts (ISA)

The investment limits for ISA have not changed since 2017/18: they are £20,000 for a standard adult ISA (within which £4,000 may be in a Lifetime ISA), and £9,000 for a Junior ISA or Child Trust Fund. These will now remain fixed until 5 April 2031.

From 6 April 2027, no more than £12,000 of the £20,000 will be eligible for investment in a cash ISA, apart from ISAs for those aged 65 and over. The Chancellor presented this as an encouragement to invest in stocks and shares, which have performed substantially better than cash deposits over the years since ISAs were introduced.

Pension contributions

Among the rumours circulating in advance of the Budget was the possibility of restrictions on tax-free pension lump sums or the amounts that can be invested with tax relief. In the event, the Chancellor made no immediate changes to the reliefs available.

The maximum amount that can be withdrawn as a tax-free lump sum remains £268,275 unless the person is entitled to ‘protection’ in relation to the original introduction of the Lifetime Allowance or any of the subsequent reductions of the limit.

The only change relating to pension funds was another measure that was widely predicted: a restriction on ‘salary sacrifice’ arrangements. From April 2029, full tax relief on such an arrangement will be restricted to a contribution of £2,000. On amounts in excess of that, employer and employee NICs will be due as if cash salary has been paid (although the contribution will still be free of income tax).

Venture capital schemes

Generous tax reliefs are available for those who invest in Enterprise Investment Scheme (EIS) companies or Venture Capital Trusts (VCTs), which are quoted investment trusts that invest in EIS-type companies. These schemes have a lot of detailed conditions attached to them, some of which are being changed to make the schemes available to larger companies.

The gross assets requirement that a company must not exceed for the EIS and VCT will increase to £30 million (from £15 million) immediately before the issue of the shares or securities, and to £35 million (from £16 million) immediately after the issue.

The annual investment limit that caps how much companies can raise will increase to £10 million (from £5 million) and, for knowledge-intensive companies, to £20 million (from £10 million).

The company’s lifetime investment limit will increase to £24 million (from £12 million) and, for knowledge-intensive companies, to £40 million (from £20 million).

These increases apply only to qualifying companies that are not registered in Northern Ireland trading in goods or the generation, transmission, distribution, supply, wholesale trade or cross-border exchange of electricity. These companies will remain eligible only for the current scheme limits.

The Income Tax relief that can be claimed by an individual investing in a VCT will reduce to 20% from the current rate of 30%.

These changes take effect from 6 April 2026.

Business rates

From 1 April 2026, business rates bills in England ‘will be updated to reflect changes in property values since the last revaluation in 2023’. The small business multiplier is being reduced to 43.2p and the standard multiplier to 48p.

The government will also introduce permanently lower multipliers for retail, hospitality and leisure (RHL) properties with rateable values under £500,000, set 5p below the national rates, making the small business RHL multiplier 38.2p and the standard RHL multiplier 43p. This will benefit over 750,000 RHL properties.

A new high-value multiplier will apply to properties above £500,000, such as the big warehouses of online retailers. This higher rate is being set at 2.8p above the national standard multiplier, making the high-value multiplier 50.8p in 2026/27.

Umbrella companies

An umbrella company employs workers on behalf of agencies and the businesses that the workers do the work for (the end client). From 6 April 2026, recruitment agencies and end clients will be jointly and severally liable for any payroll taxes on payments

to workers supplied through umbrella companies, where a non-compliant umbrella company fails to remit them to HMRC on their behalf.

If the labour supply chain has:

• more than one agency, the rules apply to the agency that has the direct contract with the end client to supply the worker;
• no agency, the rules apply to the end client.

Corporation Tax

Rate of tax

The rates of corporation tax have not changed, and last year’s Budget appeared to rule out changes for the life of the Parliament.

Late filing

From 1 April 2026, the penalties for late filing of corporation tax returns will be doubled. They will become £200 for any lateness (£1,000 for the third successive offence); a further £200 (or £1,000) if the return is still not filed after 3 months; and tax-geared penalties of 10% of the amount unpaid if they are still not filed after 6 and again after 12 months.

Capital allowances for plant and machinery

The 2025 Budget introduces several changes to capital allowances that will affect the timing of tax relief for businesses over the next two years.

The 100% First Year Allowance for new zero-emission cars and chargepoints has been extended until 31 March 2027 (5 April 2027 for unincorporated businesses), giving an additional year for businesses to secure full upfront relief on electric vehicles before these assets revert to slower relief through writing-down allowances.

A new 40% First Year Allowance will apply to qualifying main-rate plant and machinery from 1 January 2026, where full expensing or the £1 million Annual Investment Allowance are not available. This relief will be available to all businesses, including unincorporated businesses and those acquiring assets for leasing in the UK. Cars and second-hand assets are excluded.

From April 2026, the main rate writing-down allowance will reduce from 18% to 14%, slowing tax relief where upfront allowances cannot be claimed. The special rate writing-down allowance remains unchanged at 6%.

Full expensing continues unchanged for companies and remains the most beneficial route where available. Businesses with material or recurring capital expenditure should review investment plans ahead of the April 2026 changes to optimise relief.

R&D

The government will pilot a targeted advance assurance service from spring 2026, enabling small and medium-sized enterprises to gain clarity on key aspects of their R&D tax relief claims before submitting them to HMRC.

Capital Gains Tax

Rates and annual exempt amount

In her first Budget, the Chancellor increased the rates of CGT and reduced a number of reliefs. The current Budget document included the forecast that the annual yield from the tax will more than double from £13.7 billion at the start of this Parliament to £30 billion in 2030/31.

The CGT annual exempt amount remains £3,000 for individuals and estates and £1,500 for most trusts. Individuals will continue to pay 18% on gains that fall within their basic rate income tax band, and 24% on gains above that.

Disposals to Employee Ownership Trusts

A CGT relief has exempted gains on eligible disposals of shares to Employee Ownership Trusts. The government will reduce the CGT relief available from 100%

of the gain to 50%. This will take immediate effect from 26 November 2025. Business Asset Disposal Relief (see below) will not be available on the remaining chargeable 50%.

Incorporation relief

When a sole trader or partnership transfers a business to a company in exchange for shares, any capital gains arising on the disposal of chargeable assets may be deferred by ‘incorporation relief’. Under the existing legislation, this operates automatically where the conditions are satisfied. From 6 April 2026, it will be necessary to make a claim for the relief to apply.

Business Asset Disposal Relief (BADR) and carried interest

As announced last year, the tax rate on gains that qualify for BADR will rise in 2026/27 from 14% to 18%. The relief remains available on qualifying gains with a lifetime limit of £1 million.

Investors’ Relief can give a reduced CGT rate to qualifying investors in qualifying companies for which they do not work. The lifetime limit is also £1 million and the rate of tax will rise in line with BADR.

In 2025/26, the rate of CGT on carried interest was a flat rate of 32% for individuals, estates and trusts. From 2026/27, carried interest will be brought within income tax and subject to its own specific rules.

Cryptoassets

Gains realised on cryptoassets such as Bitcoin are likely to be chargeable to CGT. In order to make sure that chargeable gains are being reported, the government will require UK-based Cryptoasset Service Providers to report on their UK tax resident customers under the Cryptoasset Reporting Framework. Information for first reports to HMRC will be collected from 1 January 2026 and reported to HMRC in 2027.

Inheritance Tax (IHT)

Rates - The IHT nil rate band has been fixed at £325,000 since 6 April 2009. The Chancellor has extended the freeze on this figure until the end of 2030/31. Holding the threshold at the same amount for 22 years will bring far more people into the scope of the tax. The Budget document states that IHT raised £8.3 billion a year at the start of this Parliament; this is expected to rise to £14.5 billion in 2030/31.

The £175,000 ‘residential nil rate band enhancement’ on death transfers (also frozen, together with the £2 million value of estate above which it is tapered) can reduce the impact where it applies. A married couple may be able to leave up to £1 million free of IHT to their direct descendants (£325,000 plus £175,000 from each parent), but the rules are complicated, and the prospect of the nil rate band being fixed for another

5 years increases the importance of proper IHT planning.

Agricultural and business property

The government has confirmed that the well-publicised restrictions on 100% agricultural and business reliefs will come in, as previously announced, from 6 April 2026. 100% relief will be restricted to £1 million of the total of qualifying agricultural and business property, with 50% relief on any higher value.

It was newly announced that the £1 million 100% allowance will be transferable between spouses, if it is not used on the first death, and this figure also will be frozen until April 2031.

Also from 6 April 2026, qualifying shares quoted on the AIM and similar ‘unlisted’ markets will qualify for 50% relief rather than the current 100% relief.

These changes could potentially create significant IHT liabilities for family farming and trading businesses in the future, including where business assets are held in trust. All businesses should consider their IHT position, including reviewing wills and considering whether some lifetime gifts of qualifying property may be worthwhile.

Unused pension funds and death benefits

The government has confirmed that, from 6 April 2027, most unused pension funds and death benefits will come within the deceased’s estate for IHT purposes, whether written into trust or not.

Value Added Tax

Registration threshold

The VAT registration and deregistration thresholds last increased to £90,000 and £88,000 with effect from 1 April 2024. The March 2024 Budget stated that they will be again frozen at these new levels, but it did not say for how long. No changes or dates have been announced.

Private hire vehicles

The VAT treatment of private hire vehicles has been thrown into doubt by several court decisions involving Uber and other operators. The Tour Operators Margin Scheme (TOMS) has been held to allow firms to account for VAT only on the difference between the fare and the amount paid to the driver. While the past tax treatment is still the subject of ongoing litigation, the government will put the position beyond doubt going forward: from 2 January 2026, taxi and private vehicle hire services will not be eligible for the TOMS, except where they are provided as part of a package with certain other travel services. This means that a firm will have to account for VAT on the whole of a customer’s fare, where the firm has a contract with the customer as principal responsible for providing the ride.

Gifts to charity

A new VAT relief will be introduced from 1 April 2026 for business donations of goods to charity which are for distribution to those in need or for use in the delivery of their charitable services. Currently a business making such a gift could be liable for output tax on a deemed disposal of the goods.

E-invoicing

From April 2029, it will be a requirement to issue all VAT invoices in a specified electronic format. The government will work on a ‘roadmap’ towards implementation of this measure and will publish this next year.

Low value imports: customs duty

The government intends to remove the customs duty relief on goods imported into the UK valued at £135 or less, making them subject to customs duty from March 2029 at the latest, and is consulting on implementing a new set of customs arrangements for these goods.

Motability

The Motability scheme enables eligible people to buy vehicles that are adapted to enable them to use them, and provides some VAT reliefs. The Budget will impose, with effect from July 2026, 20% VAT on top-up payments that a user can make to have a more expensive vehicle through the scheme.

Property Taxation

‘Mansion tax’

The High Value Council Tax Surcharge (HVCTS) is a new charge on owners of residential property in England worth £2 million or more (in 2026), which will take effect in April 2028.

Homeowners, rather than occupiers, will be liable to the surcharge and will continue to pay their existing Council Tax alongside the surcharge.

The Valuation Office will conduct a targeted valuation exercise to identify properties above £2 million. Revaluations will be conducted every five years.

Properties above the £2 million threshold will be placed into bands based on their property value. Charges will increase in line with CPI inflation each year from 2029/30 onwards.

The surcharge will be £2,500 for properties between £2 million and £2.5 million and rises to £7,500 for properties above £5 million.

Making Tax Digital for Income Tax (MTD IT)

The requirement to file tax returns using MTD IT will come into effect from

6 April 2026. Those initially affected by the rules will be those with annual income from a sole trader business or property, or both together, of £50,000. This will drop to £30,000 from 6 April 2027, and it is intended to expand the rollout to those with incomes over £20,000 by the end of the Parliament. Anyone who will be affected by these rules should make sure they are ready to comply with them in good time: understanding the requirements and making sure that it is possible to comply with them is not something that should be done at the last minute.

However, the Budget included the good news that late submission penalties will not apply for quarterly updates during the 2026/27 tax year for taxpayers required to join MTD IT. The new penalty regime for late submission and late payment will apply to all self-assessment taxpayers not already due to join the new system from 6 April 2027. The government will also increase the penalties due for late payment of self-assessment income tax and VAT from 1 April 2027.

State pension

The State pension will rise by 4.8% from April 2026 in line with average earnings,

in accordance with the ‘Triple Lock’. The government is taking steps to deal with the possibility that the State pension on its own, which is paid without deduction of tax, may exceed the personal tax allowance in 2027/28. The government plans to consult on ways to avoid requiring pensioners with no other sources of income having to report to HMRC and pay tax.

Fuel duty

The Chancellor decided to maintain the freeze in fuel duty and to retain the 5p cut beyond 22 March 2026, when it was supposed to come to an end. It will now be reversed in stages between 1 September 2026 and 1 March 2027. Inflationary increases in the duty are planned to resume in April 2027.

Electric Vehicle Excise Duty

The government is introducing Electric Vehicle Excise Duty (eVED), a new mileage charge for electric and plug-in hybrid cars, with effect from April 2028. Drivers will pay for their mileage on a per-mile basis alongside their existing Vehicle Excise Duty. Electric cars will pay half the equivalent fuel duty rate for petrol and diesel cars, and plug-in hybrid cars will pay a reduced rate equivalent to half of the electric car rate. The government will carry out a consultation to gather views on how this will be implemented.

National Living Wage (NLW)

From 1 April 2026, the NLW which applies to those aged 21 or over will rise from £12.21 per hour to £12.71. There are also increases to the rates that apply to workers aged 18 to 20 (£10.85) and under 18s and apprentices (£8.00).

Universal Credit

As expected, the Chancellor removed the ‘two-child benefit cap’ with effect from

April 2026, increasing the entitlement to Universal Credit for claimants with more than two children. This measure will cost between £2.3 billion and £3.2 billion a year over the forecast period. By contrast, the freezing of income tax bands and allowances

is expected to raise £12.4 billion in the year 2030/31 alone.

Student loans

The repayment threshold for Plan 2 student loans will be frozen at £29,385 for three years from April 2027. This means that graduates are likely to be liable for higher repayments as their income increases above that level, in the same way that freezing income tax thresholds and allowances increases income tax. It will not increase the outstanding loan itself, but it will require faster repayment of it.

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.

The normal filing deadline for the 2024/25 Self Assessment tax return is 31 January 2026. However, if you have some tax to pay under Self Assessment and you also pay tax under PAYE, if you file your return by 30 December 2025, you may be able to pay what you owe through an adjustment to your tax code rather than through the Self Assessment system. This may be the case if, for example, you are employed or receive a pension and also have some income from self-employment or property or you have taxable investment income.

Conditions

Tax due under Self Assessment can only be collected through your tax code if the following conditions are met:

• the total amount that you owe through Self Assessment is £3,000 or less;
• you already pay tax through PAYE (for example, because you are employed or receive a company pension); and
• you filed a paper return by 31 October 2025 or an online return by 30 December 2025.

It should be noted that if the amount you owe is more than £3,000, you cannot make a part payment to reduce the outstanding amount to £3,000 or less and pay the balance through your tax code.

However, even if these conditions are met, you will not be able to pay your Self Assessment tax bill through your tax code if any of the following apply:

you do not have sufficient PAYE income to collect the amount that is due;

you would end up paying more than 50% of your income in tax; or

you would end up paying over twice as much tax as you normally do.

How it works

If you have filed your return by the deadline and you are eligible to pay your tax bill through your tax code, HMRC will automatically adjust your tax code to collect the amount of tax that you owe, unless you indicate that you do not wish to pay your tax in this way. The adjustment will take the form of a deduction from your allowances. The amount of the deduction will depend on how much you owe and your marginal rate of tax. For example, if you pay tax at 40% and owe tax under Self Assessment of £1,000, your allowances will be reduced by £2,500 (40% of £2,500 = £1,000).

The adjustment will be made to your 2026/27 tax code. As a result of the adjustment, you will pay what you owe for 2024/25 in equal instalments throughout 2026/27 each time that you are paid. If you are paid monthly, you will effectively pay your bill in 12 monthly instalments.

Advantages and disadvantages

Paying tax through your tax code allows you to pay it later – instead of having to settle the bill by 31 January 2026, you pay it in equal instalments over the 2026/27 tax year. This provides a cashflow benefit and removes the need to find the funds to pay the bill in one hit.

Paying your bill through your tax code also provides an automatic interest-free instalment plan. Unlike a Time to Pay arrangement, you do not need to set it up, and there is no interest to pay either.

However, having your tax deducted from your pay will reduce your take-home pay, so it may not be for everyone.

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.

Legislation has been published in draft for inclusion in the Finance Bill which will bring unused pension pots within the charge to inheritance tax from 6 April 2027.

In light of this change, pension savers may be considering withdrawing pension funds to prevent such a charge. Is this a good idea?

The first point to note is that this is not yet law and, assuming it does come into effect, it will not do so until 6 April 2027. Therefore, there is no need to be hasty. There is also much speculation that the forthcoming Budget will include further pension changes; but as yet, whether this comes to pass and what such changes will look like is not yet known.

Accessing personal pension savings

Anyone with a money purchase pension plan can currently access this once they have reached age 55. This is to rise to 57 from 6 April 2028.

It should be noted that taking a pension before age 55 (or before age 57 after 6 April 2028) will trigger an unauthorised payment charge. This is potentially very costly and, depending on the amount of the pension pot, which is accessed, could be as much as 55%. At best, the charge will not be less than an IHT charge on unused funds and may actually be more.

Where a person has reached age 55 and wants to flexibly access their pension pot, currently they can take a tax-free lump sum of 25% (capped at £268,275). It remains to be seen whether the Chancellor will opt to change this. Once the tax-free lump sum has been taken, further withdrawals are taxed at the recipient’s marginal rate of tax. When making withdrawals, consideration should be given to whether the tax cost of withdrawing funds is more than the potential IHT charge if they remain in the pension pot at death. For additional and higher rate taxpayers, there are no savings to be had by withdrawing funds in excess of the tax-free lump sum.

It is also important to remember that once a pension pot has been flexibly accessed, the ability to make further contributions is capped by the money purchase pension allowance (currently £10,000 a year) where this is less than earnings.

Consider the beneficiary

Before withdrawing pension funds to save IHT, it is important to assess who would benefit from those funds if they remained in the pension pot at death. If the beneficiary is a spouse or civil partner, the inter-spouse exemption would be in point and there would be no IHT to pay.

Consider the value of the estate

It is also important to consider the likely value of the death estate and whether it would be sheltered by the available nil rate bands and existing exemptions. If the estate (including any unused pension pots) would not be a chargeable estate, there is no IHT to save by withdrawing the funds.

Consider all tax charges

It is really important that the potential IHT saving is not looked at in isolation – all potential tax charges must be considered to assess whether there are overall savings to be had.

Once the tax-free lump sum has been withdrawn, further withdrawals will be taxed at the recipient’s marginal rate. If the amounts withdrawn exceed the personal allowance, there will be income tax to pay.

If the amounts are withdrawn (possibly triggering an income tax charge) and remain in the estate at death, the funds will be taken into account in working out the IHT charge on death – it does not matter whether they are inside the pension pot or not.

Consideration may be given to withdrawing funds and making lifetime transfers. Here it depends on how this is done. If a regular pension is withdrawn and the income is passed on, the gifts out of income exemption will apply as long as the donor has sufficient remaining income to live on. If tax is paid at less than 40% on the amounts withdrawn, there may be some tax savings.

If a lump sum is withdrawn and a capital sum is passed on, the donor will need to live for seven years from the date of the gift for the gift to fall out of charge for IHT purposes. Again, the Chancellor may change this rule.

Christmas is coming and many people use the celebration time to sell items such as handmade Christmas cards and goods on seasonal market stalls. Influencers and content creators may receive Christmas gifts in return for social media promotion and more people will log onto platforms such as eBay and Etsy for their Christmas present buying. However, what to the sellers may seem to be a hobby, may not be so viewed by HMRC.

‘Help for hustles’ campaign

HMRC’s guidelines are explicit – if a seller makes money from selling goods or services (e.g. tutoring or dog walking) with the intention to make a profit (even on a small scale), it can count as a business potentially liable for both tax and NIC. HMRC's ‘help for hustles’ campaign reminds anyone earning extra income from such activities that they must inform HMRC if they earn more than £1,000 (being the amount of  the ‘trading allowance’).

The campaign specifically targets seasonal traders, explaining the distinction between selling unwanted personal belongings (which usually do not require reporting), and trading activities that may be taxable. The ‘campaign’ is shown on a website page, but HMRC also issues letters to those sellers it believes may be in business (including sellers identified from viewing social media platforms) that they may be in business.

Online platforms - In December 2024, HMRC issued a press release titled No tax changes for online sellers, confirming that platforms such as eBay and Etsy – and even Deliveroo, Airbnb and Amazon – would be required to share sales data and personal information with HMRC. The declaration is of the seller’s name, address, date of birth, NI number and details of sales (both number of transactions and gross proceeds). According to HMRC’s guidance, platforms must report sellers who either make 30 or more sales in a year or earn in excess of €2,000 (approximately £1,700) in gross sales. Platform operators are required to give the individual a copy of the data reported to HMRC.

‘Badges of trade’

Whether the selling comes under the heading of a ‘trade’ depends on whether HMRC judges any one of the nine ‘badges of trade’ to be present. It is not necessary for all ‘badges’ to be present – the existence of just one can be enough. Clearly some badges carry greater weight than others, given differing circumstances.

The nine ‘badges of trade’ listed under HMRC’s Business Income Manual at BIM20205 are:

• profit-seeking motive;
• number of transactions;
• nature of the asset;
• existence of similar trading transactions;
• changes to the asset;
• method of sale;
• source of finance;
• interval of time between purchase and sale; and
• method of acquisition.

Trading allowance

Tax will be chargeable on any income less expenses, taxed at the taxpayer’s highest rate of tax. There is a trading allowance of £1,000, which can be set against income from trading activities. If gross income is below this threshold, the sales do not have to be reported to HMRC. Above this amount, the allowance can be deducted from the gross income and tax and NICs paid on the excess, as applicable.

Instead of claiming the trading allowance, any expenses incurred wholly and exclusively in carrying on the activity can be deducted to calculate the taxable income. If a loss arises, it may be beneficial not to claim the allowance as the loss could be deducted from other income when calculating any overall income tax liability.

Non-cash benefits

Many influencers receive non-cash benefits (e.g. free products or services received in exchange for a promotion or review). To comply with tax rules, these items should be valued and reported as trading income and added to any cash that may have been received.

Practical point = HMRC provides an online checker tool to help individuals determine their need to report additional income, along with guidance on how to navigate tax implications related to side hustles.

Should any taxpayer find they are struggling to pay their tax bills by the usual deadlines, there are official ways to spread the payments. How such payments are made depends upon the type of tax owing, the amount outstanding and whether the taxpayer is employed, self-employed or a company. Regardless of the plan undertaken, interest charges will accrue, although penalties are typically not levied.

Time to Pay (TTP) scheme

HMRC’s most recently published Annual Report and Accounts (2024/25) states that over 913,000 customers were paying taxes under a TTP arrangement, with total tax owing of approximately £6.16 billion (total debt balance = £44 billion of which 14% is being paid under an instalment process).

A TTP arrangement, whilst not an automatic right, is a formal negotiated agreement allowing payment of unpaid tax to be made over a period of typically 12 monthly instalments. Longer arrangements can be made with HMRC manager approval but will only be granted in ‘exceptional cases’. The self-employed can apply for a TTP arrangement online provided that the latest tax return has been filed and the debt is less than £30,000; the system permits 12 months of instalment payments by default. The application must be made within 60 days of the payment deadline (i.e. for a self-employed taxpayer, the agreement must be in place by 31 March) and the taxpayer must not have any other payment plans or debts with HMRC. Applications that do not fulfil the online requirements need to be made by phoning HMRC initially and, if accepted, then a formal written agreement will be issued. Details of income and expenses must be declared.

TTP proposals can be rejected (or rescinded) for various reasons such as a history of late submission of returns, failure to respond to previous correspondence or not keeping HMRC informed of the taxpayer’s financial situation if a TTP is already in place. If a proposal is rejected, the taxpayer may face additional penalties and interest charges, and HMRC may take further action to recover the debt.

TTPs can also be used for VAT, PAYE, Class 4 NIC and corporation tax arrears (although the conditions differ and are stricter). For example, HMRC requires proof that the business is a viable going concern demanding full financial disclosure, including bank statements and cashflow forecasts.

PAYE coding adjustments (employees)

If the taxpayer is employed or receives a taxable pension and the underpayment is £3,000 or less, HMRC will automatically collect the outstanding tax via restriction in the taxpayer’s code for the following year (unless the box on the tax return specifically asking not to collect this way has been ticked). This method of collection enables the debt to be repaid over 12 months interest-free.

Short-term deferral

In very limited cases, HMRC may allow short-term deferral of a payment without a formal TTP arrangement, typically for only a few days or weeks. HMRC needs to be contacted as soon as possible, and this would be relevant if the taxpayer was suddenly involved in an accident, for example.

Budget Payment Plan (BPP)

The BPP is a voluntary scheme for self assessment taxpayers enabling regular monthly or weekly payments by direct debit towards the next tax bill. The taxpayer chooses how much to pay and how often. A BPP can only be used by taxpayers who are up to date with their tax position at the time of application. Note that, although this plan may give peace of mind that a future tax bill will be paid, the taxpayer is not given any interest and therefore they would be better saving into a deposit account.

Practical point

If self assessment tax is outstanding on three specific trigger dates, a 5% late payment penalty is charged. These dates are usually 30 days, six months and 12 months after the due date for the tax. Therefore, for a payment due on 31 January 2026, the 5% penalty can be avoided by setting up a TTP arrangement before 2 March 2026 and adhering to the terms of the payment plan, although interest will still be charged.