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.

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

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

Family home

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

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

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

All is not lost

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

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

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

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

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

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

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

Have your cake and eat it too?

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

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

Practical tip

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

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

Start date 1: 6 April 2026

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

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

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

Start date 2: 6 April 2027

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

Other landlords

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

Obligations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Start date

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

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

Amending the registration date

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

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

Car fuel benefit

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

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

A way round the charge

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

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

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

Practical point

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

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

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

Eligibility

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

Information required

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

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

Supporting evidence

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

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

Making a claim

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

HMRC should contact the claimant within 28 working days.

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

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

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

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

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

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

Will all landlords be affected by MTD?

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

Property income in scope for MTD includes:

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

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

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

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

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

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

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

Latest developments in making tax digital.

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

Annual aggregate turnover (all sources) Implementation date

More than £50,000                       5 April 2026

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

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

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

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

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

Key points It is perhaps worth emphasising:

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

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

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

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

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

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

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

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

Income boxes and joint property details

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

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

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

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

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

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

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

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

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

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

 • Trustees;

 • Personal representatives of someone who has died;

 • Lloyd’s members;

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

 • Foster carers (announced Autumn Statement 2023).

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

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

 • old age or infirmity;

 • remoteness of location (poor Internet access); or

 • religion.

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

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

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

Can you claim tax relief for costs incurred while the buy-to-let is on the market?

In light of the erosion of landlords’ rights in the Renters’ Rights Bill, together with a raft of adverse tax changes in recent years, many buy-to-let landlords have come to the decision that it is now time to sell. However, in the current buyer’s market, it may take some time to find a buyer and for the sale to go through. During this period, the landlord may incur costs. The extent of any tax relief and the way in which it is given will depend on the nature of those costs.

Costs incurred during the period from the end of the last let to the date of completion of the sale may relate to the former lettings business, the sale of the property or neither (such as private costs of the landlord). It is important to identify the true nature of any costs incurred in this period to ascertain whether tax relief is available.

Costs relating to the letting business

The tax legislation allows relief for expenses that are incurred after the letting business has ceased if relief for those costs would have been allowed had the business continued. This may include the cost of heating the property while it was empty, cleaning and gardening costs and council tax paid by the landlord while the property is empty. Likewise, if the landlord repairs or redecorates the property, these costs can also be deducted.

The legislation also makes specific provision for relief for qualifying expenses incurred within seven years of the cessation of the business. This would cover the costs of making good defective work or recovering a bad debt.

Costs relating to the letting are deducted in calculating the profit or loss for the property rental business.

Costs relating to the sale

The landlord will also incur costs in relation to the sale of the property, such as estate agents’ fees and solicitors’ fees. These can be deducted in computing the capital gain or loss on the sale of the property.

Following a period of letting, the property may need updating to secure the best possible price. Any capital costs incurred in improving the property prior to sale can also be deducted in calculating the capital gain or loss on the sale.

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

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

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

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

Paying the bill

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

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

Help to pay

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

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

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

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

Employment contract warning signs

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

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

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

Pay slip warning signs

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

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

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

Salary payment warning signs

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

A move to a new payroll system

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

What to do if fraud is suspected

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

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

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

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

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

Check whether you need to register

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

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

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

Registered before

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

Register online

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

File your return

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

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

Pay your tax

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

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

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

The practicalities

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

HMRC's plan

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

Different models

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

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

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

Practical implementation

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

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

Practical point

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

The Construction Industry Scheme (CIS) is a tax deduction scheme requiring contractors to deduct tax from payments made to subcontractors working in the construction industry. Contractors must register for the scheme and verify the tax status of subcontractors that they engage. They are also required to submit monthly returns online to HMRC detailing all payments made to subcontractors in the previous month.

Contractors must deduct a percentage of tax from these payments and remit the withheld tax to HMRC by the 22ndh of the month following online payments (19th of the month for postal payments). The deduction rate is 20% for registered subcontractors and 30% for unregistered. Many subcontractors, however, are unaware that they can apply to HMRC to obtain gross payment status, which allows for no tax deductions.

Gross payment status

When subcontractors initially register for CIS, they are automatically assigned net payment status. Gross payment status can be obtained only after successfully completing three tests:

The business test

The business must undertake construction work (or provide labour for construction work) and have a business bank account. HMRC will check the application to ensure that these tests are met and will verify the bank account details provided.

Turnover test

For sole traders, the annual turnover (excluding VAT and materials) must exceed £30,000. In the case of partnerships, each individual partner must have a turnover of £30,000. If the partnership includes corporate members, the turnover limit of £30,000 is multiplied by the number of relevant persons associated with each corporate partner. For companies, the turnover limit is also multiplied by the number of relevant persons, which includes directors and, for close companies (those with five or fewer directors or beneficial owners), any beneficial owners of shares. An individual is counted only once if they hold both director and beneficial owner status.

Compliance test

Failing the compliance test is a common reason for rejection by HMRC. Importantly, the requirement for timely compliance is part of the CIS legislation and is applied strictly.

HMRC's Construction Industry Scheme Reform Manual at CISR46060 states that any of the following will result in a failed compliance test:

“Four or more late submissions of the contractor’s monthly return CIS300, or VAT return within the preceding 12 months where the returns were less than 28 days late

Any submission of the contractor’s monthly return CIS300, VAT or SA return within the preceding 12 months made later than 28 days after the due date

A contractor’s monthly return already due but remaining outstanding at the date of application

Any SA return due in the qualifying period but outstanding at the date of application

Any Corporation Tax return (CT600) due in the qualifying period but outstanding at the date of application

Any VAT return due in the qualifying period but outstanding at the date of application”.

Late payments will also result in automatic refusal, for example, if any PAYE, VAT or CIS remittance of £100 or more within the preceding 12 months was paid more than 14 days after the due date. Similarly, refusal will be actioned if more than three remittances of £100 or more are paid late but within 14 days of the due date in the preceding 12 months. Importantly, any late NI contributions will result in an automatic refusal.

Annual review

HMRC will review any gross payment status annually and, should the subcontractor fail any of the tests, gross status will be withdrawn. If the subcontractor is a company, HMRC will review the company itself, rather than individual directors or shareholders.

Practical point

Whether there is any benefit in gross status depends on whether the subcontractor is disciplined enough to put money aside, ensuring that tax payments are made by the correct dates. The benefit of holding gross status is mainly cash flow, but also that such status demonstrates that the business is compliant, possibly giving a competitive edge when bidding for contracts.