Helpsheets ... continued 47 from homepage

In these difficult economic times, tenants may struggle to pay their rent, leaving landlords out of pocket. In the absence of insurance that makes good the cost of unpaid rent, the way in which the landlord is able to secure relief for the bad debt depends on whether the landlord uses the cash basis or the accruals basis to prepare their accounts.

Cash basis

The cash basis is a simple way of preparing accounts that is based on money in and money out. It is the default basis of accounts preparation for most unincorporated landlords with annual rental income of £150,000 or less.

Under the cash basis, income is only taken into account when it is received, and relief is only given for expenses when they are paid. This methodology provides automatic relief for bad debts as if the rent is not received, it is not taken into account in calculating the rental profit.

If the rent is received at a later date or the landlord is able to recover some or all of the unpaid rent through an insurance policy, it is simply brought into account as a receipt of the property rental business on the date that it is received.

Accruals basis

Landlords may use the accruals basis if they are not eligible for the cash basis, as may be the case if their annual rental income exceeds £150,000 or they operate their property business through a limited company. A landlord who is eligible to use the cash basis may elect to use the accruals basis instead.

Under the accruals basis, income and expenditure are matched to the period to which they relate, regardless of whether it has received or paid out. This is done by taking account of debtors, creditors, prepayments and accruals.

Where the accruals basis is used and the rent is unpaid, the rent for the period would be taken into account in calculating the profit for that period, and the balance sheet would show a debtor for the unpaid rent.

However, the tax legislation provides relief for bad and doubtful debts. Relief is given as a deduction when it becomes clear that the debt is bad or doubtful. Where a tenant is slow to pay but eventually pays, no relief is available – the rent is still taken into account for the period to which it relates regardless of when it is actually received.

Many employers have a social event for employees around the Christmas period. This may take the form of a Christmas party or dinner or another social event, such as wreath-making and cocktails. When planning the event, it is important to consider the tax and National Insurance implications up front. Although there is a specific tax exemption for annual parties and other functions, there are conditions that must be met for the exemption to apply. Ensuring that your Christmas event meets these conditions at the planning stage will prevent employees being hit with a tax charge on the associated benefit.

Conditions

To qualify for the exemption, the party or function must be:

• an annual party or function; and
• available to the employer’s employees generally or to those at a particular location.

Where there is a single annual party or function in the tax year, the cost per head must not exceed £150. Where there is more than one annual party or function in the tax year, the combined cost must not exceed £150 for all events to fall within the scope of the exemption. The cost per head is found by dividing the total cost of the party or function plus the cost of any transport incidentally provided by the total number of attendees (employees plus guests).

Watchpoints

Only annual events qualify for the exemption. As the name suggests, these are events that are held every year, such as an annual staff Christmas party. If the event is a one-off event, the exemption will not apply. This is the case regardless of whether the event is open to all employees and the cost per head is not more than £150.

To fall within the exemption, the event must also be open to all employees or all those at a particular location. HMRC have confirmed that departmental events qualify. However, an event for senior staff only would not fall within the scope of the exemption.

When calculating the cost per head, VAT is included even if this is subsequently recovered. It is also important to include guests as well as employees when performing the calculation. However, if the cost per head is more than £150, the full amount is taxable, not just the excess over £150. Where an employee brings a guest and the cost per head exceeds £150, the employee will be taxed on their attendance and that of their guest.

If there is more than one annual function in the tax year, the functions will be exempt as long as the combined cost per head is not more than £150. Where this limit is exceeded, the employer can choose how best to use the exemption. When allocating the exemption, remember to consider the impact of guests – it is better to leave an event costing £100 per head attended only by employees in charge than one costing £80 per head which is attended by employees and their partners as here the taxable amount will be £160 (2 x £80).

Consider a PSA

If a tax charge does arise in respect of a Christmas event, as will be the case, for example, if the event is not an annual event, the employee will suffer a benefit in kind tax charge. The taxable amount will be the cost per head for the employee and any associated guests. The employer will also suffer a Class 1A National Insurance charge.

To maintain the goodwill element of the event, the employer may wish to include the benefit within a PAYE Settlement Agreement and meet the associated tax liability on the employee’s behalf.

Partner note: ITEPA 2003, s. 264.

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.

In her tax-raising Budget on 26 November 2025, the Chancellor announced that the dividend ordinary rate and the dividend upper rate are to rise by two percentage points from 6 April 2026. This will affect director/shareholders in personal and family companies who extract profits in the form of dividends.

How dividends are taxed

Dividends have their own tax rates, which are lower than the standard income tax rates. Dividend income which is not sheltered by the personal allowance or the dividend allowance is treated as the top slice of income. It is taxed at the dividend ordinary rate where it falls in the basic rate band, at the dividend upper rate where it falls in the higher rate band and at the dividend additional rate where it falls in the additional rate band.

For 2025/26, the dividend ordinary rate is 8.75%, the dividend upper rate is 33.75% and the dividend additional rate is 39.35%.

From 6 April 2026, the dividend ordinary rate rises to 10.75% and the dividend upper rate rises to 35.75%. There is no change in the dividend additional rate which remains at 39.35%.

All individuals are entitled to a dividend allowance, which is £500 for 2025/26 and remains at this level for 2026/27. The dividend allowance acts as a nil rate band; dividends sheltered by the allowance are tax-free. However, it uses up part of the band in which it falls.

Impact of the rise

Where profits are extracted as dividends and the shareholder is a basic or higher rate taxpayer, they will pay an additional £20 in tax on every £1,000 of dividends paid in 2026/27 as compared to 2025/26. A shareholder taking £50,000 of dividends a year will pay an additional £1,000 in tax.

Additional rate taxpayers are unaffected by the change.

Beating the rise

Where a personal or family company has retained profits, consideration should be given to paying dividends before 6 April 2026 if the tax hit will be lower than if the dividend is paid on or after that date. However, if dividends have already been paid to use up the basic rate band, there is no point paying a dividend if it would be taxed at the dividend upper rate if paid before 6 April 2026 and at the dividend ordinary rate if paid on or after that date; 10.75% is lower than 33.75%.

In a family company scenario with an alphabet share structure, to minimise the total tax paid on profits extracted as dividends, make sure shareholders’ dividend allowances and basic rate bands are used up before paying dividends taxable at the higher rates.

Consideration could also be given to extracting profits in other ways, such as employer pension contributions or tax-free benefits in kind.

Unincorporated landlords pay income tax on the profits of their property rental business. This is currently at the normal income tax rates. However, this is set to change from 6 April 2027 when property income will have its own tax rates. The bad news is that the new property tax rates will be two percentage points higher than the current income tax rates.

Current rates and new rates

For 2025/26 and 2026/27, unincorporated landlords pay income tax on their rental profits at 20% where it falls in the basic rate band, at 40% where it falls in the higher rate band and at 45% where it falls in the additional rate band.

For 2027/28onwards, rental profits will be taxed at the new property tax rates which are, respectively 22%, 42% and 47%.

The new property tax rates only apply to landlords running an unincorporated property business; corporate landlords will continue to pay corporation tax on their profits.

Interest and finance costs

Where unincorporated landlords incur interest and finance costs, for example, mortgage interest, relief is given as a basic rate tax reduction.

When the new property tax rates come into effect from 6 April 2027, the rate used to calculate the tax reduction will be the property basic rate of 22%.

Allocation of personal allowance

The rules which determine the order in which income is taxed are also changing from 6 April 2027. Currently, allowances and reliefs are allocated so as to give the best result for the tax year.

For 2027/28 onwards, this will no longer be the case. The personal allowance will first be set against employment income, trading income and pension income (taxable at 20%, 40% and 45%) rather than property or savings income (taxable at 22%, 42% and 47%).

Mitigating the effects

Provisions contained in the Renters’ Rights Act 2025 will limit a landlord’s ability to increase rent to compensate for the tax rise. Where the landlord is increasing rents before these provisions bite, they may wish to factor in the forthcoming tax rises.

The cash basis is the default basis of accounts preparation for unincorporated landlords with rental income of less than £150,000. Under the cash basis, income is taxed when received and expenses relieved when paid.

Where possible, landlords should advance income, so it is received before 6 April 2027 to save 2% in tax. In contrast, they could consider delaying expenses until on or after 6 April 2027 so that relief is given at the new (higher) property rates.

All things being equal, receiving a pay rise which takes your income over £100,000 would be seen as a cause for celebration. However, all things are not equal, and as press reports attest, some people would rather turn down a promotion or cut their hours than take their earnings over £100,000.

We explain why this is.

Reason 1 – loss of the personal allowance

Individuals have a personal allowance of £12,570, allowing them to earn £12,570 before they pay tax. However, once their income exceeds the personal allowance income limit, their personal allowance starts to reduce. The personal allowance income limit is £100,000, unchanged since its introduction.

Where adjusted net income exceeds £100,000, the personal allowance is reduced by £1 for every £2 by which adjusted net income exceeds £100,000. A person with adjusted net income of £110,000 will only receive a personal allowance of £7,570 (£12,570 – ((£110,000 – £100,000)/2)).

Once a person’s adjusted net income reaches £125,140, their personal allowance is lost entirely so that they pay tax from the first pound that they earn.

The combined effect of the loss of the personal allowance and paying tax at the higher rate of 40% means that the marginal rate of tax between £100,000 and £125,140 is 60%. Add to that National Insurance of 2% and possibly student loan deductions of 9% or 15% and maybe pension contributions, the taxpayer does not actually keep much of the money that they earn between £100,000 and £125,140. Easy to see why some may deem the extra hours or workload as not being worthwhile.

Once income reaches £125,140, the marginal tax rate drops to 45% (the additional rate).

Reason 2 – loss of free childcare and tax-free top-up

Working parents may be able to receive free childcare for children from the age of nine months to four years for 30 hours a week for 38 weeks of the year. This is valuable. However, it is only available as long as neither partner has adjusted net income of more than t£100,000. Thus, once income reaches £100,000, free childcare is lost.

Working parents may also be able to benefit from the Government’s tax-free childcare scheme which provides up to £2,000 a year towards childcare costs (and up to £4,000 a year if the child is disabled). Under the scheme, the Government provides a £2 tax-free top-up for every £8 that the parents deposit in a dedicated account, up to the £2,000/£4,000 maximum top-up. However, as with free childcare, tax-free childcare is not available where either partner earns £100,000 or more.

For parents with young children, earning £100,000 or more will significantly increase their childcare costs.

Beating the system

There is a way to have the benefit of earning more than £100,000 a year and keeping your personal allowance, free childcare and the tax-free top-up. This is by making personal pension contributions to reduce your adjusted net income to below £100,000. You will still get the benefit of the money eventually, while retaining the personal allowance and childcare benefits.

The more altruistic can make charitable donations to reduce adjusted net income to below £100,000, which works in the same way.

Corporate landlords will not be hit by the property tax rises that will apply to unincorporated landlords from 6 April 2027; they will continue to pay corporation tax on their rental profits, the rates of which are unchanged. However, this does not mean that their shareholders are immune from the Budget tax rises. Where profits are extracted from a property company in the form of dividends, the recipient shareholders will be affected by the increases in the dividend tax rates applying from 6 April 2026.

Profit extraction

Although the profits of a property company are liable to corporation tax, the rates of which are lower than the income tax rates and the new property tax rates applying from 6 April 2027, if the shareholders want to use those profits personally, they will need to extract them. There are various ways in which this can be done, but a popular strategy where the personal allowance is available is to pay a salary equal to the personal allowance and to extract further profits as dividends.

All taxpayers have a dividend allowance, which is to remain at its current level of £500 for 2026/27. Dividends sheltered by the dividend allowance are taxed at 0%, although it should be remembered that the allowance uses up part of the tax band in which it falls.

Thereafter, dividends, which are treated as the top slice of income, are taxed at the dividend ordinary rate where they fall within the basic rate band, at the dividend upper rate where they fall within the higher rate band and at the dividend additional rate where they fall in the additional rate band.

Currently, the ordinary rate is 8.75%, the upper rate is 33.75% and the additional rate is 39.35%. From 6 April 2026, the ordinary rate rises to 10.75% and the upper rate to 35.75%. There is no change in the dividend additional rate which remains at 39.35%l

The rise will mean that basic and higher rate taxpayers will pay an extra £20 in tax on each £1,000 of dividends that they receive. A shareholder taking £50,000 in dividends will pay an additional £1,000 in tax.

Beating the rise

Where a property company has retained profits, consideration could be given to paying a dividend before 6 April 2026 where this will mean that the tax payable on that dividend will be at a lower rate than if the dividend is paid on or after 6 April 2026.

Going forward, where the company has several shareholders and an alphabet share structure is in place, the overall tax hit on profits extracted as dividends will be minimised by ensuring that all shareholders’ dividend allowances and basic rate bands are used before declaring dividends that will be taxable at the higher rates.

Consideration could also be given to extracting profits in other ways, such as tax-free benefits and employer pension contributions.

A new council tax charge, the High Value Council Tax Surcharge (HVCTS), is to be introduced in April 2028. The charge, dubbed ‘the mansion tax’, will be a recurring annual charge. It will apply to owners of residential properties worth more than £2 million in 2026 and will be levied on the homeowner rather than on the occupier. Social housing will be outside the scope of the charge.

Council tax, which was introduced in 1993, taxes domestic property to provide money to fund local services. Properties are grouped into eight valuation bands, based on property values in 1991. Local authorities set the charge for each band.

Under the HVCS, properties worth at least £2 million will be placed in bands based on their property values. The amount of the annual charge will depend on the band into which the property falls. The initial rates are set out below. The charges will increase each year from 2029/30 in line with increases in the CPI.

The charge will be administered by local authorities alongside council tax.

The Valuation Office are to undertake a targeted valuation exercise to identify properties valued at £2 million and above. It is expected that less than 1% of properties in the UK will fall within the scope of the HVCS.

It is interesting that it is the value of the property that determines the contribution to public services rather than the number of people using those services. Two people in a £2 million house are unlikely to use more local services than five people in an £800,000 house.

The charge takes no account of average property values, the amount of equity in a property and the original purchase cost, or the income of the occupants. Many fairly normal family homes in London are worth at least £2 million – it is questionable whether anyone would regard a three-bed semi as a mansion.

Where a property was purchased many years ago and is now worth more than £2 million, the owners will not necessarily have the income level now which would support the purchase of a £2 million property. This may be the case for elderly people who have lived in their home for a long time. However, the factsheet published on the HVCTS states that the Government will ensure that a support scheme is in place for those who may struggle to pay the charge but note that ‘it is important this scheme is targeted at those who need it most’.

The Government are to consult on the details of the charge in early 2026. Support for those struggling to pay and a full set of reliefs and exemptions will form a key part of the consultation. Consideration will also be given to properties with more complex ownership structures, such as those owned by companies, trusts, partnerships and funds. The consultation will also address the treatment of those required to live in a property as a condition of their job.

The 2025/26 tax year comes to an end on 5 April 2026. If you are thinking of selling assets that may realise a gain and have yet to use your 2025/26 capital gains tax annual exempt amount, it may be worth making the disposal before the end of the current tax year.

All individuals have an annual exempt amount for capital gains tax purposes. Net gains for the year (after the deduction of allowable losses for the tax year) are free of capital gains tax where they are sheltered by the annual exempt amount. For 2025/26, it is set at £3,000 and is worth £540 to a basic rate taxpayer and £720 to a higher rate taxpayer.

If the annual exempt amount is not used in the tax year, it is lost.

Example

Ben is thinking of selling two lots of shares, one that will realise an expected gain of £4,000 and one that will realise an expected gain of £5,000. He is having a new kitchen in June 2026 and needs to sell the shares to finance the project.

Ben is a higher rate taxpayer. He has not used his annual exempt amount for 2025/26.

If Ben waits until May to sell the shares, he will realise a gain of £9,000 in the 2026/27 tax year. Setting his 2026/27 annual exempt amount of £3,000 against the gain reduces the chargeable gain to £6,000 on which he will pay capital gains tax at 24%, giving rise to a tax bill of £1,440.

However, if Ben sells one lot of shares before 6 April 2026 realising a gain of £4,000 against which he can set his annual exempt amount for 2025/26 of £3,000, this will reduce the chargeable gain to £1,000 on which he will pay capital gains tax of £240.

If he sells the remaining shares after 5 April 2026, he will be able to set his 2026/27 annual exempt amount of £3,000 against the gain of £5,000, reducing his chargeable gain to £2,000 on which he pays tax of £480.

By selling some of the shares in 2025/26 rather than in 2026/27 and using his annual exempt amount for 2025/26 which would otherwise have been wasted, Ben is able to reduce the capital gains tax payable on the disposal of his shares by £720 from £1,440 to £720.

Spouses and civil partners

Spouses and civil partners can take advantage of the special rules that allow them to transfer assets or a share in an asset between them at a value that gives rise to neither a gain nor a loss. This can prevent wasting one spouse or civil partner’s annual exempt amount.

Example

Julie is planning on selling some shares in March 2026 which would give rise to a gain of £7,000. She has not used her annual exempt amount for 2025/26, nor has her wife Jane. Jane is not planning on making any disposals in 2025/26.

If Julie simply sells her shares, she will realise a gain of £7,000, of which £3,000 will be sheltered by her annual exempt amount. If Julie is a basic rate taxpayer, she will pay tax of £720 on the chargeable gain of £4,000 (£4,000 @ 18%).

However, if she transfers 3/7th of her shares to Jane which Jane then sells in March 2026 the resulting gain of £3,000 will be covered by her annual exempt amount and no capital gains tax will be payable. Following the transfer, Julie will realise a gain of £4,000 of which £3,000 is covered by her annual exempt amount, reducing her chargeable gain to £180. By making use of Jane’s annual exempt amount, the couple save tax of £540.

In difficult trading conditions, a sole trader may realise a loss rather than a profit. Where this is the case, it is important that the trader realises that they may be able to claim tax relief for that loss. There is more than one way in which this can be done, and the best route will depend on the trader’s other income and personal circumstances.

The relief must be claimed.

Option 1: against other income of the same or previous tax year

Where the trader has other income, such as income from employment, property or investments, they can claim to set the loss against their income of the same tax year and/or the previous tax year. The trader can make a claim for one or both of these years, depending on the amount of the loss, and the claims can be made in any order.

It is important to note that it is not possible to make a partial claim, for example to prevent the loss of personal allowances. A claim is not mandatory, and where it is not beneficial, for example, because personal allowances may be lost, the trader can take a different route.

Example

Joe is a self-employed decorator. In 2024/25 he made a loss of £12,300. He has a part-time job, from which he earns £14,000. In 2023/24 Joe had total income of £42,000.

If Joe opts to set the loss against his other income of 2024/25, he will waste all but £1,700 of his personal allowance. It is not possible to use only £1,430 of the loss to reduce his income to £12,570 which would be covered by his personal allowance.

However, if he sets the loss against his income of 2023/24, he will reduce his income to £29,700, saving £2,460 in tax.

Option 2: extension to capital gains

Where the taxpayer has claimed relief against other income and is unable to use all the loss, the taxpayer may be able to use the balance against capital gains of that year. Depending on the numbers, this route may result in the loss of the capital gains tax annual exempt amount, although despite this, it may still be worthwhile.

Option 3: Carry forward against future trading profits

Although conventional wisdom is to secure relief for a loss as early as possible, if a claim against other income would waste the personal allowance, it may be preferable to carry the loss forward and set it against future profits of the same trade. Where this route is taken, the loss must be set against the first available trading profits.

Opening and closing years

Additional claims are available for losses made in the opening and closing years of a trade.

A loss made in the first four years of a trade may be set against an individual’s income for the previous three tax years, setting the loss against the earliest of those years first.

Where a loss is made in the final 12 months of a trade (a terminal loss), it may be set against profits from the same trade in the same tax year as the loss and in the previous three tax years. The loss is relieved against the profits of a later year first.

Loss relief cap

The amount of loss relief that a person can claim in any one tax year is in certain cases capped at the higher of £50,000 and 25% of their adjusted net income for that tax year.

For UK unincorporated businesses, the cash basis is now the default method for calculating taxable profits. Under this basis, income is taxed when received and expenses are deducted when paid, therefore there is no need to take into account debtors and creditors, prepayments or accruals. A further advantage is that, as income is only taken into account when received, relief for bad debts is given automatically. Capital expenditure is deducted as an expense, unless the capital expenditure is of a type for which relief by deduction is specifically disallowed under the cash basis (e.g. cars). Most sole traders and partnerships comprising entirely of individuals automatically fall within the cash basis, unless they opt out.

However, not every business can use the cash basis and, even where it is available, some may deliberately choose to remain on the accrual basis.

Excluded businesses

Under the accrual basis of accounting, income and expenses are recorded when earned or incurred, regardless of when the money is received or paid. The accrual basis must be used where a business is excluded from being allowed to use the cash basis. In practice, this applies where a business falls into one of HMRC’s excluded categories. If a trader is excluded, the accrual basis is not a choice – it is compulsory. Common examples of excluded traders include limited companies and LLPs. Certain farming and creative businesses using specific tax reliefs (e.g. profit averaging or herd basis) are also not eligible, neither are partnerships that include a corporate partner. Businesses where the structure or circumstances mean that cash accounting is not appropriate are also required to use the accrual basis, e.g. where financial statements are prepared in accordance with International Financial Reporting Standards.

Opting out

However, a business does not have to follow the cash basis. For some businesses, preparing accounts on the accrual basis may be beneficial.

A business may wish to opt out if the business:

Works on long-term projects or has significant work in progress. The accrual method helps in tracking costs and revenues throughout the project lifecycle, ensuring better financial management and planning.

Holds a large volume of stock. Such high stock businesses often have significant fluctuations in the level and amount of stock. The accrual basis enables the business to calculate profit margins and stock turnover ratios more accurately.

Gives customers credit. Accounting on the cash basis will not show any bad debts whereas the accrual basis does.

Buys assets or stock on credit. Under cash accounting, such assets are not eligible to claim tax relief until payment is made which could significantly delay tax relief on large purchases.

Plans to incorporate. Accounts prepared using the cash basis will need to align with company accounting using the accrual basis from the first year of incorporation. Accounts prior to incorporation will need to be carefully prepared to ensure no overlap in figures.

Needs financial statements for loans or grants. Lenders and investors usually require financial reports prepared on an accrual basis because this basis shows the financial health of the business more clearly. The cash basis does not show debtors or creditors. If there are outstanding invoices at the year-end, then the cash flow may not be adequate and investors will want to know whether their money is secure.

Practical point

The cash basis for income tax is separate from the VAT cash accounting scheme. Therefore, a business can use the cash basis for income tax but still use the standard accrual method for VAT submission, or vice versa.

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.

From April 2026, many businesses may find that their business rates increase. This is as a result of the revaluation of properties for business rates purposes, and for businesses operating in the retail, hospitality and leisure (RHL) sector, the withdrawal of reliefs introduced in the Covid pandemic.

Nature of business rates - Business rates in England and Wales are charged on most non-domestic premises, including offices, shops, warehouses, factories, restaurants, pubs, hotels, guest houses and holiday lets. The amount that a business pays depends on the rateable value of their property and the business rate multiplier.

A number of reliefs are available which may reduce or eliminate the business rate bill.

Rateable value - Properties are revalued every three years for business rates purposes, and a new valuation comes into effect on 1 April 2026. The rateable value is based on what it would cost to rent the property at the valuation date. For the 2026 revaluation, the valuation date is 1 April 2024.

Businesses can check their new rateable value online.

Multipliers - Prior to 1 April 2026, there were two multipliers – a standard multiplier and a small business multiplier. The standard multiplier applies where the rateable value is £51,000 or above and the small business multiplier applies where the rateable value is below £51,000. The multipliers are expressed as pence in the pound.

For 2025/26, the standard multiplier was 55.5p (57.7p in London) and the small business multiplier was 49.9p (51.9p in London).

For 2026/27, if the value of the property is £500,000 or less and the business is not a RHL business, the multiplier is set at 48p for properties valued at £51,000 or more but less than £500,000 and at 43.2p for properties with a rateable value of less than £51,000. These are lower than for 2025/26 and will offset some of the increase in the rateable value following the revaluation.

A new lower multiplier is introduced for business in the RHL sector. The lower multiplier replaces the relief previously available to this sector. The RHL multiplier is set at 43p where the rateable value is £51,000 or more and less than £500,000 and 38.2p if the rateable value is below £51,000.

Following representations from pubs, the Government announced that pubs would benefit from an additional 15% relief on top of other reliefs to which they may also be entitled.

A rateable value of 50.8p applies to properties with a rateable value of £500,000 or more.

Different multipliers apply in the City of London.

Small business rate relief - Small business rate relief applies where the rateable value of the property is £15,000 or less. Properties with a rateable value of £12,000 or less pay no business rates. Where the rateable value is between £12,000 and £15,000, the rate of relief reduces gradually from 100% to nil.

Transitional relief - Transitional relief limits the amount by which business rates can increase as a result of a revaluation. The amount by which a bill can increase from one year to the next depends on both the property’s rateable value and whether the bill is increasing or decreasing as a result of a revaluation. The caps that apply where the bill increases in the period from 1 April 2026 to 31 March 2029 are shown in the table below.

Supporting small business relief - This relief is available where the rateable value increases as a result of the 2026 revaluation and the business has lost some of its small business rate relief, rural relief, RHL relief or 2023 supporting small business relief. The relief caps the increase at the higher of £800 and the relevant percentage, which for 2026/27 is 5% where the rateable value is less than £20,000 (£28,000 in London), 15% where the rateable value is between £20,001 (£28,001 in London) and £100,000 and 30% where the rateable value is more than £100,000.

A look at the tax position for those selling personal possessions, or buying and selling items, using online platforms.

Once upon a time, many people periodically emptied their loft full of old belongings they no longer needed and sold them at a local car boot sale to make extra cash. Nowadays, online platforms like eBay, Vinted and Gumtree have largely replaced car boot sales in the popularity stakes.

How do they know?

For some, selling items online is a regular occurrence. This has attracted the attention of HM Revenue and Customs (HMRC). Early in 2025, HMRC sent out a letter to individuals identified as having failed to declare income from online marketplace sales up to and including the tax year 2022/23. Operators of online marketplace platforms are required to report details to HMRC about sellers of goods or services on those platforms (SI 2023/817), subject to certain conditions and exceptions. This reporting requirement applies to (among others) sellers making 30 or more sales of goods, and receiving at least 2,000 euros (i.e., around £1,700) for those sales in a year (www.gov.uk/guidance/ reporting-rules-for-digital-platforms). HMRC will probably check disclosed details against the tax records of reported sellers and contact those individuals to establish whether there is an undeclared tax liability.

It’s not taxable…is it?

The fact that income has been received from online marketplaces does not necessarily mean that tax is payable. HMRC guidance (www.gov.uk/guidance/check-if-you-need-to-tell-hmrc-about-your-incomefrom-online-platforms) states: ‘Personal possessions are items that belong to you for your own use. You may have bought them or received them as a gift…if you’re selling personal possessions you probably do not have to pay income tax on these.’ (NB capital gains tax (CGT) may be due on the sale of a ‘chattel’, or a collection or set of items, if the sale proceeds exceed £6,000; the CGT rules are not considered here). However, HMRC also considers that an individual who buys or makes goods to sell at a profit is likely to be trading. Whilst that may be true, it doesn’t necessarily follow that tax will be payable. As indicated in my Business Tax Insider article for July 2025 (‘Do the hustle!’), a ‘trading allowance’ is available to shelter trading, casual or miscellaneous income of up to £1,000 per tax year from income tax. Even if this £1,000 threshold is exceeded, there may still be no tax payable if allowable trading expenses exceeded income, or if the individual’s personal allowance (£12,570 for 2025/26) is available and covers their taxable income.

Anything to declare?

HMRC’s guidance on self-assessment tax returns (www.gov.uk/self-assessment-tax-returns/who-mustsend-a-tax-return) states: ‘You must send a tax return if, in the last tax year…you were self-employed as a ‘sole trader’ and earned more than £1,000 (before taking off anything you can claim tax relief on)’. This is notwithstanding that there may be no actual tax liability, for reasons such as those explained above. The difficulty for many individuals is they don’t realise that their selling of goods online could make them ‘self-employed as a ‘sole trader’ as far as HMRC is concerned. Establishing whether someone is selfemployed is a multi-factorial test, depending on the particular circumstances. It is possible to arrive at an incorrect conclusion (or at least a different answer to HMRC!), which could result in tax, interest and penalties – professional advice is highly recommended.

Practical tip

Individuals who receive a ‘nudge’ letter from HMRC should not ignore it but take action as soon as possible – even if they don’t consider they have anything to declare.

A look at capital loss relief for ‘loans to traders’ and another dispute between a taxpayer and HMRC over the availability of the relief.

Business owners often lend money to their own business (e.g., to support it through cashflow difficulties). Unfortunately, the business may subsequently be unable to repay the individual’s loan, such that the debt becomes irrecoverable. However, loss relief may be available in this context. This article focusses on the capital gains tax (CGT) relief for loans to traders.

That’s a relief

Broadly, an individual who makes a loan to a trade (e.g., their own or a family member’s) may be able to claim a loss for CGT purposes (under TCGA 1992, s 253) if the loan has become irrecoverable at the time of the claim, and certain conditions are satisfied. The conditions include that the money was used wholly for the purposes of the borrower’s trade (excluding money lending), profession or vocation (or to set it up). The other conditions (not all mentioned here) include that the loan must not have become irrecoverable due to the terms of the loan, or any arrangements of which the loan forms part, or any act or omission by the lender.

Throwing good money after bad?

If HM Revenue and Customs (HMRC) checks the loss relief claim, a potentially contentious area is whether the loan was already irrecoverable when it was made (see HMRC’s Capital Gains Manual at CG65951). This is because no relief will be due if there was no reasonable prospect that the loan would be repaid when it was made. However, each case will turn on its circumstances.

See - a successful appeal for the taxpayer in Bunting v HMRC [2024] UKFTT 275 (TC). In that case, the taxpayer set up a trading company (RSL) in July 2004. The business activities were funded by the taxpayer, who personally loaned £3,452,771 to the company. However, by 2012 the business was becoming unsustainable. In January 2013, the taxpayer and RSL entered into an agreement to capitalise £2,200,000 of the loan (i.e., RSL issued 2,200,000 ordinary £1 shares in consideration for the taxpayer releasing and discharging RSL from £2,200,000 of the loan). However, on 31 January 2013, RSL (and so the shares) had no value. The taxpayer claimed capital losses, which HMRC refused. However, the First-tier Tribunal (FTT) held that there was an outstanding amount which had become irrecoverable, and that the loan had not been ‘paid’ when it was released in satisfaction of the issue of the consideration shares.

The saga continues…

Unfortunately for the taxpayer, HMRC is not known for being a good loser! HMRC successfully appealed against the FTT’s decision (HMRC v Bunting [2025] UKUT 96 (TCC)). The Upper Tribunal (UT) found that a qualifying loan cannot be ‘outstanding’ for the purposes of TCGA 1992, s 253 following its voluntary release by the lender in consideration for shares. The effect of releasing £2,200,000 of the loan was to extinguish that part of it, and the UT found that it was therefore no longer ‘outstanding’ when the claim for relief was made. Furthermore, the FTT was wrong to focus on the question of whether the loan had been ‘paid’ rather than considering whether it remained ‘outstanding’. The UT reinstated HMRC’s refusal of the taxpayer’s capital loss relief claim.

Practical tip

Establishing whether the facts and circumstances meet all the conditions for relief can be a difficult exercise. Expert professional advice is recommended.

It used to be possible to report errors in a VAT return to HMRC on form VAT652. This is no longer the case; form VAT652 was withdrawn from 5 September 2025. This means that now, where an error has been made in a VAT return, the error must be corrected in one of the following ways:

• updating the next VAT return;
• making the correction online; or
• writing to HMRC to notify them of the correction.

Updating the next VAT return

An error can be corrected by making an adjustment in the next VAT return if the value of the error is £10,000 or less or if the error is between £10,000 and £50,000 and does not exceed 1% of the box 6 figure (net outputs) in the VAT return for the period in which the error was discovered.

A correction can only be made by updating the next VAT return if the error was made carelessly.

The net value of the error is the difference between the additional amount owed to HMRC as a result of the error and the additional refund due from HMRC as a result of the error.

Correcting the error online

If the value of the error is more than £50,000, is between £10,000 and £50,000 and more than 1% of the box 6 figure in the VAT return  for the period in which the error was discovered or was made deliberately, it must be notified to HMRC rather than being corrected in the next VAT return. The default route for doing this is to make the correction online. The trader will need to sign into their Government Gateway account.

When reporting the error online, the following information must be provided:

• how each error arose;
• the VAT accounting period in which it occurred;
• whether it was an input tax error or an output tax error;
• the VAT underdeclared or overdeclared in each VAT period;
• how the VAT over or under declaration was calculated;
• whether any of the errors resulted in the payment of an amount to HMRC that was not due; and
• the total amount to be adjusted.

Refund claims can only be accepted where all the above information is provided.

Notifying in writing

If the trader is unable to use the online service, they will need to notify HMRC in writing of the errors if they are of a type that cannot be corrected in the next VAT return. The letter must include the trader’s VAT registration number and the information listed above. It should be sent by post to:

BT VAT

HMRC

BX9 1WR

Time limit

Errors should be corrected as soon as possible, but time limits do apply.

The time limit for correcting errors in a VAT return is four years from the end of the prescribed period in which the error occurred where the error related to output tax or over-claimed input tax, and four years from the due date of the return for the prescribed accounting period where the error related to under-claimed input tax.

The four-year time limit does not apply to deliberate errors.

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is mandatory from 6 April 2026 for self-employed traders and landlords whose combined gross trading and business income in 2024/25 is £50,000 or more. Those within MTD for ITSA must maintain digital records and submit quarterly updates and a final declaration to HMRC electronically using software compatible with MTD for ITSA.

As the name suggests, MTD for ITSA relies on digital record-keeping and communication. HMRC recognise that not everyone is able to operate in a digital world and those who they accept as being ‘digitally excluded’ can apply for an exemption from MTD for ITSA.

Meaning of ‘digitally excluded’ - HMRC acknowledge that there are various reasons why a person may consider themselves digitally excluded. For example, a person may be digitally excluded because:

• their age, a health condition or a disability prevents them from using a tablet, computer or smartphone to keep digital records and to submit returns to HMRC;
• they are a practising member of a religious society or order whose beliefs are incompatible with using digital communications or keeping digital records and they do not use a computer, tablet or smartphone for business or personal use; or
• they cannot get internet access at their home or business because of their location, and they are unable to get access at a suitable alternative location.

However, HMRC will not accept an application for exemption from MTD for ITSA if the only reason for the application is one of the following:

• the person previously filed a paper tax return;
• the person is unfamiliar with accounting software;
• the person only has a small number of records to create each year; or
• the person will spend extra time or incur additional costs as a result of complying with MTD for ITSA.

Where a person has an existing exemption from MTD for VAT because they are digitally excluded, providing that the person’s circumstances have not changed, HMRC will accept that they are also exempt from MTD for ITSA.

Applying for an exemption - To apply for an exemption from MTD for ITSA on the grounds of digital exclusion, a person will need to write to HMRC ahead of their MTD for ITSA start date. They must provide the following information:

• their National Insurance number;
• their name and address;
• details of how they currently submit their returns (including the use of an agent or other person to submit them on their behalf);
• the reason that they think that they are digitally excluded, including information in support of their claim;
• whether they have an accountant or agent and what they do for them; and
• any additional needs that they have.

An application can be made by an agent on behalf of someone who is digitally excluded.

It should be noted that if a person is unable to use digital returns themselves, for example because of age or disability, but they have an agent or someone else who can keep digital records and file digital returns on their behalf, an exemption will not be forthcoming.

The application should be sent to: Self Assessment, HMRC, BX9 1AS

Where a person is already exempt from MTD for VAT because they are digitally excluded, they will also need to write to HMRC to apply for an exemption from MTD for ITSA, providing their National Insurance number, their VAT registration number and the reason that they are digitally excluded from submitting their VAT returns using software that is compatible with MTD for VAT. An agent can apply for an exemption on a client’s behalf.

Other exemptions

The following are automatically exempt from MTD for ITSA and are unable to sign up voluntarily:

those completing a tax return as a trustee, including a trustee of a charitable trust or a non-registered pension scheme;

a person who does not have a National Insurance number on 31 January before the start of the tax year;

a person completing a tax return as the personal representative of someone who has died;

a Lloyd’s underwriters in respect of their underwriting activity; and

a non-resident company.

Anyone in the above groups does not need to apply for an exemption as it is automatic.

HMRC publish fuel-only rates which are only of relevance where an employee has a company car. The rates, which are updated quarterly, can only be used in two situations:

• to make tax-free reimbursements to employees who meet the cost of business travel in their company car; and
• to repay the cost of fuel provided or paid for by their employer and used for private journeys in a company car.

The rate depends on the fuel type and, where relevant, the engine size. From 1 September 2025 onwards, the rate for electric cars also depends on whether the car was charged at the employee’s home or using a public charger, with a higher rate applying to miles on a public charge.

The rates, which are updated quarterly on 1 March, 1 June, 1 September and 1 December, are available on the Gov.uk website at www.gov.uk/guidance/advisory-fuel-rates.

Reimbursing the cost of business journeys

Where an employee meets the cost of fuel for a business journey in a company car, they will usually be able to reclaim this from their employer. The reimbursement is generally made in the form of a mileage allowance.

Where the employer reimburses the employee using the advisory fuel rates, the reimbursement can be made free of tax and National Insurance. HMRC will allow higher amounts to be paid tax-free where the actual cost exceeds the advisory rate, and the employer can substantiate this. In the absence of such evidence, if the amount paid exceeds the amount payable at the advisory rate, the excess is earnings for both tax and National Insurance.

From 1 September 2025 onwards, where the car is an electric car, the tax-free amount depends on whether the car was charged at home or using a public charger. Where a business journey involves both types of charge, an apportionment is necessary as shown in the example below.

Example

Laura has an electric company car. She visits a customer on 27 November 2025 undertaking a business journey of 154 miles. She charged her car at home the previous Sunday. En route to the customer, she stops at a service station 65 miles from home and charges her car. She completes the journey to the customer and home without needing a further charge.

Her employer uses the advisory fuel rates to reimburse Laura, paying her 8 pence per mile for the 65 miles on the home charger and 14 pence per mile for the remaining 89 miles on the public charger, a total reimbursement of £17.66.

Repaying fuel for private mileage

A fuel benefit charge applies if the employer meets the cost of fuel for private journeys in a company car unless the car in question is an electric car. The charge can be significant. However, the tax charge can be avoided if the employee makes good the cost of all fuel used for private journeys. The repayment can be made using the advisory fuel rates. To be effective at cancelling the charge, the employee must ‘make good’ before 1 June following the end of the tax year if car and fuel benefits are payrolled and by 6 July following the end of the tax year if the employer would report the benefit via the P11D process. It should be noted that the charge is only eradicated if the employee makes good the cost of all fuel for private journeys; there is no reduction in the charge for a partial reimbursement.

As far as benefits in kind are concerned, there were both winners and losers in the Budget.

Winner – easement for plug-in hybrid electric vehicles

Under the company car tax rules, the taxable amount depends predominantly on the list price of a car and its CO2 emissions.

From 1 January 2025, new European Union and United Nations emissions standards were introduced which found the CO2 emissions for plug-in hybrid electric vehicles (PHEVs) to be higher than previously thought. Normally, an increase in the CO2 emissions figure would mean an increase in the taxable amount.

However, an easement will mean that, for a limited period, the amount charged to tax under the benefit in kind rules will be determined by reference to a nominal CO2 emission figure of 1g/km. Where a car’s CO2 emissions are between 1 and 50g/km, the appropriate percentage depends on the car’s electric range.

To be eligible for the easement the following conditions must be met:

• the vehicle was first registered on or after 1 January 2025;
• its CO2 emissions figure is 51g/km or above;
• it was registered under an emissions standard other than Euro 6d-ISC-FCM or Euro 6e; and
• the car’s electric range is at least one mile.

The easement will apply retrospectively from 1 January 2025.

Anyone accessing an eligible PHEV company car before 6 April 2028 will be able to benefit from the easement until the arrangements are varied or renewed or, if earlier, 5 April 2031.

Winner 2 – expansion of workplace benefits relief

Currently, reimbursed expenses are only tax-free if the employee would be entitled to a tax deduction had they met the cost themselves.

However, from 6 April 2026, employers who reimburse the costs of eye tests, flu vaccines and home working equipment will be able to do so tax-free.

Winner 3 – delayed start to ECOS changes

Legislation to bring certain cars made available to employees under an employee car ownership scheme (ECOS) within the tax charge for company cars had been due to come into effect on 6 April 2026. The changes will not be introduced until 6 April 2030.

Losers – removal of relief for homeworking expenses

An administrative easement that allowed employees to claim a flat rate deduction of £6 per week for the additional costs of working from home is being removed from 6 April 2026. This is worth £124.80 to a higher rate taxpayer and £62.40 to a basic rate taxpayer.

Employers will still be able to make a tax-free payment of £6 per week for additional homeworking costs, and employees will still be able to claim a deduction for the actual extra cost (although this will involve more work).

A director’s loan account is simply a means of keeping track of transactions between the director and the company of which they are a director. Where the company is a personal or family company, the director may borrow from the company or lend money to the company. Similarly, the director may meet expenses of the company, or the company may pay the director’s personal bills. These transactions are recorded in the director’s loan account. Dividend or salary payments may also be credited to the account.

If the director’s account is overdrawn at the end of the company’s accounting period or at any point during the tax year, there may be tax implications to address.

Close companies

If the company is close, as personal companies and most family companies are, there will be tax consequences for the company if the director’s account is overdrawn at the company’s year end. Broadly, a close company is one that is under the control of five or fewer participators or any number of participators if those participators are directors. A participator is someone who has an interest in the capital or income of the company.

The action that the company needs to take in respect of an overdrawn director’s loan account depends on whether the account is still overdrawn at the corporation tax due date, which is nine months and one day after the end of the accounting period.

If the loan has been repaid within this time frame, the company must disclose the loan on form CT600A when they prepare their corporation tax return, notifying HMRC of the amount that was outstanding at the end of the accounting period and the date(s) on which the repayments were made.

If the account remains overdrawn at the corporation tax due date, the company must pay section 455 tax on the outstanding loan balance along with their corporation tax. Anti-avoidance provisions exist to prevent the loan being repaid and then reborrowed in a bid to avoid the section 455 charge.

Section 455 tax

The company must pay section 455 tax on the amount by which the director’s account remains overdrawn nine months and one day after the company year end. The rate of section 455 tax is aligned with the upper dividend rate (currently 33.75%). The tax is paid with the corporation tax but crucially is not corporation tax.

Section 455 tax is a temporary tax in that it is repayable nine months and one day after the end of the accounting period in which the loan is repaid.

Clearing the loan, whether by an injection of cash, declaring a dividend or by paying a bonus, will prevent a section 455 liability from arising. However, this will not always be the best option. If the loan is cleared by a dividend or a bonus, this will trigger tax and (in the case of a bonus) National Insurance liabilities which may be greater than the section 455 tax. It may be cheaper to pay the section 455 tax and to clear the loan at a later date when it can be done more tax efficiently.

Benefit in kind charge

If the loan balance exceeds £10,000 at any time in the tax year, a tax charge will arise under the benefit in kind provisions by reference to the difference between interest on the loan at the official rate and that paid by the director (if any). The employer will also pay Class 1A National Insurance on the taxable amount.

An increasing number of people live on cruise ships. They sell or rent out their main residence and spend their days living on the waves. The benefits are various – no meals to get yourself, entertainment every night, different ports to discover, even your washing done. You can even own a ‘villa at sea’, allowing residency aboard a ship for the duration of its life (or a minimum of 15 years). But what are the tax implications, if any? Unfortunately, UK tax liability is primarily determined by tax residence, not lifestyle, therefore a person may live on a ship and still be UK tax resident.

The UK tax system

Once residency is established, UK residents are taxed on their worldwide income/gains whereas non-UK residents are taxed only on UK-sourced income (rents, dividends, bank interest) and UK gains (property disposals); foreign income/gains are untaxed in the UK for non-UK residents.

Statutory residence test (SRT)

Determination of UK tax residence can be complicated and someone ‘living’ on a cruise ship must still assess their residence using the same rules as anyone else. Living on a cruise ship can support a non-UK resident tax position, but only if the steps comprising the SRT are not satisfied.

The first step determines if an individual will be considered automatically resident.

The second step determines if an individual will be considered automatically non-resident. There are three automatic overseas tests under this step and if any one of these tests is met the individual will be deemed non-UK resident for that year.

The third step considers whether the individual meets either the second or third automatic UK tests. If any one of these is met the individual will be deemed UK resident for the year.

The fourth and final step determines if an individual will be considered resident or non-resident under the ‘sufficient ties’ test.

First step

Under this test an individual will be automatically UK tax resident if:

• they spend 183 days or more in the UK in a tax year; or
• there is at least one period of 91 consecutive days (at least 30 of which fall in the relevant tax year) when their only home is in the UK and they spend a sufficient amount of time in that home in any one year.

Second and third steps

If the answer to the above is ‘no’, that is not the end of the process. The next step is to consider the automatic overseas tests which determine UK residence if less than 16 days were spent in the UK, or the individual was UK resident in one or more of any of the previous three tax years, or more than 46 days were spent in the UK (and the individual was non-resident in the previous three tax years) .

Fourth step

If the above tests fail to give a clear answer, the ‘sufficient ties test’ applies, combining days spent in the UK with ties (connections). Ties include the following:

Family tie: spouse, civil partner, cohabiting partner or minor child (under 18) is UK tax resident.

Accommodation tie: UK accommodation (owned, rented or belonging to a friend) available for more than 91 consecutive days and more than one night was spent there. The test is satisfied in the case of a close relative's home if more than 16 nights are spent there during a tax year. Hotels/Airbnb usually qualify if long-term.

Work tie: more than 40 days working more than three hours in the UK during the tax year.

90-day tie: spending more than 90 midnights in the UK in either of the previous two tax years (not combined).

Country tie: UK is the country in which the individual spends most days during the tax year.

Therefore, to be non-UK resident, the individual on the cruise ship must:

• limit UK days according to the SRT day-count; and
• reduce UK ties, such as:

• • a UK home;
  • family in the UK;
  • substantive UK work; and
  • significant UK presence in prior years

Merely selling a house and living on a ship is not sufficient to gain non-UK residency if other UK ties remain.

Practical point

Note that time spent on a cruise ship does not count as time outside the UK if the ship is in UK territorial waters at midnight on any counted day. Therefore, a cruise away from the UK should be the preferred travel option to avoid tax complications (e.g. a cruise of the Southern Hemisphere starting in the USA and ending in the USA).

The Renters’ Rights Act 2025 received Royal Assent on 27 October 2025. The Act is not yet in force; the first tranche of provisions come into effect on 27 December 2025 (two months from the date of Royal Assent). Some key provisions, including the abolition of section 21 evictions, an end to fixed-term tenancies, restrictions on the payment of rent in advance and rent increases limited to once a year, take effect from 1 May 2026. The remaining provisions will be brought in progressively by statutory instrument.

Nature of the Act

The Act grants additional rights to tenants and imposes further obligations and costs onto landlords.

Under the Act, landlords will be required to sign up to a new private rented sector database. Sign-up will be online, and landlords will be required to pay to register.

Landlords will also be required to comply with a Decent Homes Standard which may require them to undertake work to ensure that their property complies with the standard.

In the future, landlords may also need to ensure that their property has an EPC rating of C or above.

Tenants will have greater rights to have a pet in their property; landlords cannot reasonably refuse such requests. Although landlords can require an additional deposit to cover pet damage, this is capped at three weeks’ rent. Where the cost of pet damage exceeds this, the landlord will need to take court action to recover this and may well end up out of pocket.

Landlords also face restrictions on rent increases and reduced grounds for retaining possession of their property. No fault section 21 evictions are to be abolished, but the landlord will remain able to recover possession should they wish to sell or live in the property themselves. However, landlords will need to give four months’ notice rather than the current two. Fixed-term tenancies will be banned, and all tenancies will become periodic by default. To end bidding wars, landlords will not be able to let the property for more than the advertised rent and will not be able to accept more than one month’s rent in advance. They will not be able to increase the rent more than once a year, and must give two months’ notice of any increase, which can only be to current market rents. These provisions will potentially reduce the landlord’s earning capacity.

Landlords who fail to comply with the Act may face financial penalties.

Tax relief for additional costs

Normal rules apply to determine whether tax relief is available for additional costs imposed on landlords as a result of the Act. Costs can be deducted in computing the profits of the property rental business if they are revenue in nature and incurred wholly and exclusively for the purposes of the property rental business. Additional management fees for ensuring properties comply with the Act and registration fees for signing up to the database fall into this category.

If the landlord has to undertake work on the property to meet the decent homes or EPC standards, the relief route will depend on the extent of the work. Improvement works are capital in nature and relief would be given when calculating the capital gain or loss on the disposal of the property. If the works are in the nature of repair rather than improvement, such as redecoration, the costs can be deducted when calculating the rental profit. Where it is necessary to replace domestic items, for example, if a cat scratches a sofa, to the extent that the cost is not met by tenants’ insurance, the landlord can deduct the replacement cost of a like-for-like item.

It is becoming increasingly noticeable that after a purchase is made in a shop or restaurant, the customer is asked ‘Do you want a receipt?’. Answering ‘no’ may help reduce paper, but business customers intending to claim against tax should always answer such a question in the affirmative. Keeping receipts is not a legal requirement for most personal transactions as consumer rights remain valid without one, other evidence (e.g. bank statements) proving that the transaction has taken place. However, for businesses, the situation is very different when claiming expenses against tax.

HMRC’s stance

Receipts and invoices are the primary evidence of expenses incurred relating to business activities. Without receipts, HMRC may disallow expense deductions and, if missing or inaccurate records are found in an investigation, businesses may face significant fines or additional scrutiny.

Recent tax cases highlight HMRC’s increasing insistence on proper documentation. The tax case of Mediability v HMRC [2023] UKFTT 315 (TC) underlines the importance of receipts, providing a real-world example of how a lack of correct evidence can undermine expense claims. In this case the taxpayer attempted to justify business expenses using solely bank statements without supporting receipts. The Tribunal ruled that this was insufficient, and many of the claims were disallowed.

The tax case of the actor, Tim Healy, in T Healy v HMRC [2012] TC01940 is another case which shows that inadequate record-keeping (particularly missing receipts) can cost taxpayers valuable deductions. Mr Healy claimed tax deductions for accommodation, subsistence and taxi fares incurred whilst working in London. Some claims were allowed, but crucially his subsistence expenses and taxi costs claims were not because he could not provide sufficient evidence (i.e. receipts) to show whether the expenses were business related.

Electronic storage

For businesses dealing with the final customer (e.g. restaurants and shops), paper receipts will need to remain. For other businesses, HMRC believes the way of the future is that where paper receipts are issued, businesses wishing to claim tax relief for such expenses must scan and store receipts digitally. Making Tax Digital is the first step towards digital record-keeping.

E-invoicing v paper

Many B2B businesses are moving away or have already moved away from paper receipts, replacing them with e-invoicing.

E-invoicing is the digital exchange of invoice information directly between buyers and customers or suppliers. Unlike traditional paper invoices or PDF documents sent by email, the e-invoicing process typically begins with the supplier creating an invoice using specialised software. The e-invoice is then transmitted electronically to the customer's system, which automatically receives and processes it. The invoice data is integrated into the customer's accounting system, eliminating the need for manual data entry and paper handling.

Mandating e-invoicing

In the Autumn Budget 2025, the UK government confirmed plans to introduce mandatory e-invoicing for all VAT invoices from April 2029. Under this scheme, VAT registered businesses will be required to generate, transmit and store invoices in specific electronic formats that tax authorities can automatically process. A detailed implementation roadmap will be published as part of the 2026 Budget.

E-invoicing is not HMRC’s initiative. Many EU countries have already mandated e-invoicing, with others, notably Belgium, France and Poland, introducing implementation in 2026. Different methods are being used by each country and HMRC is looking closely at the success or otherwise of the methods used. For example, Belgium plans to focus initially on how invoices are sent, keeping reporting separate, and France will use approved private platforms to handle invoice exchange, thereby introducing a new layer of digital reporting. Poland intends to tie e-invoicing directly to real-time tax reporting where invoices are sent to the government’s tax platform. Under this process, the system will check each invoice, assign it an official reference number and send to the customer. As every invoice will move through the government’s system, the tax office automatically receives the data.

It is reasonable to assume that if a person pays too much tax, HMRC will automatically send the overpayment back to them. Unfortunately, this is not the case, and where a taxpayer is due a tax refund, they may need to claim it.

Why an overpayment may arise

There are various reasons why a person may pay more tax than they need to. For example, where a taxpayer is in Self-Assessment and makes payments on account, if their circumstances change and their income falls, they may have paid more than they need to. An employee may pay too much tax if they have been given the wrong tax code, or if they have only worked for part of the tax year and not had the benefit of their full personal allowance.

Determining if you have overpaid tax

There are various routes by which a tax overpayment can come to light. For example, taxpayers who do not complete a Self-Assessment tax return and have paid too much tax will receive either a P800 calculation or a Simple Assessment letter. These are normally sent out between June and March following the end of the tax year. The letter will tell them that they have paid too much tax and how to claim a refund. If the taxpayer is within Self-Assessment, they will not receive a letter. However, they may find out that they have overpaid tax when they complete their Self-Assessment tax return. However, if HMRC’s return software is used to complete the return, remember the tax calculation does not take into account any payments that have already been made, and when these are deducted from the amount that the taxpayer owes, it may become clear that the taxpayer has paid too much.

A taxpayer can also check whether they have paid too much by looking at their personal tax account online or via the HMRC app.

Claiming the refund

Where a taxpayer needs to claim a tax refund, there are various ways in which this can be done. A claim can be made online using the tool on the Gov.uk website at www.gov.uk/claim-tax-refund. A tax refund can also be claimed through the taxpayer’s personal tax account or via the HMRC app. The refund will normally be made within five days of making the claim online.

If the tax calculation letter tells the taxpayer that they will receive a cheque, they do not need to claim a refund. The cheque will normally be sent within 14 days of the date on the letter.

Where the taxpayer is within Self-Assessment, HMRC may not issue a tax refund if a tax payment, for example, a payment on account, is due within 45 days. Instead, they will set the refund against the next tax bill.

Interest is paid on overpaid tax at a rate of 1% below the Bank of England base rate, subject to a minimum level of 0.5%.

Many digital platforms and online marketplaces in the UK, such as eBay, typically consider a seller to be a trader if they list items frequently or in bulk, or if the individual is perceived as selling items with the intent to generate profit. Being classified as a trader leads to additional fees not applied to private sellers. In addition, if 30 or more sales transactions are completed or total sales exceed approximately £1,707 after fees, eBay and other similar platforms are obliged to report such transactions and certain other information to HMRC as trading. HMRC will therefore expect such income to be declared on a self-assessment tax return. Such platforms will notify the seller that the information has been shared with HMRC.

Trading or not - The £1,707 threshold does not mean that gross earnings below this amount need not be declared as legislation requires declaration above the trading allowance of £1,000. The trading allowance allows taxpayers to earn up to £1,000 in gross trading income or what HMRC terms as ‘casual services’ (which would include selling on eBay or such activities as carers, gardening, etc.) per tax year without having to pay tax or declare to HMRC.

Differentiate – business or hobby - Many would say that such a limit would equate to being a hobby, but HMRC does not rely on any monetary test to determine trading, instead looking at the overall nature of the activity. The difficulty lies in the fact that many activities sit somewhere in between.

HMRC often refers to a set of indicators known as the ‘badges of trade’ when deciding whether an activity constitutes a business. These are not strict rules but guiding principles.

HMRC guidance (in the Business Income Manual at BIM20205) lists the badges as follows:

• 1. profit-seeking motive;
• 2. the number of transactions;
• 3. the nature of the asset;
• 4. existence of similar trading transactions or interests;
• 5. changes to the asset;
• 6. the way the sale was carried out;
• 7. the source of finance;
• 8. interval of time between purchase and sale; and
• 9. method of acquisition.

One key badge is the first ‘badge’ – whether there is the intention to make a profit. If an individual is seeking to make a profit, adjusting prices, marketing their goods or services, or expanding operations, this points strongly towards a business. Consistent losses over time, especially without a credible plan to become profitable, may suggest a hobby instead.

Another significant ‘badge’ is the frequency and regularity of transactions. A one-off or occasional sale is less likely to be considered a business, although legislation does include ‘any venture in the nature of trade’ which allows for the possibility of isolated or speculative transactions being ‘trading’. The quantity of the purchased item can also indicate a trade. The oft-cited tax case under this heading is Rutledge v CIR [1929] 14 TC 490, where the transaction involved the purchase and sale of one million rolls of toilet paper.

The nature of the asset or service is also relevant. Some items are more likely to be traded for profit (e.g. a consignment of mobile phones or the purchase of materials) with the intention of turning those items into products for sale. Items such as furniture, electronics or personal vehicles, whilst having a value, are primarily used for personal enjoyment rather than trading for profit.

The time lag between purchase and sale may be important in establishing whether there is a trade. A short period of ownership suggests trading, whereas an asset held for some time or owned for a time personally before selling is in a stronger position to argue that the asset was purchased as an investment rather than a trading activity.

Practical point - Whether a sale is undertaken for profit or enjoyment, clear records of purchases, holding periods and the intended use of items could help justify the classification of the sale as a trade or hobby to HMRC.

Employees often incur expenses in doing their job and they may be able to claim these back from their employer through the expenses system. Where an employer reimburses expenses, there may be tax implications to consider.

Exemption for paid and reimbursed expenses

A tax exemption applies to certain paid and reimbursed expenses. It is available if the expenses which are paid or reimbursed by the employer would be fully deductible from an employee’s earnings had the employee met the cost themselves.

Employees are allowed a deduction for expenses which are incurred wholly, exclusively and necessarily in the performance of the duties of the employment. The tax legislation also allows a deduction for a number of specific expenses, such as certain travel expenses and fees and subscriptions paid to bodies approved by HMRC.

As long as this test is met, the exemption applies regardless of whether the employer meets the cost at the outset or the employee pays initially and is reimbursed by the employer. For example, if an employee is required to attend a meeting at a client’s office, the employee would be able to deduct the associated travelling costs if they met them themselves. As this test is met, if the employer pays the cost, for example by purchasing a train ticket for the employee, or reimburses the employee’s travel costs, the exemption would apply and there would be no tax consequences in either case.

However, if the test is not met, and the employer paid or reimbursed the employee’s expenses, the amount paid or reimbursed would be taxable. An example of this would be where an employer reimbursed the cost of the employee’s home to work travel (which is not tax deductible).

Forthcoming changes

There are some anomalies in the tax legislation that mean no tax charge arises where the employer provides an employee with a benefit, but a tax charge will arise if the employee provides the same thing and is reimbursed by their employer. For example, an employer can provide an employee with an eye test and corrective appliances without triggering a tax charge, but if an employee books and pays for an eye test and is reimbursed by their employer, the amount reimbursed is taxable as the employee is not entitled to a deduction for the cost of an eye test.

To counter this, new exemptions are to be introduced which will level the playing field in respect of certain benefits, meaning that the tax outcome is the same regardless of whether the employer provides the benefit or reimburses the employee for the costs.

From 6 April 2026 exemptions will be introduced to ensure that where an employer pays for or reimburses an employee for the cost of eye tests, flu vaccines or homeworking equipment no tax charge will arise. This will align the tax position with that where these benefits are provided directly by the employer.

Many employees see being allowed the use of their own company car as acknowledgement of their status in a company. While the employee will be taxed on the benefit, the tax charge is usually not as high as having to finance the car out of their own savings or taking out a loan. However, should the employer also offer to pay for all fuel (usually via use of a company fuel card), including for personal use, the employee could face a sizeable tax (and NIC) charge. Many company car users are unaware that unless they fully reimburse their employer for private fuel use, they will be taxed on a fuel benefit – even if the private mileage is relatively low. Private fuel use includes commuting to and from work.

Working out the fuel benefit charge

Crucially, the charge is not based on how much fuel is used privately. Rather, it is based on the cost of an average company car (£28,200 for 2025/26) multiplied by the appropriate percentage based on the car’s CO2 emissions.

For 2025/26, the appropriate percentages range from 3% to 15% for cars with CO2 emissions of 1–50g/km to 37% for cars with emissions greater than 155g/km. Diesel cars are charged a 4% supplement on these percentages (although the appropriate percentage is ‘capped’ at 37%).

A table of the specific percentages can be found at:

https://www.gov.uk/guidance/company-car-benefit-the-appropriate-percentage-480-appendix-2#petrol-powered-and-hybrid-powered-cars-for-the-tax-year-2025-to-2026

As an example, the fuel benefit for a conventional petrol BMW 3 Series (e.g. 320i/320d), with CO2 emissions of 155g/km (the most common brand of company car) will be:

Taxable benefit: £28,200 × 37% = £10,434

Therefore, the tax cost of free fuel on this car would be:

• for a basic rate taxpayer – £2,087;
• for a higher rate taxpayer – £4,174; and
• for an additional rate taxpayer – £4,695.

NIC at the taxpayer’s relevant rate will also be levied as the benefit is deemed to be salary, i.e. calculated at 8% for those employees earning over £12,570 a year plus an additional 2% for those taxpayers earning between £12,570 and £50,270

Is this ‘perk’ worth receiving?

Taking the above BMW car as an example, assuming petrol costs £1.37 per litre and the driver gets 10 miles per litre, a basic rate taxpayer would have to drive 15,234 private miles in the tax year to break even (assuming 240 days at work, this equals less than 65 miles a working day). This is the level at which the cost of fuel (15,234/10 x £1.37) is the same as the tax on the fuel benefit. The NIC charge should also be taken into account in this calculation.

Whether the provision of fuel is a ‘perk’ will depend on how much private mileage the employee undertakes in the tax year, the cost of fuel, the appropriate percentage for the car and the rate at which the employee pays tax. In many cases, unless the appropriate percentage is low and private mileage high, free fuel will not be much of a perk.

Using the above BMW car as an example:

Less than 15,234 personal miles per year – the fuel benefit likely not worth it

More than15,234 personal miles per year – fuel benefit might be worth it

Compare this figure with the cost of fuelling a car for the expected annual mileage. If the tax on the fuel benefit exceeds the cost of private fuel, a suggestion would be to ask whether the employer would make an additional salary contribution as compensation for opting out of the fuel scheme.

Note that employees using company vans and having significant private usage could be liable for the fuel benefit, but no calculation is required. The current charge is a flat rate of £769.

Practical point

For many employees, opting out of the fuel benefit and paying for private fuel p

In the not-too-distant past, incorporation was synonymous with automatic tax savings. However, successive governments have eroded these tax benefits. With additional administration and costs, many directors are considering disincorporation. As ever, there are tax implications for both the company and individual.

Asset transfer

Whatever the reason for disincorporation, when a company with assets closes, HMRC generally treats the company as disposing of those assets to the directors at market value. For the company, this would usually crystallise either balancing charges or allowances. However, where there is a business succession between connected parties, a balancing charge or allowance can be avoided by making an election. The effect is for any actual or deemed disposal proceeds to be ignored and for the capital allowance pool to be transferred at its tax written-down value.

A valid election must be made jointly by the company and individual within two years of the date of succession. The succeeding business then includes the transferred closing written-down value as an addition in its opening capital allowance pool. No writing down allowances are given on the purchase of plant or machinery in the company’s final basis period, and a balancing adjustment is calculated.

Transferring stock

Similar to the transfer of assets, the transfer of stock is deemed to be at ‘market value’. However, it should be possible for the parties to make a joint election to transfer the stock at its actual transfer value (or, if higher, the book value).

Capital assets

A company that has been in business for a while may have built up a significant value of ‘goodwill’ when they decide to disincorporate. Goodwill is an asset that will be transferred to the new business along with any other 'relevant' assets (e.g. land and buildings). HMRC usually taxes such a transfer as a chargeable gain, again at market value as the transfer will take place between ‘connected parties’. However, unlike for assets subject to capital allowances, there are no reliefs available to defer or hold over any gains. As such, this tax charge is often the largest hidden tax cost in disincorporation.

Stamp duty land tax

If a property used by a company is transferred to someone connected to the company (e.g. a shareholder who becomes a sole trader), HMRC treats the transaction as if the individual bought at market value, even if no money changes hands. However, if a property is transferred as a distribution in specie (non-cash), this should be exempt from SDLT. This is provided that the property is not encumbered with a loan and the distribution does not give rise to the creation of a debt.

Where there is a third-party (non-shareholder) loan secured on the property, the transfer will attract SDLT where there is an assumption by the shareholder of liability for the debt.

VAT

As a general rule, when a trade ceases the VAT-registered entity is deemed to make a taxable supply of all goods held by the business. However, on a transfer from a company to sole trader, there should be no VAT charged by virtue of the ‘transfer of going concern’ provisions.

Withdrawing monies

There will be the usual considerations (i.e. tax rates and timing, etc.) when deciding how to withdraw any remaining cash from a solvent company, but the outcome will probably be a straight choice between taking a dividend or a capital distribution.

A capital distribution (only available on the company's closure if the total amount paid to all shareholders is less than £25,000), will be subject to CGT taxed at either 18% or 24% for 2025/26, depending on the level of the shareholder’s income. Where the distributable amount exceeds £25,000, the shareholders pay income tax at the dividend tax rates, after taking into account the £500 dividend allowance (and any personal allowance, if available).

Practical point

Disincorporation can be a significant step, so it is advisable to consult professionals to ensure compliance and understanding of the implications.

The sale of part of a dwelling’s garden before the disposal of the dwelling could have unexpected tax consequences.

Capital gains tax (CGT) relief on a disposal of an only or main residence (or principal private residence (PPR) relief, as it is commonly known) is familiar to many taxpayers.

Unfortunately, the legislation can be difficult, which sometimes leads to misunderstandings and misconceptions about the circumstances where relief is available.

Garden or grounds

For example, in addition to PPR relief being available on the disposal of an individual’s only or main residence, the relief can also apply to the disposal of ‘land which he has for his own occupation and enjoyment with that residence as its garden or grounds’ up to a ‘permitted area’ (TCGA 1992, s 222(1)(b)). These requirements must be met upon disposal of the land. Thus, if part of the garden is sold after the residence, on a strict interpretation of the legislation a gain on that later sale will not attract relief. This follows from the High Court decision in Varty v Lynes [1976] 51 TC 419. In that case, the taxpayer sold his house and part of the garden in June 1971. He sold the remainder of the garden in May 1972. The taxpayer was held to be liable to tax on that later disposal. However, if the garden or grounds are sold separately before the disposal of the dwelling house, the disposal may qualify for PPR relief if the other relief conditions are satisfied.

Garden as trading stock

The PPR relief position can be further complicated if (say) part of the garden is being sold to a property developer, and development of the land takes place before its sale is completed. In such circumstances, the homeowner could be regarded as having commenced a property development trade, and to have appropriated the garden to trading stock (i.e., itself a disposal, but on which PPR relief may be available). For example, in Nunn v Revenue and Customs [2024] UKFTT 298 (TC), in November 1995 the taxpayer purchased a property for £120,000. In 2015, the taxpayer agreed to sell part of the property’s garden to a property developer (MD) for £295,000. MD intended to build two houses on the land, for which MD’s company obtained planning permission in April 2015. However, by 2 June 2016 formal contracts had still not been agreed. MD’s company was keen to begin work on the development. The taxpayer therefore signed a letter from MD dated 2 June 2016, stating that heads of terms had been agreed. MD’s company then erected a fence to partition the land from the remaining garden and began construction work. By the completion date of 7 September 2016, development was significantly advanced. HM Revenue and Customs subsequently disallowed the taxpayer’s claim for PPR relief. The First-tier Tribunal (FTT) held that the letter of 2 June 2016 was not a contract for disposal of the land. However, there was an ‘adventure in the nature of trade’ and an appropriation to trading stock on that date. On 2 June 2016, the taxpayer had the land for his own occupation and enjoyment with his residence as part of its garden or grounds. PPR relief was therefore available on the appropriation to trading stock on that date.