Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.
Bank of England cuts interest rates to 4.75%
The reason given for the reduction was that there had been continued progress in disinflation, particularly as previous external shocks had abated, although remaining domestic inflationary pressures were resolving more slowly.
The drop in interest rates further emphasises the economic squeeze small businesses have encountered recently,
This change comes after inflation fell to 1.7% in September, dipping below the Bank of England’s 2% target for the first time in over three years. However, it is expected to increase to around 2½% by the end of the year.
If Donald Trump follows through with his promises on import tariffs and deporting cheap labour, inflation in the US and then elsewhere is expected to increase. In that situation will we see interest rates rising again?
Employer NI
The hike in employer national insurance combined with the increase in the national minimum wage will raise costs, affect cash flow and put significant pressure on finance teams attempting to steer their businesses through economic uncertainty.
In trying to counter the effects of these changes, employers may put off employing someone for as long as possible, resulting in a combination of lower employment, wages and profits.
One immediate result may be an immediate hiring freeze.
Mandatory BIK Payrolling
The government has confirmed that the use of payroll software to report and pay tax on benefits in kind will become mandatory, in phases, from April 2026. This will apply to income tax and Class 1A national insurance contributions (NICs).”
It was inevitable that mandation would happen.
The cliff-edge 6 April 2026 means going from declaring on a P11D annually, to processing through the payroll each time the employee is paid starting with the April 2026 salaries. It is unlikely that anyone will be able to quickly change long-established processes so that administration happens at the time of payment rather than after the end of the tax year.
Similarly, Class 1A NIC is an annual calculation that could not be replicated to be a real-time calculation and payment without significant law changes.
However, as things stand, all expenses and benefits will have to be payrolled from April 2026 with the exception of employment-related (beneficial) loans and accommodation.
HMRC will remove all expenses and benefits that are included in the employee’s tax code, thereby increasing their personal allowances. For the first payday on or after 6 April 2026, benefits that were in the tax code will now have to be processed as a notional pay element in the payroll.
The payroll system and Full Payment Submission (FPS) will have to provide HMRC with a “granular breakdown” of the benefits in place of the information from the P11D.
The BIK calculations for loans and accommodation will still form part of the end of year P11D process. However, employers who are confident of their ability to calculate taxable values each time the employee is paid can voluntarily register to payroll these BIKs.
Going forward, for anything that is payrolled, Class 1A will be calculated in the payroll and paid to HMRC on a monthly basis with other PAYE liabilities. Look out for legislation that will convert the annual Class 1A calculation to a monthly one.
The intention is that the taxable value of payrolled expenses and benefits will be accurately calculated and processed each time the employee is paid. Where there are adjustments required, these should take place in future pay periods with adjustments as necessary.
The end-of-year process that HMRC is devising will enable employers to make an FPS adjustment that will tell HMRC the increased taxable pay on which they have not been able to collect tax or a decrease to taxable pay. A new form of P11D.
There remain 2 issues:
- New starter – we now have to gather information about taxable benefits by the time the payroll is processed.
- The real-time calculation of income tax and Class 1A depends on the real-time provision of the correct information – what about all of the providers of benefits and expenses information that will have to tell us whether an employee changed their car, made good on a benefit, changed from single to married medical benefit cover and so on.
There will be many more in due course.
Taxing Pension Pots
This is an attempt to stop the use of pensions as a tax planning tool to reduce death taxes
Pension funds will be brought into inheritance tax for the first time from 6 April 2027, meaning that the full inheritance tax charge could be applicable.
It will be important to consider the interaction of inheritance tax and income tax to avoid both being levied on the same pension pot.
From 6 April 2027, pension scheme administrators will become liable for reporting and paying any IHT due on unused pension funds and death benefits. They will have to report details of unused pension funds and death benefits payable in respect of a deceased member to HMRC and pay any IHT attributable to those benefits.
Where multiple pension schemes are held by the deceased, the Pension Administrators will have liaise with the personal representatives of the estate and executors to ensure all the correct pension fund information is available.
Most UK pension schemes are discretionary defined contribution and defined benefit schemes held by private sector workers.
Gift Aid Rules to be Strengthened
HMRC is planning to clamp down on charitable tax reliefs claimed through Gift Aid, but not until 2026 to give charities time to adjust to the new rules.
Over £1.6bn is claimed in Gift Aid by charities every year and it is open to abuse.
The changes in legislation are set to tackle three key areas:
- Tainted donations – when a company makes a large donation to a charity with the intention of gaining a tax advantage.
- Investments – if made by charities which qualify for tax reliefs must be for the benefit of the charity, and not to avoid tax.
- Tax relieved income must be spent on charitable activities.
HMRC will also have the power to sanction charities which fail to file their tax returns. A failure to file a tax return would lead the withholding of Gift Aid payments and business relief claims when charities fail to comply.
Register of Tax Advisers
Any adviser or accountant providing tax-related services and ‘interacting with HMRC will be required to comply with mandatory registration with HMRC from 1 April 2026.
The government will go ahead with proposals to regulate tax advisers with tougher regulation of advisers.
HMRC will be given £36m to modernise its tax adviser registration services and all tax advisers who interact with HMRC on behalf of a client will have to register with the tax authority before doing so and will be checked to ensure they meet expected standards initially and at regular intervals, although details are yet to be confirmed.
Registration will be overseen by HMRC.
Currently there are no requirements of technical competence to practice, which means that anyone can provide tax advice and services to clients and can do so with limited or no oversight if they are not a member of a professional body.
It is estimated that roughly one third of tax practitioners in the UK are not members of a professional body such as ICAS, ICAEW, CIOT, ATT or ACCA. Many do not have tax qualifications.
As a result, it is difficult for clients to easily assess the competence of an unaffiliated tax practitioner and there is no consistent monitoring of tax practitioners, allowing dishonest advisors to operate with impunity.
Registration would allow HMRC to ensure that an individual practitioner or firm meets the standards required and those who do not are stopped from gaining access to HMRC systems and taxpayer information.
The new registration requirements will come into effect in April 2026.
Overhaul of HMRC IT Systems
HMRC has been given a funding boost with £240m for IT services.
This includes modernising the voluntary self-assessment pre-payment system through the HMRC app, digitalising inheritance tax (IHT), updating debt management systems, integrating a system to work with credit reference agency data, creating software to handle the pre-population of self-assessment tax returns to link with child benefit records, and the digitalisation of ISAs for providers.
In total £238m will be invested in HMRC IT systems which the government expects to result in an extra £1.6bn in taxes recovered. In this year it is expected to raise an extra £55m for the Treasury, rising to £115m by 2029-30, a total return of £340m.
The largest investment in HMRC IT will be in debt management systems, with £154m being set aside for this. This is likely to ramp up debt recovery to an additional £565m a year by the end of the parliament.
7000 Extra HMRC Staff
The Chancellor is to give HMRC £1.6bn to hire compliance and debt management staff, raising an additional £4.7bn in 2029-30
5,000 additional compliance officers will be recruited over five years, as well as 1,800 debt management officer. The recruitment will begin with 200 compliance officers starting in November.
There are currently around 27,200 compliance officers at HMRC, with the addition taking this number up to 32,000 by March 2030. There will be a minimum of two recruitment drives a year, dependent on the success rate of individuals.
New recruits will be expected to complete 18 months of training, with some having to complete three years of training.
Higher HMRC Interest Rates on Overdue Tax
The current HMRC rate on late payment is 7.5%, which is 2.5% over the bank rate. Under new proposals this will rise to 4% over base rate from 6 April 2025.
The move is designed to force recalcitrant taxpayers to actually pay their overdue tax bills in a timely manner rather than avoiding payment.
Questions?
If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at alan.long@thelongpartnership.co.uk.
