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.
The Scottish Budget
Shona Robison presented the Scottish Budget for 2025/26 on 4 December.
It is important to note that this is a draft and these are indeed just proposals and not final. The budget must now go through the “scrutiny” process in Edinburgh and given that this is a minority government, proposals may not be part of the Finance Bill.
Devolved taxes
There are two devolved taxes:
- land and buildings transaction tax (LBTT, the Scottish equivalent of stamp duty land tax), and
- Scottish landfill tax (SfLT, the Scottish equivalent of landfill tax).
Scotland uses the Scottish income tax (SIT) system for non-savings and non-dividend income for taxpayers who HMRC has identified as Scottish and the devolved powers include the setting of income tax rates and thresholds, effectively for all earned income.
Income tax 2025/26
The proposed changes are as follows:
- the starter rate band will increase by 22.6% from £2,306 to £2,827.
- the basic rate band increases by 6.6%, from £11,684 to £12,093
- the band of earnings subject to income tax at the intermediate rate band has reduced from £17,100 to £16,170.
The anomaly remains that Scottish taxpayers start to pay income tax at the higher rate earlier than taxpayers in other parts of the UK.
LBTT and SfLT
Of equal interest to accounting professionals is news on the two devolved taxes.
- LBTT – residential and non-residential rates and bands are unchanged for 2025/26,
- ADS – the additional dwelling supplement increased from 6% to 8% for contracts entered into on or after 05 December 2024.
- SfLT – the standard and lower rates are changed to maintain consistency with the rates announced at the October 2024 UK Budget.
Pandemic Fraud
The first Covid fraud commissioner is Tom Hayfoe, aged 68. He will report directly to Rachel Reeves.
His main task is to review the £8.7bn spent during the pandemic for personal protective equipment (PPE), which was then struck off the books later down the line. Additionally, his role will include examining the £647m of PPE contracts signed in the pandemic which are also due to be written off.
Almost £400bn was used to support millions of people and businesses throughout the UK during the pandemic, with £21bn predicted to have been lost through fraud and error. Lenders managed to prevent £2.2bn in potential fraud from the bounce back loan system, as well as managing to stop or recover £743m of overclaimed grants. HMRC also managed to block 29,000 claims and registrations by carrying out pre-payment checks.
His appointment will be for a one-year fixed term contract
Additionally, Hayhoe, and his team of civil servants, will be tasked with leading additional assessments of fraud recovery work on the Eat Out to Help Out scheme, the furlough scheme, bounce back loans, and Universal Credit fraud.
Hayhoe will be paid a salary of £84,000 for a two to three-day week, however he will not receive benefits such as the Civil Service pension scheme or redundancy pay.
Other Tax Corruption Measures
Separately, the National Crime Agency is investigating some transactions including the high-profile £200m contract awarded via the government’s VIP lane to Baroness Michelle Mone.
The Chancellor previously announced the formation of a small panel charged with determining means of recovering taxes or, in popular parlance, filling the tax gap.
The plan was that a new, independent committee would comprise an initial group of four comprising former head of HMRC, Sir Edward Troup; emeritus chair of the Public Accounts Committee, Dame Margaret Hodge; ex-executive director of the UK Government Digital Service, Mike Bracken; and a previous head of Office of Tax Simplification and retired Deloitte partner, Bill Dodwell.
This team will be charged with modernising HMRC, with the obvious goal of clamping down on tax evasion and abusive avoidance.
Gary Lineker
HMRC’s long-running IR35 tax case with Gary Lineker over a £4.9m tax liability has been settled.
It had been asserted that Lineker’s work for the BBC between June 2013 and July 2016, and for BT Sport for the tax years 2013/14 to 2016/17, was caught by IR35.
An unusual aspect was that the contracts to provide the personal services of Lineker to the BBC and to BT Sport were with a partnership and not a personal service company.
The case has now been settled out of court.
Lineker was operating through a general partnership, which meant he was already taxed like a sole trader with almost all income tax already paid up front.
The tax that HMRC was chasing wasn’t the widely reported £4.7m but a much smaller figure – somewhere between £300,000 and £400,000 spread across multiple years, largely arising from the difference between employer NICs and sole trader NICs in each of those years.
60% + tax trap
The number of people pulled into 60% + tax has soared by 18% to 634,000 in the last 12 months,. Over four million now pay higher rate tax.
In England and Wales an effective tax rate of 60% arises due to losing the £12,570 personal allowance once earnings hit £100,000 and the tapered removal up to £125,140, which ramps up the higher rate 40% tax rate. In Scotland it is even higher.
The problem is only set to worsen as more people are drawn into this earnings bracket with frozen thresholds.
At least higher rate taxpayers only pay a national insurance contributions rate of 2% over the higher rate threshold of £50,271.
HMRC Side Hustler Tool
HMRC has created a tool to help people running side hustles to work out whether they are liable for income tax on additional earnings
This is on the back of new disclosure rules for online marketplaces from January 2025, which will require mandatory reporting by the operators of online platforms of all sales by individuals to the tax authority.
The rules will affect content creators and influencers earning income through social media and streaming channels such as YouTube and Twitch.
They expect a flurry of activity as previously unreported income is now declared by taxpayers.
The HMRC tool is a questionnaire which starts by asking whether the individual received any additional income, whether it was for selling goods or services, renting out land or property, creating online content or any other form of earnings.
If the tool decides that tax is owed, a green banner appears stating: ‘You need to tell HMRC about this income’. Links are then provided to register for, or complete a self-assessment tax return.
Digital platforms have a deadline of 31 January to report data to HMRC for the calendar year 2024, meaning this will cover at least part of the 2023-24 tax year. Those needing to file a return for this period will need to do so before 31 January 2025.
Taxpayers who have not correctly reported their earnings for previous years are advised to bring their historic tax affairs up to date in case HMRC comes calling at a later date.
Salary Sacrifice and Employers’ NIC
From 6 April 2025, the rate of Class 1 Employers national insurance contributions (NIC) will increase by 1.2% to 15%. In addition, the threshold at which employers start to pay employers’ NIC on earnings will decrease from £9,100 to £5,000. The change in this threshold alone could cost £615 per employee.
The employers’ NIC increase will also apply to Class 1A and Class 1B NIC paid by employers on benefits in kind reported on P11Ds (or payrolled benefits) and via a PAYE Settlement Agreement.
Salary sacrifice for pension contributions remains an efficient method of funding a pension scheme, for both employees and employers.
Under a salary sacrifice pension scheme, employees agree to give up a right to a portion of their salary in return for an employer pension contribution which is made direct to the pension scheme provider. When properly implemented, salary sacrifice pension contributions will result in a NIC saving for both the employee and, more so, the employer.
The increased NIC rate coupled with the reduction in the secondary threshold is likely to result in a significant increase in costs for employers but it may be possible to mitigate the increase by a properly implemented salary sacrifice pension scheme.
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.
