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.

 

Personal Allowances

The personal allowance is the amount of income a person can earn for a tax year without having to pay income tax. It is set at £12,570. It is reduced if income exceeds £100,000 and is lost entirely if income exceeds £125,140

Legislation is in place to increase the personal allowance and the income tax thresholds in line with inflation each year. However, the previous government disapplied this legislation for tax years 2022/23 to 2027/28. At Budget, the government confirmed that it would extend the freeze to April 2031.

This means that virtually everyone will pay more in tax, with more taxpayers income falling into higher rates of tax.

The Scottish government sets the rates of income tax on non-savings, non-dividend income of Scottish taxpayers. The UK basic and higher rate thresholds apply for calculating income tax on savings and dividend income for Scottish taxpayers.

We will find out about the Scottish rates on 13 January.

 

Salary Sacrifice for Pensions

An employee may enter into a salary sacrifice agreement with their employer. Under the arrangement, the employee may agree to give up part of their gross pay in return for a non-cash benefit from their employer. This can reduce the employee’s income tax liability and save NIC for both the employee and the employer, depending on the nature of the non-cash benefit.

The tax-efficient benefits that may currently be offered under a salary sacrifice arrangement are:

• payments into pension schemes;
• employer-provided pensions advice;
• access to workplace nurseries;
• childcare vouchers and directly contracted employer-provided childcare that started on or before 4 October 2018;
• the use of bicycles and cycling safety equipment (including cycle to work); and
• ultra-low emission cars (75g/km or less), including electric vehicles.

From April 2029, the amount that is exempt from National Insurance contributions (NICs) will be capped at £2,000 a year for employee contributions made via salary sacrifice.

Salary sacrifice is when you agree to reduce your gross salary or sacrifice a bonus and, in return, your employer pays the same amount into your pension.

As a result, only the first £2,000 of employee pension contributions through salary sacrifice each year will be exempt from NICs. Contributions through salary sacrifice, like all pension contributions, will still be exempt from Income Tax (subject to the usual limits).

All employer pension contributions will continue to be free of NICs.

Employees, as well as employers, will pay NICs on the amount above £2,000 for employee contributions through salary sacrifice.

 

Property, Savings and Dividends

For 2026/27 onwards, the basic and higher rates of income tax on dividends will increase by two percentage points. The basic rate will increase to 10.75% from 8.75% and the higher rate to 35.75% from 33.75%. The additional rate for dividend income, will continue at 39.35%.

For 2027/28 onwards, the rate of income tax on savings and income from property will increase by two percentage points. From 6 April 2027, the basic rate will be 22% (currently, 20%), the higher rate 42% (40%) and the additional rate 47% (45%).

Income tax rules will be changed so that any reliefs and allowances are applied against property, savings and dividend income last.

 

ISA Limits

From 6 April 2027, savers will be able to invest a maximum of £12,000 annually in a cash ISA. Individuals who are aged 65 or over can continue to invest at the current limit of £20,000 per year.

The ISA limits will stay at the current thresholds of £20,000 overall, £4,000 for lifetime ISAs and £9,000 for junior ISAs until 5 April 2031.

 

IHT Changes

The new limits for IHT (BPR and APR) of £1m have been softened slightly. Any unused £1m allowance for the 100% rate of agricultural property relief (APR) and business property relief (BPR) will be transferable between spouses and civil partners, including if the first death was before 6 April 2026. This will be legislated for in Finance Bill 2025-26 and take effect from 6 April 2026.

The nil rate band, residence nil rate band, including its £2m taper limit, will be frozen for a further year, to 5 April 2031;

 

Other Changes to Business Taxation

Capital allowances

Currently, companies are able to claim full expensing to provide 100% up front tax relief on the purchase of new and unused qualifying assets.

The Annual Investment Allowance (AIA) also provides 100% tax relief on up to £1m per year of qualifying expenditure for both companies and unincorporated businesses (although in the case of partnerships, only those made up of individuals).

The £1m AIA limit has to be shared between groups of companies. Some companies under common control also have to share a single £1m limit with each other, as do some unincorporated businesses under common control.

Both full expensing and the AIA have exclusions, with neither available for expenditure on cars, and full expensing not available on used assets.

There are also other exclusions including where assets are acquired from connected persons or for leasing.

Where neither full expensing nor AIA is available, businesses currently have the option to claim writing down allowances. This is a rate of 18% per year in the main pool and 6% per year in the special rate pool.

From 1 April 2026 for corporation tax and 6 April 2026 for income tax, main rate writing-down allowances will reduce from 18% to 14%. A hybrid rate will apply for any businesses with a chargeable period that spans these dates.

The government will introduce a new 40% first year allowance (FYA) for main rate expenditure. The new FYA will be available for expenditure incurred from 1 January 2026. Unlike full expensing, the new allowance will be available for unincorporated businesses and assets used for leasing.

This is presumably intended to encourage investment where neither full expensing nor AIA is available.

Penalties for late filing of corporation tax returns

The government has doubled fixed penalties for late filing. The new rate will be £200 for being late, £400 for being 3 months late and enhanced penalties for repeated late filings.

 

Tax Administration, Payments and Penalties

Soft landing for MTD income tax

The government has announced that taxpayers joining MTD income tax in April 2026 will not receive penalty points for late submission of their first four quarterly updates. It is understood that this soft landing will only apply to the first cohort of taxpayers and not those mandated to use MTD income tax from April 2027 and April 2028.

It is important to note that taxpayers will still need to submit their quarterly updates before they are able to submit their tax return. Also, the penalty easement does not apply to the end of year tax return for 2026/27 that will be due on 31 January 2028. This means that taxpayers will still receive a penalty point if they do not submit their 2026/27 tax return by the due date.

All taxpayers will have an additional 15 days before a late payment penalty is issued for their first year in the new penalty system. This provides 30 days in total to pay any outstanding tax before a late payment penalty is issued.

Payments

HMRC is also looking for ‘timelier’ tax payments from those with only self-assessment income. In effect, HMRC is shortening payment times by this move in a bid to collect money faster. More detail to follow early next year.

 

VAT Changes

VAT on business donations of goods to charity 

The government has confirmed that a new VAT relief for business donations of goods to charity will take effect from 1 April 2026. Designed to reduce waste and support the circular economy, the measure removes VAT on goods donated to registered charities for onward distribution or use in delivering services.

The relief will apply to goods valued up to £100 per item, with a higher £200 threshold for essential electrical items – such as laptops and white goods – to help tackle digital poverty. Eligibility is strictly limited to registered charities, meaning community interest companies (CICs) and social enterprises are excluded unless they register as charities.

VAT on private hire vehicles 

Suppliers of private hire vehicle (PHV) and taxi services will be excluded from the scope of the Tour Operators’ Margin Scheme (TOMS) from 2 January 2026, except where the services are supplied in conjunction with certain other travel services.

VAT on motability 

From July 2026, VAT relief on top-up payments for more expensive vehicles will be removed, and the standard rate of Insurance Premium Tax will apply to scheme insurance contracts.

E-invoicing 

The government will require all VAT invoices to be issued in a specified electronic format from April 2029.

The use of e-invoicing for all VAT invoices will be required for all business-to-business (B2B) and business-to-government transactions. Ofcom will also be a part of the rollout, to support the availability and adoption of broadband solutions by business.

 

New Electric Vehicles Levy

The levy will charge owners of fully electric cars 3p per mile driven. Plug-in hybrids will be charged a reduced rate of 1.5p per mile. These rates will be indexed to the consumer price index (CPI).

The new system will be integrated into the existing vehicle excise duty (VED) process administered by the DVLA. Drivers will estimate their annual mileage when renewing their tax and pay the charge upfront or via monthly direct debit. These estimates will later be reconciled against odometer readings taken during MOTs or at other official service intervals.

A consultation is now underway to finalise the implementation details, such as how to handle mileage checks for cars under three years old that do not require an MOT.

 

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