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.
Mandatory Direct Debit for VAT and PAYE
HMRC’s proposal to require businesses to pay VAT and PAYE liabilities by direct debit is intended to reduce late payments and administrative errors. The consultation has now closed and HMRC’s response is awaited.
If tax is collected automatically, HMRC believes that fewer businesses will miss payment deadlines, use incorrect payment references or fail to make payments altogether. This should reduce tax debt, improve compliance and lower administrative costs for both taxpayers and HMRC.
Under mandatory direct debit, payments are controlled by HMRC.
Direct debit works particularly well where there is a clear and predictable amount to collect but VAT and PAYE liabilities are not necessarily predictable in advance.
What happens when internationally mobile employees are involved or where disputed liabilities, amended returns and payment corrections arise before the payment is automatically collected from your bank account.
In these circumstances, you may wish to retain control over your payments to HMRC. The ability to control payment timing is also an important aspect of cashflow management. Mandatory direct debit would remove much of that flexibility.
Where a business experiences cashflow difficulties, an automatic collection could result in overdraft charges, difficulties paying suppliers or other cashflow pressures or worse.
There are also questions around Time to Pay arrangements. Businesses seeking a Time to Pay Arrangement need confidence that agreed payment plans will override any scheduled direct debit collections. It is currently unclear whether there would always be sufficient time for a taxpayer to enter into a Time to Pay arrangement before a direct debit is collected.
Taxpayers do not always respond to policy changes in the way policymakers expect. To retain control, some businesses may establish separate bank accounts specifically for HMRC collections, transferring funds to those accounts only when they are ready to make a payment. Others may consider delaying the submission of VAT or PAYE returns until sufficient funds are available for collection.
Neither outcome would support HMRC’s objective of improving compliance and could potentially have the opposite effect.
There is also a risk of creating unequal outcomes between taxpayers. Businesses using their main trading account could experience automatic collections during periods of cashflow pressure, while those through careful management of separate bank accounts may retain greater control over the payment timing.
Are Young People Ready for Work?
The Department for Work and Pensions (DWP) has found 62% of employers felt that young people were ‘less ready to excel’ at work when compared to older generations.
981,000 young people aged 16 to 24 are not in education, employment or training an increase on last year.
A survey of 500 employers based on phone interviews about their views on hiring young people found the ‘main challenge’ was a ‘perceived lack of soft skills and work readiness’, with motivation and timekeeping also cited as a problem.
29% hired young workers to ‘build a pipeline of future talent’, followed by 24% bringing in new ideas and fresh perspectives. Digital skills were ‘more strongly associated with workers aged under 25’.
When asked about the top skills and characteristics they look for when hiring new staff, regardless of age, motivation was by far the ‘most important’ factor according to 95%. Time keeping was the next most important factor followed by time management.
Resilience was more strongly linked to older workers.
The majority criticised the schools and the education system for their failure to prepare young people for work saying that the current curriculum ‘does not adequately prepare young people for the workplace’, and that there should be a greater focus on teaching soft skills needed for employment.
Burnham and the Budget
Burnham has said: ‘I will always take a careful approach to things. I ran Greater Manchester for 10 years and we ran a very tight ship, with rock solid finances and nothing will change as I come into this role.’
Having said he would keep to the Labour manifesto pledge of not raising the three big taxes of income tax, VAT and national insurance, Burnham and his chancellor John Healey are facing a tricky Budget.
The prime minister finished the interview stating: ‘I won’t take risks with people’s jobs or their livelihoods, or their family finances.’
The Budget will be delivered by chancellor John Healey on Wednesday 28 October at 12.30pm.
91% Tax on Inherited Pension Pots
In some extreme scenarios, estates could face a 91% charge on pension funds due to a triple tax hit.
Pension pots inherited after the deceased was aged 75 will not only incur 40% IHT but are also liable for income tax at the effective tax rate of the beneficiary.
With IHT thresholds frozen for years, and property values up more than fivefold since those rates were introduced, this measure announced by former chancellor Rachel Reeves will have a far-reaching impact on taxpayers.
One of the biggest issues is that by including pension pots in an estate might mean that the value of the estate now exceeds £2m. The effect of this is that you lose the Residential Nil Rate Band on your home. Meaning that a couple incurs an additional £140,000 of IHT. There are traditional arrangements so if you only just go over the £2m, it will not be the full charge.
The other thing to remember is that the beneficiary only pays tax on funds withdrawn from the pension they have inherited. As such this is just the same as if they had built up their own pension.
The 91% headline is made up of these 3 elements but only applies to England. Scottish Income Tax Rates are higher so here the headline rate is 93%.
It is different is the person passing on the pension pot dies before their 75th birthday, and you cannot help them out of the door. That is not good tax planning, however effective.
You can mitigate the impact by taking your tax-free lump sum before age 75; while it may still be subject to inheritance tax it will avoid an additional income tax charge.’
Speak to your IFA or financial planner.
Demise of The Chequebook
Cheques made up just 0.2% of all payments in 2025.
The number of cheques used to make payments plummeted in 2025, down by 16% in a year.
Bank cards and bank transfers are increasingly used in place of cheques. 6.2bn remote banking payments were made in 2025.
In 2015, the number of cheques was 546m, but in 2025 that number was just 77m, a fall of 86% in a decade.
Debit cards were used for half of all payments and in comparison contactless payments accounted for 19.2bn transactions.
Cash is also in decline with only 3.9bn in 2025, accounting for 8% of all transactions, a huge fall from just a decade ago when cash made up 45% of purchases in 2015. Use is now largely confined to an older demographic.
Today nearly two thirds of the population are registered for a mobile wallet such as Apple Pay and Google Pay.
Despite the demise of the cheque, UK Finance said ‘cheques remained valued by those who choose to use them, as they provide a convenient and secure method of paying someone when you do not know the recipient’s bank account details’.
Among over-65s, 4.6% use cheques at least once a month, compared with just 0.8% of 45 to 54-year-olds, 1.8% of 55-64 year-olds and 2% of younger adults.
More MTD, Did You Know?
Quarterly updates can be amended by resubmitting them but this is generally unnecessary because quarterly updates are now cumulative, year to date data. This will reduce the need for quarterly updates to be resubmitted as any corrections will be picked up by the next quarterly update.
The fourth quarterly update can be amended up to the year-end tax return being submitted. Once the year-end tax return has been filed changes will be made following a process similar to the process for amending a SA tax return.
The design of MTD income tax means that there is flexibility about how corrections can be made. For example, a correction can be made by either:
- Correcting the digital records and resubmitting the fourth quarterly update; or
- Adjusting the category totals in the software and correcting the digital records.
If using the second of these options, care would be needed to not resubmit the fourth quarterly update as there would be double counting of the correction.
What data is actually required to complete the quarterly update for MTD income tax? Quarterly updates are unadjusted summary totals of the income and expenditure categories cumulatively to date in the tax year.
If a taxpayer has income below the threshold to use simplified accounting (three-line accounts), the categories could be “income” and “expense”, although landlords receiving rental income from residential property, must record their residential property finance costs separately from other expenses. Non-business expenditure should be excluded, but if not, these must be adjusted before the end of year return is submitted.
Landlords with jointly owned properties can choose to just report the income from jointly-held property in the quarterly updates, and report the related expenditure in the tax return. However, they must report both property income and expenses relating to properties owned in their sole name.
The quarterly updates are for the tax year or calendar quarters (31 March/5 April), not the accounting year for the trade. An adjustment will be required to get from these figures to the correct figures for the tax year.
The cash basis is the default basis for income tax reporting for most sole traders and landlords. Even if the taxpayer doesn’t qualify for the cash basis or chooses to use the accruals basis (HMRC refers to this as traditional accounting), they can submit quarterly updates on the cash basis and make adjustments for the accruals basis at the year end.
If a taxpayer is in MTD income tax, other income (e.g., employment, pension, dividends or investment income) does not need to be reported quarterly to HMRC.
It is reported annually as part of the year-end tax return in a way that is similar to (but not quite the same as) the SA tax return (and to the current SA deadline). There are two ways to report this other income:
- Using MTD income tax accounting or bridging (submission) software that has additional functionality covering the rest of the tax return.
- Using a tax software product (e.g., a commercial SA software product that has been upgraded to comply with MTD income tax).
There will not be a paper filing option.
