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.

 

 

Making Tax Delightful

With 8 months left until MTD begins, there are still announcements being made about how it will work and whether it will work for everyone.

We expected MTD to start with sole traders and landlords with a combined turnover of £50000, then £30000, then £20000. That would be followed by partnerships and then companies. But it has now been announced that companies will not come within MTD. We will have to wait and see what plans they have for companies.

So, if you don’t want to be caught by MTD … incorporate!

Draft legislation has been published for consultation. These include:

• More flexibility on penalties – changes which will apply to both VAT and MTD IT from April 2026. These proposed changes allow HMRC to cancel individual late filing penalty points or reset a taxpayer’s penalty points total to zero at their discretion. They will also be able to waive financial penalties for either late filing or late payment.
• Exemptions tweaked – Exemptions for non-UK resident visiting performers and taxpayers with a lasting or enduring power of attorney, ministers of religion, Lloyd’s underwriters and recipients of married couples’ allowance or blind person’s allowance.

The exemption for taxpayers without a national insurance number also appears to have changed.  Rather than being a standalone exemption, this now appears to be part of a wider exemption for those unable to verify their identity for MTD purposes.

There are also a number of other minor changes to tidy up the earlier legislation.

There will be roughly 780,000 sole traders, small businesses, and buy-to-let landlords earning over £50,000, who will be in the first tranche entering MTD in April 2026.

The essentials of MTD are as follows:

• quarterly reporting to HMRC
• keeping digital records
• submitting returns using MTD compatible software.

MTD for Income Tax states that all transactional data for receipts and invoices must be kept in a digital format. Many invoices are now digital anyway, so businesses can send and track invoices easily online. There are now various software products to enable the capture of invoices.

Under the new regime, small businesses and landlords will need to use MTD compatible software to provide quarterly digital updates on the amount, category and date of any business income and expenses to HMRC. This is on top of a final tax assessment at the end of the year.

We expect to be very busy supporting our clients to not only keep the right records, whether maintained by them or by us on their behalf, but also to make the submissions on time and free of penalties.

HMRC’s motive for forcing digital reporting was to make the use of digital record keeping more widespread, improving efficiencies and reducing errors. The right accounting software will be important.

 

 

Digital-First Tax System

HMRC has published its Transformation Roadmap, laying out the government’s vision for the Revenue as “more automated, more focused on self-service and better set up to get things right first time”.

It lays out more than 50 measures that HMRC claims will “transform the UK’s tax and customs system”.

One of the new measures set out is a new online Pay As You Earn (PAYE) service for around 35 million UK taxpayers, allowing them to log into their accounts via the HMRC app or personal tax account to update details such as income, allowances, reliefs and expenses. This will save HMRC more than £50m a year by moving letters and reminders to digital, reducing the reliance on paper correspondence by the 2028 to 2029 tax year. Paper post provision will remain for critical correspondence and the digitally excluded.

Further measures and projects to be delivered include:

• moving from the “Government Gateway” to “gov.uk One Login”, starting by late 2026 for individuals
• expanding the rollout of the voice biometrics pilot on HMRC’s helplines
• digitalising the inheritance tax service
• delivering a digital disclosure service to allow taxpayers and intermediaries to correct mistakes, pay liabilities and penalties for all taxes and duties.

Plans also include improving the pre-population of tax returns, expanding the data used for PAYE tax codes and simple assessment (which in some cases can help remove the requirement for taxpayers to complete a self-assessment return).  It also outlines plans to increase the use of nudges and prompts in digital services and automatically register taxpayers to “make it easier for compliant customers to meet their tax obligations and to bring those who might otherwise seek to hide their income to avoid paying tax into the system.”

The roadmap also announced that HMRC is abandoning Making Tax Digital for corporation tax (MTD for CT). Instead, HMRC said that it is developing an approach to the future administration of CT that is suited to the varying needs of the diverse CT population, which includes a very wide range of entities and situations, from small businesses to multinationals, from charities and property management companies to unincorporated associations.”

Had the project gone ahead as originally planned, the corporation tax population would have had to maintain digital record-keeping, quarterly summary updates, and submit an annual corporation tax return via an MTD-compatible commercial software.

Aside from MTD, the other big compliance issue has been the requirement for small companies and micro entities to file a profit and loss account with Companies House.

The Registrar confirmed that this requirement will be going ahead from April 2027, but members of the Government seem to be suggesting this may not be the case.

A key justification for introducing MTD has consistently been its potential to reduce the portion of the tax gap attributed to errors and a lack of reasonable care, and recent figures reveal a concerning trend in that the corporation tax gap has grown significantly. While MTD has been dropped, it seems likely that, as a result of this, there will be modernisation of Corporation Tax processes within HMRC. We’ll have to wait and see what form this takes.

 

 

IHT and Pension Pots

The government will bring unused pension funds into the scope of inheritance tax (IHT) from 6 April 2027, but death in service benefits paid by employers will remain outside the IHT regime for now.

This means that the pension will be taken into account in valuing a person’s estate for IHT purposes.

Payment will be required within six months, with no difference to the usual IHT deadlines.

HMRC will have to develop a new system to accommodate this new tax charge.

One big issue is that bereaved families will face a huge administrative burden, with the government insisting they settle the IHT bill within six months. Many people have complex financial affairs, especially those who die unexpectedly, meaning settling the bill quickly may not be straightforward.

The chancellor, Rachel Reeves, took the decision to tax the unused pots to address the perceived use of pensions for IHT tax planning.

Personal representatives will be liable for reporting and paying any IHT due. They already pay IHT bills on behalf of estates, so this is viewed as the best way to administer the system.

Inherited pension wealth may also be subject to income tax, depending on the deceased’s age at death and the type of benefit.

If the individual dies before age 75, death benefits (including lump sums and inherited drawdown pensions) are typically taken free of income tax. If they die on or after age 75, these benefits are usually taxed as income at the recipient’s marginal rate.

The existing IHT principles providing exemption for death benefits passing to a surviving spouse or civil partner, and registered charities, will be maintained.

 

 

No Change on APR and BPR

The reliefs on agricultural properties come under the scope of IHT from 6 April 2026. However, it won’t be at the full 40% rate as it is being halved for inherited farming estates.

Additionally, a new £1m allowance will be applied to the value of the qualifying estate. This, combined with the nil-rate band, means a couple can pass down a £3m estate tax-free. If an estate does end up subject to IHT, then the family will have 10 years to pay the amount interest-free.

The 100% relief on agricultural property has been in place since 1992, and now farmers will have to seek advice on how they intend to pass down their business and their homes.

 

 

Can You Claim Employment Allowance

Limited companies cannot claim Employment Allowance if they have just one director and that director is the only employee liable for secondary Class 1 National Insurance. This means that companies with several employees, where the director is the only employee paid above the Secondary Threshold, are not eligible for the Employment Allowance.

This only applies to limited companies. If you’re self-employed, this does not apply to you.

If your company circumstances change and more than one employee or director earns above the Secondary Threshold, you’ll be eligible for Employment Allowance for the whole tax year.

This includes companies where:

• all employees are directors who earn above the Secondary Threshold
• the company employs husband and wife directors where both earn above the Secondary Threshold
• the company employs seasonal workers where one or more is an employee earning above the Secondary Threshold in a week
• you’re the only UK-based employee of an international company that meets the other eligibility criteria, and you earn above the Secondary Threshold in a week

The decisive factor is that the additional employees must be paid above the Secondary Threshold.

The secondary threshold for 2025/26 is:

• £96 per weekly pay period;
• £417 per monthly pay period; and
• £5,000 per year.

Directors must be paid above the annual Secondary Threshold or pro rata if the directorship began after the start of the tax year.

If your company has several employees paid above the Secondary Threshold, but your circumstances change during the tax year and the director becomes the only employee paid above the Secondary Threshold, you can still claim the Employment Allowance for the tax year.

You should stop it for the following tax year, unless there are further changes to your circumstances and a further employee is taken on and paid above the Secondary Threshold.

The employment allowance can reduce an employer’s liability to national insurance contributions (NIC) by up to £10,500 for 2025/26. 1.2m employers claimed it in 2024/25.

The allowance is offset against the employer’s class 1 NIC liability each time they run the payroll. The allowance can only reduce the employer’s – not an employee’s – NIC liability.

All employers can claim the allowance, including businesses, charities and individuals employing a care or support worker, except for:

• a public authority other than a charity. An employer is a public authority if they do half or more of their work in the public sector (e.g., for councils).
• a company where:
  • all of the company’s employer’s class 1 NIC liabilities for that year relate to one employee only; and
  • that employee is a director of the company.

The employment allowance cannot be set against class 1 NIC liabilities relating to the following employees:

• someone whose earnings are within the off-payroll working rules; and
• someone employed for personal, household or domestic work (e.g., a nanny or gardener), unless they’re a carer or support worker.

Further, where:

• an employer operates more than one payroll, it can claim the allowance against only one of the payrolls; and
• a company is connected with another company or companies at the start of the tax year; only one of the companies can claim the employment allowance for that tax year.

For 2024/25, the amount of the allowance is increased from £5,000 to £10,500 and a restriction that prevented many larger employers from claiming the allowance has been removed.

The employer has four years from the end of the tax year to claim the employment allowance for that tax year.

 

 

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.