What exactly is Making Tax Digital (MTD) for Income Tax and who does it apply to?  

MTD affects self-employed individuals and landlords with total annual income over £50,000 (before deduction of expenses). The threshold is based on the 2024/25 tax returns and all individuals whose total income from self-employment and/or property exceeded £50,000 in 2024/25 are mandated to use MTD from 6 April 2026 (unless otherwise exempt). 

Other income, including partnership income, is excluded from the MTD threshold test.  

Under MTD, an individual will be required to keep digital records and will require MTD compatible software to comply. They will also need to report to HMRC quarterly, rather than annually. 

MTD applied from April 2026 for self-employed individuals and landlords with total annual income over £50,000. However, from April 2027 the threshold will drop to those with total annual income over £30,000, and from April 2028 to £20,000. 

Why are the government introducing MTD?   

Every year, errors and failure to take reasonable care contribute to the UK’s tax gap and MTD seeks to reduce this by bringing the tax system closer to real-time. 

Who does MTD not yet apply to?  

MTD currently only applies if you have self-employment or property income above the thresholds. Otherwise, nothing changes – you continue with normal tax returns. 

Individuals with income below £20,000 – the government is considering including these taxpayers in the future. 

Limited companies are currently not included in MTD plans, however there is a consultation in place to modernise the reporting of payments to participators of close companies. 

Partnerships & LLPs may be included in the future, but no timeline has been announced yet. 

Individual partners are not affected for partnership income but may need to comply with MTD if they have separate qualifying income. 

Who is exempt from MTD? 

If you fall within the scope for MTD but would like to learn more about the different circumstances that qualify for exemption you can read our detailed blog here  

Do I still need to file a Self Assessment Tax Return?  

No, MTD Income Tax Self Assessment will replace the traditional annual Self Assessment Tax Return. Instead, you will be reporting updates quarterly and then a final declaration (which will include all sources of income), by 31 January following the end of the tax year. 

Under MTD, HMRC will not be supplying their own software to enable the final declaration to be made, unlike Self Assessment. 

Will tax payment dates change? 

There will be no changes to tax payment dates. 

I am VAT registered – how much do these changes affect me?  

If you are VAT registered, you are likely already using MTD compliant software and are already used to the quarterly reporting processes. Therefore, the administrative burden will likely not feel so high for you. 

What digital records do I need to maintain?  

You will need to keep digital records of your income and expenses from self-employment and/or your property business. 

Digital records should include 

• The amount 

• The date of the income or expense 

• The category/type of income and expenses. 
  These categories are the same as the income and expense categories from the Self Assessment tax return. 

From the point where business records are created electronically, all transfers of data will have to be made digitally, including submitting the quarterly updates, making any corrections, and filing the MTD tax return. 

I use a spreadsheet currently – is that enough for MTD?  

We will be able to use bridging software for small businesses or landlords who use simple spreadsheets. However, it may be advisable for you to explore a different solution for your digital record keeping and to use cloud-based software – we will happily discuss the various options with you. 

I have jointly owned properties, will we need to keep separate records and report separately?  

HMRC have recognised the impracticality of maintaining separate digital records and so for now, will be allowing landlords to keep less detailed digital records for their jointly owned properties. They will not have to submit quarterly updates for expenses related to joint properties, only income. Instead, expenses can just be reported when finalising the position at the end of the year.  

Will I need to make separate submissions for each source of MTD income? 

The simple answer is yes.  However, many software packages enable MTD compliance for multiple sources of income from within one package. 

What if I make a mistake in one MTD submission? 

As MTD submissions are cumulative within a tax year, any errors can be adjusted for in the following quarter. 

When are the quarterly MTD submissions due? 

The quarterly submissions cover a calendar quarter and are due for submission one month and one week after the end of the quarter.  For example, the submission covering the period April to June will be due for submission by 7th August. 

Will HMRC advise me whether MTD affects me? 

HMRC have written to taxpayers that they believe will meet the criteria for MTD from April 2026.  However, individuals are responsible for reviewing whether MTD applies to them, and for registering accordingly. 

MTD applies to me.  How do I sign up? 

If MTD applies to you, you do need to sign up online through your Government Gateway account prior to the due date of the first MTD submission.  We can sign individuals up as agents on their behalf, and have already done so for our existing clients.  

What if I become self-employed or start renting a property part way through a year? 

New income sources don’t trigger MTD immediately, but MTD will apply from April following the submission of the tax return that included the new source of income.  

To test if the annual MTD threshold is met for a new source of income, a calculation should be carried out to pro-rata the income over 12 months.  

You can choose to comply with MTD earlier. 

What if my income falls below the MTD threshold? 

You will only become exempt if your qualifying income falls below the MTD threshold for three consecutive tax years. 

Will be there be penalties for non-compliance with MTD? 

There will be a points-based penalty regime for non-compliance with MTD, however not for the first year that MTD comes into force, being 2026/27. 

What software options are available to me? 

To comply with MTD, three main tasks must all be completed using software: 

• Keeping digital records 

• Making quarterly submissions 

• Submitting the end of year final declaration  

You can meet these requirements in two ways: 

• Use a single “all-in-one” software that handles everything, or 

• Use a combination of different tools for different steps, for example: 

You might keep records in a spreadsheet, use bridging software to submit quarterly updates, and have an agent file your end of year final declaration using commercial software. 

It is important to know that not all MTD compatible software can submit the end of year final declaration, so it’s important to check this when choosing a product if you do not have an agent. 

We have spent the last year exploring various digital software options and discussing these with our clients to help our clients to decide which solution is best suited for their circumstances.  

We are also supporting clients who wish to use spreadsheets by offering to use our bridging software. 

Our shortlist of recommended software products is detailed below, along with training links.  Speak to us as we may be able to offer a discount on these products. 

Dext Solo  

Dext Solo is an HMRC recognised, purpose-built, and compliant software solution designed for sole traders and landlords to meet MTD obligations. It offers automated receipt/invoice capture, digital record keeping, bank statement processing, real time reporting and direct filing of quarterly submissions to HMRC. 

Click here for Dext Solo’s home page: Dext Solo 

Various tutorial videos can be found here: Dext Solo training videos 

Xero 

Xero offers various HMRC recognised, purpose-built, and compliant software solutions designed for sole traders and landlords to meet MTD obligations.  There are dedicated plans like Simple, Ignite, or Grow. Users can choose plans based on transaction volume and required functionality. These solutions offer smart document capture, bank statement processing, real time reporting and direct filing of quarterly submissions to HMRC. 

Click the links below for further information about the three smaller MTD for Income Tax solutions from Xero: 

Click here for Xero Simple: Xero Simple 

Click here for Xero Ignite: Xero Ignite 

Click here for Xero Grow: Xero Grow 

There are user videos under the various features on each page. 

Hammock 

Hammock is an HMRC recognised, MTD-compliant software specifically designed for landlords. It offers real-time tracking of rental income/expenses, automated bank reconciliations, instant receipt capturing, and direct filing of quarterly submissions to HMRC.  

Click here for Hammock’s home page: Hammock 

Hammock is offering live webinars hosted weekly. These sessions provide an overview of the software, demo the core features and explain the key steps to set up the software.  Book here: Weekly webinar booking link 

How we can help 

We can offer expert advice and guidance at every step of the way to help you navigate the new MTD obligations: 

• We can help you explore software solutions, set them up, train you on the software and help you put efficient processes in place for digital record keeping. 

• If you already have software systems in place, we can also review these to ensure these are best suited for your business.

• If you would prefer not to carry out your bookkeeping yourself, we can do this for you along with making the quarterly submissions to HMRC on your behalf.

• We also offer a ‘check and submit’ service for individuals who would prefer to carry out most of their bookkeeping independently, whilst utilising our MTD team for limited bookkeeping support and submissions.

We will of course be submitting the final declaration for each client as per our usual Self Assessment service. 

If you have any questions, or would like to discuss how MTD affects you, and the solutions available to your specific circumstances, please do not hesitate to get in touch with our MTD team.

Our contact details can be found here.

Automatic exemptions until April 2027

• Taxpayers in receipt of income from trusts or estates.
• Taxpayers claiming averaging adjustments (mainly farmers, musicians, writers and other creative artists).
• Taxpayers claiming qualifying care relief – e.g. foster carers who would otherwise have to join MTD due to another source of qualifying income.
• Taxpayers who filed non-residence (SA109) supplementary pages with their 2024/25 tax return, and reasonably expect to need to do so again in 2026/27.

Automatic exemptions – for an unlimited period

• Individuals who do not have a National Insurance Number (assessed at 5 April, the day before the date they would otherwise have to join MTD).
• Individuals claiming qualifying care relief (including foster carers and kinship carers) who have no other source of qualifying income.
• Lloyds underwriters who have no other source of qualifying income.
• Trustees, executors and personal representatives – in that capacity only.
• Taxpayers who lack physical or mental capacity and have given enduring power of attorney or lasting power of attorney to someone to manage their affairs.

 Exemptions until April 2027 (subject to an application)

• Taxpayers with qualifying income over £50,000 who would otherwise be expected to join MTD from April 2026 can apply for a temporary exemption from MTD until at least April 2027 if they have reason to believe they will need to file SA109 non-residence supplementary pages with their tax return in 2026/27.

Unlimited period exemptions (subject to application)

• Taxpayers who are ‘digitally excluded’ can apply to HMRC for exemption from MTD for an unlimited period if they have circumstances which make it not reasonably practicable to comply with MTD:

1. 1. age, health condition or disability that stops you from using a computer, tablet or smartphone to keep digital records or submit them to HMRC.
   2. practising member of a religious society or order whose beliefs are incompatible with using digital communications or keeping digital records, and you do not use a computer, tablet or smartphone for business or personal use.
   3. you cannot get internet access at your home or business because of your location and cannot get access at a suitable alternative location.

• Depending on the facts and circumstances, it may be possible to apply for exemption on the grounds it is ‘not reasonably practicable’ for you to comply with MTD (for example because you are winding down your business and have very low profits which are extinguished by the costs of complying with MTD). However, you would need to convince HMRC that you meet the requirements for this exemption.

Fixed Term only exemptions (either for the current parliamentary term, or until April 2027).

• Ministers of religion who file SA102M supplementary pages with their tax return.
• Recipients and transferors of the Married Couple’s Allowance or the Blind Person’s Allowance.
• Lloyds underwriters in receipt of other qualifying income.

Applications for exemption can be made by post or by phone, by individual or agent.

If you have any questions or would like to understand how these exemptions from MTD may apply in specific circumstances, please do not hesitate to get in touch with our MTD team.

Our contact details can be found here.

Employers can provide certain annual social events for employees without creating a taxable benefit, providing certain conditions are met.  This exemption applies whether the event is held in-person or virtually (including costs such as online hosting or equipment).  When the conditions are met, no income tax or national insurance arises for employees on the cost of attending the event. The figure of £150 is not an allowance, it is an exemption.

What Counts as an Annual Function? 

• The event must be an annual party or similar annual function.
• It does not need to be the same event every year.
• Virtual events qualify if all rules are met.

 The £150 per Head Exemption 

• Total cost (including VAT, travel, accommodation, etc.) divided by attendees must not exceed £150 per head.
• If the cost exceeds £150 – even by £0.01 – the full amount becomes taxable.
• Cost is based on actual attendees, not RSVPs.

 Multiple Events in a Tax Year 

• Employers may choose which event(s) to apply the exemption to.
• Combined exempted event costs must not exceed £150 per head.
• No formal HMRC election is required.

 Guests 

• Employees may bring guests; no statutory limit applies.
• Guests count toward the per-head cost calculation.
• Excessive guest numbers may deem the event to be considered non-staff entertainment. 

 If the Conditions Are Not Met 

• The full VAT-inclusive cost becomes a taxable benefit for each employee attending.
• Guest-related costs are taxable on the relevant employee.
• Employers cannot simply disallow the cost in their tax computation as an alternative. 

 Quick Checklist 

• Is the event annual?
• Is it open to all employees or all employees at one location?
• Is the total cost £150 or less per attendee?
• Have guest numbers been included?
• Are multiple events structured to maximise the exemption? 

 If you have any questions or would like to understand how this tax exemption may apply in specific circumstances, please do not hesitate to get in touch.  We would be delighted to discuss this with you.  

Our contact details can be found here.

Despite speculation, we saw no changes to stamp duty or capital gains tax in respect of property sales or purchases, no changes to the annual allowance for pensions or the 25% tax free pension lump sum.  There were also no changes announced in respect of gifting for inheritance tax purposes, or the VAT threshold. There was also no mention of plans for the introduction of employer national insurance contributions (NICs) on limited liability partnership (LLP) members.

As trusted advisors since 1958, our experienced team can help you assess what the measures could mean for you, your family, and your business, enabling you to confidently make the decisions necessary to manage your affairs tax efficiently and plan effectively for the future, despite our ever-changing landscape.   

Below, we highlight some of the key announcements for both individuals and businesses. 

Individuals 

• The freezing of income tax and employer national insurance contributions (NICs) thresholds will continue at their current levels until 2030.

• From 2027, pensioners whose only income is the basic or new State Pension will not be expected to pay small amounts of tax via HMRC’s “simple assessment” process.

• The basic rate, higher rate and additional rates of income tax on property and savings income will increase by 2 percentage points with effect from April 2027, increasing them to 22%, 42% and 47% respectively.

• From April 2026, income tax rates on dividend income will rise by 2 percentage points for the basic and higher rates, increasing them to 10.75% and 35.75% respectively.

• From April 2026, non-UK tax residents will no longer be able to pay voluntary class 2 NICs to preserve or accrue state pension entitlement.  The more costly class 3 voluntary NICs will remain available.

• From April 2029, only the first £2,000 per year of salary-sacrificed pension contributions will remain exempt from national insurance.

• It was announced that inheritance tax thresholds remain frozen until 2030, with the nil-rate band and residence nil-rate band remaining unchanged until then.

• From April 2026 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 is before 6 April 2026.

• A high-value council tax surcharge, labelled a “Mansion Tax,” will be introduced from 2028, charging £2,500 and £7,500 annually for properties worth more than £2 million and £5 million respectively.

• From April 2028, a new excise duty on electric cars will be introduced, payable alongside vehicle excise duty, at a rate of 3p per mile for electric cars and 1.5p per mile for plug-in hybrids.  However, the threshold at which the expensive car supplement (ECS) becomes payable on electric cars rises to £50,000 from April 2026. 

• From April 2027, the cash ISA allowance for those under 65 will fall to £12,000.  The overall ISA limit stays at £20,000, so savers can still invest the remaining £8,000 into other ISAs, such as stocks and shares. Those aged 65+ will keep the full £20,000 allowance to use across any ISA types.

• In a bid to collect tax faster, the Government will publish a consultation in early 2026 on how taxpayers with PAYE income can pay more of their self-assessment liabilities in-year via PAYE from 2029.

• The two-child benefit cap (which restricted universal credit and child tax credit to the first two children in most households) will be abolished from April 2026.

• A new Youth Guarantee has been announced, offering 18 to 24-year-olds on universal credit for 18 months a work placement with the DWP.

• Changes to gambling duties have been announced, primarily targeting online gambling.

• The 2025 UK Budget confirms that digital IDs will become mandatory for right-to-work checks by 2029, integrated with the GOV.UK One Login system under the Data (Use and Access) Act. 

____________________________________________________________________________________________ 

Businesses 

• The main rate of corporation tax remains at 25%.

• The writing-down allowance main rate will be reduced from 18% to 14% from April 2026.  A new 40% first-year allowance will be introduced from January 2026.  There will be no changes to the full-expensing regime.

• From April 2026, the use of umbrella companies by parties within the supply chain – including end users in some cases – will result in all such parties being liable for any PAYE failures by the umbrella company.

• From April 2026, in line with the increase in income tax rates on dividend income, the rate of s455 tax charged on loans to participators of close companies will increase to 35.75%.

• The Government will publish a consultation in early 2026 to explore introducing new requirements to report transactions between close companies and their shareholders to HMRC.

• From April 2029 businesses will be required to issue all VAT invoices as ‘e-invoices’.

• Capital gains tax relief for employee ownership trusts (EOTs) will be reduced from 100% to 50%.

• From April 2026 income tax relief on venture capital trust (VCT) investments will be reduced from 30% to 20%.  However, the annual investment limit for enterprise investment scheme (EIS) and VCT investments for companies will increase to £10 million, and the lifetime investment limit for companies will increase to £24 million.  There will also be an increase in the gross asset test, enabling more companies to become eligible for the schemes.

• From April 2026 more companies will become eligible for the enterprise management incentive (EMI) scheme, with an increase in the qualifying thresholds announced.  The number of employees test will increase to 500, and the gross asset test will increase to £120m. 

____________________________________________________________________________________________ 

If you have any questions or would like to discuss any aspect of the Budget in greater detail, we would be delighted to hear from you. 

Our contact details can be found here.

It will be needed sooner for company incorporations, to add new officers or shareholders that qualify as persons with significant control (PSCs) but, in any case, we urge all relevant individuals to obtain it sooner rather than later to avoid last minute panics and problems.

We strongly advocate a DIY approach to this.  Not only is it free, but it also requires the creation of a GOV.UK One Login if you do not already have one.  This login over time will become the overarching entry point to all government digital services, and individuals can already attach to it their DVLA record for driving licence renewals, MOT/car tax reminders and Lasting Power of Attorney appointments amongst others, so likely needed at some point anyway.

Each individual only needs one code.  The single code can be attached to all companies they are a director or shareholder of.  Our clients will need to send us their codes once obtained so we can log it on our systems to be able to support ongoing Companies House compliance.

For our clients who are unable to obtain a code by this route, we can assist via a separate identity service we subscribe to, but this will incur a fee and will require essentially all the same data.

Some people will see this as ‘big brother’, but the law has been enacted, so there is no option but to comply.  Its intention is to reduce fraud and cloning, and to make sure people are real and not made up.  It will also likely “tidy up” Companies House data, merging records for the same person, which are currently fragmented due to minor typographical errors, or different addresses.

Companies House guidance can be found here:

Verifying your identity for Companies House – GOV.UK

And this page which is both where you login and tells you what is and isn’t linked at this stage.  You can also create your GOV.UK One Login here:

Using your GOV.UK One Login: Sign in to your GOV.UK One Login – GOV.UK

As always, our team are here to answer any questions you may have. Please do contact us if you have any questions or call us on 01276 61203

So, what exactly does today’s Autumn Statement mean for individuals and businesses? We’ve summarised the key announcements below to help you to understand the latest measures and how they may impact you and your business:

Individuals

Personal Income Tax: No changes.  The freeze on IT and NI thresholds will not be extended beyond 2028.

National Insurance:  No increase to employee NI (Class 1) although Class 2 and Class 3 NICs will be increased in 2025-26 to £3.50 per week, and £17.75 per week.

State Pension: The basic and new State Pension will increase by 4.1% from April 2025.

National Living Wage: This will be increased by 6.7%, from £11.44 to £12.21 an hour from April 2025.

National Minimum Wage: For 18–20 year-olds, this will increase to £10.00 per hour for all eligible workers.

High Income Child Benefit Charge reform: The government will not proceed with the reform to base the HICBC on household incomes.  The government will allow employed individuals to pay their HICBC through their tax code from 2025 and pre-populate Self-Assessment tax returns with Child Benefit data.

Non-UK Domicile: The government will legislate to abolish the remittance basis of taxation for non-UK domiciled individuals and replace it with a simpler and internationally competitive residence-based regime from 6 April 2025, as previously announced.

ISA: Annual subscription limits will remain at £20,000 for ISAs, £4,000 for Lifetime ISAs and £9,000 for Junior ISAs until 5 April 2030.

Inheritance tax (IHT): No change to the current thresholds. However, the government will bring unused pension funds and death benefits payable from a pension into a person’s estate for inheritance tax purposes from 6 April 2027.

Agricultural property relief and business property relief: This will be reformed from 6 April 2026. In addition to existing nil-rate bands and exemptions, the current 100% rates of relief will continue for the first £1 million of combined agricultural and business property to help protect family businesses and farms. The rate of relief will be 50% thereafter.

Capital Gains Tax (CGT) Rates: The lower and higher main rates of Capital Gains Tax will increase to 18% and 24% respectively for disposals made on or after 30 0ctober 2024.

Business Asset Disposal Relief and Investors’ Relief: Rates will increase to 14% from 6 April 2025 and will increase again to match the lower main rate at 18% from 6 April 2026.  The lifetime limit for Investors’ Relief will be reduced to £1 million for all qualifying disposals made on or after 30 0ctober 2024, matching the lifetime limit for Business Asset Disposal Relief.

Stamp Duty Land Tax: From 31 October 2024 the Higher Rates for the second property surcharge on Stamp Duty Land Tax will be increased by 2 percentage points from 3% to 5% in the UK and Northern Ireland.

Fuel duty rates:  The government will freeze fuel duty rates for 2025- 26.

Late payment interest rates on unpaid tax liabilities: The government will increase the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5 percentage points from 6 April 2025.

Businesses

Corporate Tax: No changes to rates. The government has published a Corporate Tax Roadmap which includes a commitment to cap the Corporation Tax Rate at 25%, maintain the Small Profits Rate, marginal relief, and thresholds at current rates.  Key features such as Full Expensing, the Annual Investment Allowance and R&D relief rates will be maintained.

National Insurance: The government will increase the rate of employer NICs from 13.8% to 15% from 6 April 2025.  The Secondary Threshold (the point at which employers become liable to pay NICs on employees’ earnings) will reduce from £9,100 a year to £5,000 a year from 6 April 2025 until 6 April 2028.

Employment Allowance: This will increase from £5,000 to £10,500.  The £100,000 threshold for eligibility will be removed from 6 April 2025.

Business Rates – retail, hospitality and leisure relief: For 2025-26, eligible retail, hospitality and leisure (RHL) properties in England will receive 40% relief on their business rates liability. RHL properties will be eligible to receive support up to a cash cap of £110,000 per business.

Company Car Tax rates: The government is setting rates for Company Car Tax for 2028-2029 and 2029-30 to provide long term certainty for taxpayers and industry. The rates will continue to strongly incentivise the take-up of electric vehicles, while rates for hybrid vehicles will be increased to align more closely with rates for internal combustion engine (ICE) vehicles, to focus support on electric vehicles.

Alcohol duty: The government will support pubs and the wider on-trade by cutting alcohol duty rates on draught products below 8.5% alcohol by 1.7% promising a ‘penny off a pint in the pub’.

Capital allowances: Green First Year Allowances – The government will extend for a further year the 100% First Year Allowances (FYA) for qualifying expenditure on zero-emission cars and the 100% FYA for qualifying expenditure on plant or machinery for electric vehicle charge points, to 31 March 2026 for corporation tax purposes and 5 April 2026 for income tax purposes.

Close Company Loans to shareholders:  The government will ensure shareholders cannot extract funds untaxed from close companies by legislating to remove opportunities to side-step the anti-avoidance rules attached to the loans to participators regime. This change will apply from 30 0ctober 2024.

Stamp Duty Land Tax: The single rate of SDLT on the purchase of dwellings costing more than £500,000 by corporate bodies will also be increased by 2 percentage points from 15% to 17%.

VAT:  VAT on private school fees will be introduced from January 2025.

As always, our team are here to answer any questions you may have. Please do contact us if you have any questions or call us on 01276 61203

Jo Hardy – Personal Tax Director

Our tax team have compiled, for you, a list of frequently asked questions which aim to provide clear guidance on the reform that came into effect on 6 April 2023. Not all the points listed will apply to you, but please do not hesitate to contact us should you wish to discuss your own unique circumstances. We will be more than happy to assist you. 

What exactly is the Basis Period Reform? 

Back in October 2021, HMRC published a policy paper in which they announced that from 6 April 2024, taxable profits will be aligned with the tax year rather than the accounting period, with the 2023/24 tax year being the year of the transition. Previously, profits were assessed on a ‘current year’ basis: the profits taxable in a tax year were those relating to the accounting period ending in that tax year. From 6 April 2024, the new basis will be a ‘tax year’ basis and so every year your taxable profits will relate to the period 6 April to 5 April (or any date falling between 31 March – 4 April), regardless of when your businesses accounting period ends. 

My accounting date is 31 December. How will my 2023/24 taxable profit be made up? 

Your 2023/24 taxable profit will consist of two profit figures: the standard profit for the accounting period that will be taxed as normal, so for the period ended 31 December 2023 and the transition profit that will encompass the remainder of the tax year, 1 January 2024 to 5 April 2024. This means that you will need two sets of accounts, up to 31 December 2023 and 31 December 2024. The transition profit will need to be apportioned based on the profit for the whole of the accounting period ended 31 December 2024. You will also be allowed to estimate the transition profit, but HMRC will require final figures to be submitted once your accounts have been drawn up.  

This means that my 2023/24 tax bill may be very high. What can I do to reduce the tax payment? 

You will be able to reduce your transition profit by using any overlap profits you may have brought forward. Overlap profits may have arisen when you first commenced trading and if so, they will have already been taxed twice. If you do not have your overlap profit figure, please do not worry as we can obtain this from HMRC for you. It is very important for all sole traders and partners to make sure they have utilised all overlap profits on their 2023/24 tax returns, as the profits will be lost from 5 April 2024!  Any losses, whether brought forward, arising during the standard profit period or the transition profit period will help reduce the taxes due.  

What if, after applying overlap profit relief, the remaining transition profit is still very high?  

HMRC have stated that at least 20% of the transition profit will need to be taxed in 2023/24. The remainder of the profit will be taxed over the next four years. Depending on your circumstances, you may wish to tax a higher proportion of the profits in 2023/24 (or one of the later years), leaving a smaller balance to be taxed over the remaining years.  This may be beneficial for various reasons, one example being that a successfully growing business may wish to tax a higher proportion of their transition profits in the earlier years, ensuring that they stay within the basic rate tax bracket for as long as possible. 

We can provide you with information and tax estimates to help you make the right choice. 

What if I am planning to cease trading before or on 5 April 2027? 

Any remaining transition profit not yet taxed will come into charge in the year in which your business ceases.  

Shall I change my accounting date to 31 March or 5 April 2024? 

Changing the date may remove the need to prepare two sets of 12-month accounts and potentially having to include estimated transition profits. A period longer than the usual maximum of 18 months will be allowed, even where there has already been a change in the last five years. This may also remove some of the administrative burden when Making Tax Digital for Income Tax comes in on 6 April 2026. For most businesses, we believe changing your accounting date will be the preferred route, however, any change should be considered from a wider commercial perspective. 

Will the transition profit have an impact on other aspects of my tax returns? 

• Capital Allowances will be unaffected as it will simply be the taxable profit (so after capital allowances) that will be apportioned to the tax year.  

• Your tax-free Personal Allowance will be unaffected by the transition profit. However, your transition profit may fall into a higher tax rate. If the transition profit has been spread over five years, this may be the case in each of the five years depending on your other income.  

• Student Loan Repayments will be affected by the reform meaning potentially higher repayments due to an increase in taxable trade profits.  

• Transition profits will be disregarded when calculating the High-Income Child Benefit Charge.  

• Transition profits will not affect Pension Annual Allowances.  

• The rates at which Capital Gains Tax is charged will remain unaffected by the transition profit.  

 In summary, navigating the Basis Period Reform requires careful consideration of individual circumstances and our knowledgeable tax team are here to help you by providing guidance, support and advice tailored to your specific circumstances. 

As always, our team are here to answer any questions you may have. Please do contact us if you have any questions or call us on 01276 61203

Stewart & Co Tax Team

The intended changes have not been enacted into legislation due to the calling of the election. We will publish an update should circumstances change.

In the 2024 Spring Budget important changes have been made to the generous tax treatment afforded to non-domiciled individuals, like Rishi Sunak’s wife.

A ‘non-dom’ individual is one whose place of origin is not the UK, often because they or their parents were born overseas. It is not linked to residence and may change if you choose to sever all ties with your home/stay somewhere else indefinitely. It can be a complex area.

Background

A quick Google search outlines fascinatingly that the non-dom status started in 1799…

“The UK’s non-dom regime dates back to 1799, when it was introduced to protect an individual’s colonial investments.”

One of the purposes of the favourable tax treatment was politically motivated by encouraging wealthy individuals to come to the UK and not suffer punitive tax on income earnt elsewhere in the world.

225 years later the treatment, as you would expect, has significantly changed but still with similar motivations.

Before the Spring budget – how did it work?

Prior to the budget a qualifying non-dom individual could claim to be taxed on the remittance basis of UK taxation, whereby they would not pay UK tax on their overseas income or gains when they arose, but instead only when they were brought to the UK.

If a non-dom claimed the remittance basis of taxation, then after seven years of residence in the UK they would pay an annual of £30,000, increasing to £60,000 after 12 years. Following 15 years of UK residence, the non-dom could no longer use the remittance basis and would have to pay tax on their worldwide income and gains if they remained resident in the UK.

Following the Spring Budget

The statement from the treasury read:

“Individuals will not pay UK tax on any foreign income and gains arising in their first four years of tax residence, provided they have been non-tax resident for the last 10 years.”

From 6 April 2025, the current remittance basis of taxation will be abolished for UK resident non-domiciled individuals. This will be replaced from 6 April 2025 with a new 4-year foreign income and gains (FIG) regime for individuals who become UK tax resident after a period of 10 tax years of non-UK residence.

Qualifying individuals will not pay tax on FIG arising in the first four tax years after becoming UK tax resident and will be able to bring these funds to the UK free from any additional charges. They will not pay tax on non-resident trust distributions either. They will pay tax on UK income and gains, as is the case for non-domiciled individuals now.

From 6 April 2025, individuals who have been taxed on the remittance basis will be able to elect to pay tax at a reduced rate of 12% on remittances of pre-6 April 2025 FIG under a new Temporary Repatriation Facility (TRF) that will be available for tax years 2025-26 and 2026-27.

Under the new regime individuals will not be required to track the movement of their FIG through investments in the way they are required to do now under the current regime. This will make the new 4-year FIG regime much simpler than the remittance basis regime.

If an individual chooses to be taxed under the new 4-year FIG regime, they will lose entitlement to personal allowances and the capital gains tax annual exempt amount.

Claims to use the new 4-year FIG regime are to be made for each year to which it is to apply. Individuals need not make a claim for every year of the 4-year period. For example, an individual who makes a claim for the new 4-year FIG regime in year 1 but chooses not to make a claim for year 2 will still be able to claim for years 3 and 4.

Game-changing news for the Globally Mobile

As more workers are globally mobile the UK government have put in place an attractive and straightforward set of reforms to replace the complex remittance basis regime. This will encourage workers to come to the UK temporarily without suffering punitive tax charges on their worldwide income within the first four years.

Quick Takeaways

• A new 4-year foreign income and gains (‘FIG’) regime replaces the remittance basis.
• Individuals who become UK tax resident after a period of 10 tax years of non-UK residence can claim.
• The new arrangements are not limited to non-domiciled individuals.
• No tax due on FIG within first 4 years of being UK resident.
• 12% charge on remittances of pre-6 April 2025 FIG under a new Temporary Repatriation Facility (TRF) if remittance basis claimed before.
• Existing non-doms will have the option to rebase capital assets to 5 April 2019.
• Likely to bring a high level of investment to the UK.

Summary

Although there are many details yet to be finalised, we advise all current non-domiciled individuals, regardless of their duration of residence in the UK, to promptly evaluate their circumstances. We encourage you to get in touch with one of our tax team who specialises in this area to explore your available options.

As always, our team are here to answer any questions you may have. Please do contact us if you have any questions or call us on 01276 61203

Andrew McIntyre – Assistant Tax Manager

So, what did today’s Spring Budget bring for both individuals and businesses? Below we have summarised the key announcements:

Individuals

National Insurance Self-employed: The main rate of Class 4 will be cut again by a further 2%, from 8% to 6% from 6 April 2024.  Combined with the abolishment of Class 2, this will save the average self-employed person on £28,000 over £650 compared to last year.

National Insurance Employee:  Main rate will be cut again by a further 2%, from 10% to 8% from April 2024. This means the average worker on £35,400 will receive a tax cut of over £900 compared to last year.

With these changes the average earner now has the lowest effective tax rate since 1975.

ISA: New British ISA allowing an additional £5,000 annual investment in UK equities tax-free.

High Income Child Benefit Charge (HICBC):  The Government plans to administer the HICBC on a household basis rather than an individual by April 2026 to end the unfairness of the current system. In the meantime, from April 2024, the threshold at which the HICBC kicks in will be increased from £50k to £60k.  In addition, the rate at which the HICBC is charged will also be halved, meaning that Child Benefit will not be fully withdrawn until individuals earn £80,000 or more.

Fuel Duty: Frozen again until March 2025 with the temporary 5p cut also extended.  This will save car drivers around £50 this year.

Alcohol Duty: The freeze announced in the Autumn Statement will be extended until 1 February 2025, saving consumers 2p on a pint of beer, 1p on a pint of cider, 10p on a bottle of wine and 33p on a bottle of spirit.  This measure will benefit 38,000 British pubs.

Savings: A new British Saving Bond from NS&I will be available in April offering savers a guaranteed rate for 3 years, delivering better returns for savers.

Non-Domiciled: The Non-Domicile regime will be replaced by a modern, simpler and fairer scheme from April 2025 where new arrivals will have access to a more generous scheme – from 100 per cent UK tax relief on foreign income and gains for the first four years that they are tax resident here, before paying tax in the same way as everyone else. There will be transitional arrangements in place for current non-domiciled individuals. This reform abolishes the remittance basis of taxation.

Liability to inheritance tax (IHT) also depends on domicile status and location of assets and the Government will consult on the best way to move IHT to a residence-based regime in due course.

Furnished Holiday Lettings (FHL): The FHL tax regime will be abolished from April 2025.

Vape Duty: A Vape Duty will be introduced from October 2026 to protect young people and children from the harm of vaping, alongside a one-off increase in tobacco duty to recognise the role vapes play in helping people to quit smoking.

Capital Gains Taxes: The higher Capital Gains rate for residential properties will be reduced from 28% to 24 from April 2024.

Businesses

Growth Guarantee Fund: Small and medium sized enterprises will be supported to invest and grow through a £200 million extension of the Growth Guarantee Fund, helping 11,000 small businesses to access the finance they need.

VAT: The VAT registration threshold will be increased from £85,000 to £90,000 on 1 April 2024 which will take around 28,000 small businesses out of paying VAT altogether. The Chancellor stated that this measure was to help reduce administrative burdens for small business and is the first increase in 7 years.

Multiple Dwellings Relief:  This will be abolished from June after showing no evidence of promoting investment in the private rented sector.

What could today’s measure mean for me?

The Government anticipates that today’s tax cuts, combined with the tax cuts announced at the Autumn Statement 2023, mean:

• A hard-working family with two earners on the average salary of £35,400 each will be better off by £1,826.
• An average full-time nurse on £38,900 will be better off by £1,053.
• A typical self-employed plumber on £34,361 will be better off by £846.
• The typical teacher on £44,300 will be better off by over £1,270.

We shall have to wait to see whether the Chancellor has taken sufficient action to sway voters ahead of the general election expected to take place in the autumn.

As always, our team are here to answer any questions you may have. Please do contact us if you have any questions or call us on 01276 61203

Jo Hardy – Personal Tax Director

Pension Annual Allowance

An individual can claim tax relief on contributions to their personal pension pots, although there are some annual contribution limits.  The maximum pension allowance for the 2023/24 tax year is £60,000 (although this is capped at an individual’s ‘earned income’).  For those with high levels of income, the annual allowance could be reduced.  Pension contributions attract basic rate tax relief at source, but extra tax relief can be claimed by higher and additional rate taxpayers.

Any unused annual pension allowances from the previous three tax years can be carried forward, giving rise to potential accumulated maximum allowances of £180,000 for the 2023/24 tax year. You must have been a member of a pension scheme in all of the three previous tax years for this to apply. If you do have unused allowances carried forward from 2020/21, it would be very wise to consider using them now as they will be lost at 5 April 2024.

Personal Allowance 

UK resident individuals with income less than £100k per year are entitled to a tax-free personal allowance of £12,570. If you or your spouse has income below this level, you may wish to consider moving some income producing assets between yourselves, to ensure you are both using your full allowances.

For individuals with income exceeding £100k your personal allowance is reduced. Unfortunately, this means that the effective rate of tax on your income between the £100,000 – £125,140 range can be up to 60%. Making personal pension contributions and gift aid charity donations can help reduce the tax burden for income falling between these thresholds.

Marriage Allowance 

If you’re married or in a civil partnership, check if you qualify for the marriage allowance -it could save you £252 annually and can be backdated for 4 tax years.

To qualify, one partner must earn below the £12,570 personal allowance, and the other must only pay basic-rate income tax. The lower earner can transfer £1,260 of their personal allowance to their partner annually.

Boosting your State Pension

Currently, you are required to have attained 35 qualifying years of state pension credits in order to receive your full UK state pension and 10 qualifying years in order to receive any state pension at all. Those individuals below 35 years who would like to top-up, can do so through voluntary National Insurance payments but usually only for the previous 6 tax years. However, you currently have until 5 April 2025 to make voluntary contributions for the tax years 2006/07 onwards.

ISA Allowances  

ISAs are a tax-efficient saving option due to their exemption from Income Tax and Capital Gains Tax.  The current annual contribution limit for adult and junior ISA’s stand at £20,000 and £9,000 respectively, with any unused allowance unable to be rolled over to the next tax year. This limit applies to contributions to all types of ISA’s– cash or shares. Therefore, if you have not yet used your allowance this year, it will be lost if not used by 5 April.

Capital Gains Tax Allowance

Individuals who make gains on investments of up to £6,000 during 2023/24 pay no Capital Gains Tax (CGT) due to their CGT annual exemption. Any gains over this allowance are chargeable at 18% or 28% for residential property, and 10% or 20% for all other gains, depending on your levels of other income. Your annual exemption cannot be rolled over to a future tax year, so it will be lost if not used by 5 April 2024.

For the 2024/25 tax year, the individual annual CGT allowance will reduce to £3,000 so it could be worth crystallising any larger gains now in order to make use of the larger exemption.

IHT Annual Exemption

Gifts made to friends or family can usually be covered by your annual gift allowance of £3,000.  These gifts fall out of your estate for inheritance tax purposes immediately. Any unused allowance from the previous tax year can be carried forward for one tax year giving a potential maximum gift allowance of £6,000 in a tax year. Therefore, if you did not use your exemption for 2022/23, you could make gifts totalling £6,000 this tax year in order to utilise your full allowance.

Dividend Allowance

Each individual is entitled to a £1,000 dividend allowance to cover dividend income received each tax year. For the 2024/25 tax year, the individual dividend allowance will reduce to £500.

Any dividend income in excess of £1,000 is chargeable to 8.25%, 33.75% or 39.35%. If you are an owner-managed business with profits, and you have not yet utilised your £1,000 dividend allowance, we would strongly advise you to consider taking a dividend of £1,000 this year.

Overpayment Relief

Individuals can make a claim to HMRC if they believe they have paid too much tax in any of the previous four tax years. Therefore, if you believe you have overpaid income tax, capital gains tax or corporation tax in tax year 2019/20, you only have until 5 April 2024 to submit a claim for repayment.

Tax-Efficient Investments

Tax relief is given for certain qualifying investments in growing companies. Investments falling within the Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCT) and the Seed Enterprise Investment Scheme (SEIS) could be considered. The EIS and VCT schemes allow investors to receive 30% upfront income tax relief whereby SEIS investors receive 50% income tax relief on the amount which has been invested. Income tax reliefs are generous as these types of investments are generally considered high-risk.  Some of these investments also attract Capital Gains Deferral relief, and some can also be CGT free after a set period of time.

As always, our team are here to answer any questions you may have. Please do contact us if you have any questions or call us on 01276 61203

Jo Hardy – Personal Tax Director