My Blog

Category: Income Tax

  • Tax Changes From April 2026

    1. Dividend Tax Increases – 8.75% to 10.75%, 33.75% to 35.75%, no change to 39.35%

    Another reason for owner-managers to consider higher salaries instead of dividends from April 2026.

    Always check your figures as there are many variables to consider: income tax rates, NI thresholds, NI employer allowance availability, corporation tax rates, other income.

    2. Making Tax Digital – Income Tax Self Assessment (MTD ITSA) – Quarterly reporting 

    Get yourself geared up if your sole trader turnover and landlord gross rents together were over £50k in your 2024/25 tax return.

    The minimum is to have income and costs on a spreadsheet and have filing-only software ready for the first deadline of 7 August There’s no need to spend a lot and beware of free software which rarely remains free and will use up your time.

    Your life will be a lot easier if all income and costs go through one bank account for each sole trader business and your landlord business. 

    3. No Tax Relief For Unremibursed Home Working Costs

    If your employer doesn’t reimburse you for your home working costs, you can no longer claim tax relief against your employment income.

    Check your Tax Codes for the 2026/27 tax year to ensure any historical deductions aren’t included, otherwsie you’ll need to repay this tax relief in your tax return or by an adjusted Tax Code or P800 issued to you in due course. This includes the £6 per week commonly claimed by staff.

    4. Benefit In Kind For Electric Cars – Increase from 3% to 4%

    For a £50,000 electric car, the benefit in kind will increase from £1,500 to £2,000, increasing the tax paid for a higher rate taxpayer from £600 to £800.

    Electric cars remain generally tax efficient particularly when purchased through your company enjoying 100% corporation tax relief.

    5. Non-Residents Voluntary Class 2 National Insurance Payments – No longer available

    Where the full 35 qualifying years hasn’t been achieved, or may not be, sole trader or partnership taxpayers have often topped up their missing years by paying voluntary Class 2 national insurance. This option will no longer be available to non-residents.

    Similarly, the more expensive, but potentially still cost effective, route of making Class 3 contributions, will require qualifying residencies to be for much longer at 10 years rather than 3 years.

    6. Capital Allowances – Reduction in write down rate from 18% to 14%

    Not a main issue for most owner-managed businesses, but where there are some historical pool tax written down values brought forward, the already very slow write down rate of 18% is now an even slower rate of 14%. This increases the number of years for a full write down from over 23 years to over 30 years! 

    The main thing is to ensure you get 100% reliefs wherever they are avaialable such as using the annual £1m AIA allowance.

    7. EMI Share Option Company Thresholds – Large Increases

    EMI share options really should help growth by enabling small-medium companies to attract talent without paying the highest salaries or bonuses, however they aren’t adopted as much as they could be.

    Perhaps increasing the thresholds will help by opening up EMI to larger companies such as those with gross assets of £120 million, but it’s the smaller companies that need help with simplification of the rules to keep their costs down. Thresholds for employees remain unchanged at a maximum of £250,000.

    The increase from 10 to 15 years in which an option can be exercised will be very helpful for options granted on or after 6 April 2026 and perhaps help make these more attractive to some owner-managed businesses.

    8. EIS Company Thresholds – Large Increases

    A lot of thresholds already in the millions are being doubled and should help larger companies obtain more investment, however the smaller SEIS thresholds stay the same again favouring the larger end of the SME market.

    We see the investor side of this too, so we may see more investments being made by higher net worth clients or those with some funds they are keen to use to help a growth company. 

    9. BADR – Entrepreneurs Relief – Tax increase – 14% to 18%

    This compares with 18% or 24% for other assets.

    As 18% applies only if you remain a basic rate taxpayer, you’ll often find yourself paying 24% and therefore the BADR rate of 18% is favourable. As the maximum capital gain covered is a ‘lifetime’ limit of £1m, the maximum tax saved by BADR is £60,000.

    Although it’s called a ‘lifetime’ limit, this in practice really means gains from 2008 when Entrepreneurs Relief first came into existence.

    10. Inheritance Tax – Business and Agricultural Property Reliefs – Reduced from unlimited to £2.5m and 20% above £2.5m

    As widely included in the press, mostly due to farmer protests who suffer from being asset rich-cash poor, eligible trading businesses and farms will start to pay IHT on their estates instead of an unlimited relief.

    With £2.5m per spouse, a total of £5m covers many businesses and farms, but for those exceeding this, you may want to look at family gifting either to individuals or trusts.

    Always take appropriate advice as there are numerous factors to consider. 

    11. Inheritance Tax – Relief for charitable legacies limitations

    To help ensure legacies are directed towards UK charities (or eligible sports bodies), gifts must be made direct to the charity, rather than via trustees who may make some payments outside of the UK.

    These are the main ones affecting owner-manager businesses, but always look out for others such as EIS threshold increases which may help more investment in the growth sectors generally.

    12. Penalties For Late Filing – Corporation Tax Returns – Doubled

    This is probably a good idea as these are very out-of-date.

    As soon as a corporation tax return misses the 12 month deadline, the penalty for late filing will increase from £100 to £200. If the return still isn’t filed within the next 3 months, a further penalty is due, currently £200, which will increase to £400.

    Often, directors forget about dormant companies, which are also subject to these penalties, unless HMRC has agreed in advance and hasn’t sent the company a notice to file a return.

    There are many more changes coming in later years, so continue to look out for these.

  • 2026 Tax Year End Planning

    1. Review Your Optimum Dividend-Salary Mix

    Shareholder-directors review your mix of dividends-salary to ensure they are optimised. If it is different to payments you’ve made so far, ensure your February and March salary and dividends are adjusted accordingly.

    For example, if your company suffers the 26.5% marginal corporation tax rate and some or all of the £10,500 national insurance employer annual allowance is available to you, you’re likely to find that a salary higher than £12,570 is more tax efficient for you.

    With continued frozen tax allowances and thresholds, you’re more likely to get caught by 33.75%, 39.35%, 40%, 50.63%, 60% or 45% tax rates so also check you’ll be within the tax band you’re expecting staying under £50k, £60k to avoid child benefit repayments or £100k to keep your tax free personal allowance.

    You may ask your spouse to take on some shareholder responsibilities and receive some dividends to use their basic rate tax bands or to keep your income under £100k.

    2. Beat The Increased Dividend Tax Before 6 April 2026

    With an additional 2% tax added onto existing already high rates, if your optimum mix of dividends-salary includes some dividends ensure you take your optimum dividend on or before 5 April 2026. Or if you have discretion on the timing of any other dividend, try to receive it on or before 5 April 2026. For example, some share buybacks are subject to dividend tax. It will therefore be tax efficient to ensure this occurs on or before 5 April 2026.

    The new rates will be 10.75% within the £50k tax band, 35.75% over £50k to £100k, 53.63% over £100k to £125k due to the withdrawal of the tax free personal allowance. The top 39.35% from £125k stays the same.

    3. Estimate Your 2026 Taxable Profits

    Sole traders, partners and shareholder-directors should all review your taxable profits.

    Sole traders and partners, if it looks as though you’ll be taken you into the 40% higher rate band of £50k, or over the threshold you’re aiming for, consider what action you might take before 5 April 2026. Shareholder-directors with 31 March 2026 year ends consider your actions if you want to get your corporation tax bill as low as possible such as under £50k for the 19% rate. 

    You might invest in equipment eg office equipment, PC, van, other equipment, 100% electric car or make pension contributions. See further below.

    4. Making Tax Digital – Sole Traders and Landlords – April 2026

    Whilst reviewing your profits to April, also check your total gross sales and rents showing in your 2025 tax return. If these total over £50k, regardless of your profit, you’ll be into the new MTD ITSA regime where quarterly income and costs need to be submitted to HMRC. There’s no need to change anything with your accountant as they will prepare your income tax return as usual and no need for fully blown software unless this has other value for you.

    The minimum is to extract your income and costs from your business bank account and tick certain figures to be transferred through simple software to HMRC electronically four times a year. 

    5. Pensions, Pensions, Pensions

    Despite the upcoming inheritance tax (IHT) charges from April 2027, corporation tax of 25%/26.5% is often a good saving for many company owners, particularly where under current rules 25% of your pension pot may be taken tax free from age 55/57. 

    With a company March year end if your profits might be higher in the year to 31 March 2026 than in the year to 31 March 2027, you may save up to 7.5% more tax from making pension contributions in 2026, subject to the £60k annual allowance.

    If as a sole trader or employee your income is over £100k, you’ll save an extra 40% from gross pension contributions made to get income down under £100k to save an extra 20%. For income over £125k, you save an extra 25%. Your pension pot receives 20% direct from the government, boosting its value in the background.

    Before making a decision, please take appropriate advice about your entire estate including the overall mix of your pensions and other assets and investments.

    6. Annual Investment Allowance and Electric Car First Year Allowance – 100%

    For all businesses, sole traders and limited companies, the Annual Investment Allowance rewards investment of up to £1m on plant and equipment or eligible commercial property refurbishment with 100% tax relief. Similarly, new electric cars purchased benefit from 100% tax relief with no limit.

    If you plan to incur these costs near to your year end, such as 31 March 2026, ensure you meet the conditions for a claim in this year, so you don’t have to wait a year to get the cashflow tax saving.

    For example, investing £100k might save £25k of corporation tax (25%), or £45k of income tax (45%) which is better in your pocket one year earlier than with HMRC.

    Remember hire purchase contracts work, so you don’t need to have bought the assets outright to get full tax relief, assuming the hire purchase contract is good value overall.

    7. Corporation Tax Returns Due From April 2026 – Double Late Filing Penalties

    If you send in your corporation tax return late after April 2026, your late filing penalties will double, starting with an increase from £100 to £200. For ongoing companies with ‘normal’ year ends, the first year end caught will be 30 April 2025, so there’s even more reason to send in your return on time.

    8. Entrepreneurs Relief (BADR) Tax Increase – 14% To 18%

    If you’re in the middle of a sale or liquidation of your business eligible for 14% BADR ensure you exchange or receive your liquidation distribution by 5 April 2026 so you don’t pay the higher 18% coming in from 6 April 2026.

    9. Director Small Wins 

    Remember to maximise your director treats for the tax year ended 5 April 2026; trivial benefits under £50 each, totalling an annual £300 each, annual parties expenditure up to £300 each including guest or have a private health care check.

    10. PAYE Tax Codes – Check!

    These are often wrong and HMRC is using them more, so expect even more errors! For example, as tax relief for home office costs isn’t available from April 2026, tax codes being issued now for the 2026/27 tax year need careful scrutiny. Make sure you understand yours and if it’s wrong, call HMRC to get it corrected.

    11. Cash ISA Limits – April 2027

    Although the reduction from £20k to £12k for cash ISAs if you’re under 65 doesn’t come until April 2027, if you prefer a cash ISA, make sure you use the £20k’s available for 2025/26 and 2026/27 while you can.

    12. Inheritance Tax  – Increases From April 2026

    The reduction in 100% relief from IHT known as Business Property Relief from April 2026 to a lesser extent then originally, still requires consideration by many large estates with farms and businesses. Exact advice will be dependent on values, family dynamics, cashflow… Ensure you get good advice from the right expert.

    Each taxpayer is different and you should only act after being advised about all the financial impacts of your actions. 

  • Budget 2025 – The Tax Buffet

    Famine

    1. Dividend tax 2% increase from April 2026 

    Effective next year this reflects governments’ obsession with director-shareholders seemingly getting an advantage over employees. Well you’re not employees, you’re mostly employers – creating jobs. The new rates will be 10.75%, 35.75% and 39.35% – so the top 39.35% stays the same.

    Expect your optimum salary-dividend mix to veer towards more salary than before. If you’re taking a £12,570 salary and £37,700 dividends, the extra dividend tax will be 2% of (£37,700 – £500) = £744. We will be advising you as always based on your mix of what you need to live on, your other income and your corporation tax rate.

    2. Rental property and interest income 2% increase from April 2027

    Giving you time to sell your properties and rearrange your investments…  The new rates will be 22%, 42% and 47% with property rents receiving the interest relief at 22% as you’d expect.

    This is another reason to divest your property if all other changes to date have made your returns pretty marginal. You may still be in property for capital growth, which you might still see if interest rates fall a bit. 

    3. Increase in income tax and tax returns required as fiscal drag continues to 2030/31

    Aside from the fact you’re more likely to be a higher rate taxpayer in order to pay your bills, be aware about the tax return part of this which causes a lot of confusion.

    As HMRC gets overwhelmed they try to move existing people out of the tax return system and rely on tax codes instead but take care if you’re relying on HMRC to get your tax code right. More likely your code will be wrong and you’ll get asked to pay a balancing amount you didn’t expect through a P800 usually issued in the summer.

    4. Electric vehicles mileage charges from April 2028

    Despite the encouragement for many years to adopt new technology, EV owners and their companies will now also pay an extra 3p per mile. Let’s hope your company can still pay to charge your car without having to identify private and business miles.

    5. Capital gains tax relief reduction when selling to Employee Ownership Trusts – immediately?

    The reduction will fall from 100% to 50% which seems a bit petty. What is wrong about selling to employees instead of a 3rd party? Perhaps the thinking is that 50% relief is incentive enough.

    6. Penalties and interest increases

    Penalties for submitting a Corporation Tax return late will double from April 2026 and interest rates on late payment of VAT and IT will increase from April 2027. It’s even more essential to help us keep on top of your submissions and tax payments. We’re here to help, as always.

    7. ISA investment in shares – April 2027

    To avoid (if we’re still allowed to say that) dividend tax on any other investments coming in at the same time, you may be encouraged to invest in ISAs or to move some cash into shares ISAs. Unless you’re 65, you can only invest £12k in cash ISAs making shares ISAs relatively more valuable.

    8. Working from home cost claims not available – April 2026

    Unless an employer pays an employee for the additional costs of working from home, an employee can’t make a claim. This is usually the £6 a week or £312 a year tax saving of between £62 to £140. This looks more like an HMRC time saving change so they don’t feel obliged to spend time checking them.

    Not to mention increases in the national and living minimum wages and stricter employment law, impacting small employer abilities to take on employees or even keep existing employees. This incentivises the use of AI and automation wherever possible. Thankfully, you’ll get 100% tax relief if you do so – see 1. below.

    Feast

    1. Capital allowances stay the same for most small businesses

    Despite the reference to a 40% First Year Allowance and a reduction in the writing down allowance from 18% to 14% it looks as though the £1m 100% relief under the Annual Investment Allowance – AIA – is here to stay which is all that most small businesses need.

    2. Employer pension contributions – April 2029

    Despite the salary sacrifice restriction to £2k coming in from April 2029, it looks as though the usual employer pension contributions your company make aren’t affected.

    3. Entrepreneurial relief increases

    There was a reference to EMI and EIS threshold increases which will always be welcome, but we’ve not yet seen the details. EIS increases aren’t as useful as SEIS increases for start ups of course. 

    Please remember that any financial investment decisions require a comprehensive review by an IFA or IFP.

  • Tax Free Christmas Activites and Parties

    What are the tax free limits?

    You can spend a maximum of £150 including VAT per staff member plus another £150 for a guest in total over a tax year. The main condition is that ALL members of staff at that location must be invited, so remember to include employees on zero hours contracts.

    In addition to the £150 annual party limit, you may also send a gift to staff with a value up to £50 including VAT, such as a Turkey, wine or chocolates.

    What is the tax treatment and accounting required?

    The cost is fully tax deductible with no benefit in kind income tax or national insurance to worry about. Your staff will feel appreciated and you save 19%/25%/26.5% corporation tax. Ensure that the costs are called Staff entertainment or Christmas party in your Profit & Loss Account.

    The £150 includes all costs such as travel and hotels. Divide the total cost of each function by the total number of people, including guests, to arrive at the cost per head.

    The VAT is fully recoverable when paying for staff entertaining. If you make a small charge to your staff’s guests and pay over a small amount of VAT, the VAT on the total cost for the guests is also fully recoverable.

    Similarly, small gifts up to £50 are fully tax deductible and VAT may be recoverable if only one small gift is made during a year. Perhaps these costs could be called Staff welfare to help keep them separate from your £150 calculations!

    NB Ensure you don’t go over the £150 or £50, otherwise the entire amount is taxable.

    I’m a director and don’t have any staff. Can I benefit from this favourable tax treatment?

    As you are the only director/employee you might think you can’t have a Christmas party – wrong! 

    You can avail yourself of the £150 per head exemption as a member of staff (the only one!) and another £150 for your guest. You can also have a gift with a value of up to £50, but you’re likely to be restricted to doing this up to a total annual cost of £300 including VAT so check what other company gifts you’ve taken so far. We would advise that VAT can’t be reclaimed.

    Now you can have a fabulous tax subsidised Christmas activity or party !

  • Spring Into The New Tax Year

    1. Frozen Income Tax Allowances

    Frozen allowances mean that more people are getting caught by a 40%, 60% or 45% tax rates and the dividend tax equivalents. As a business owner, you have more options than a regular employee.

    Some sole traders work less to keep their profits under the 40% higher rate band of £50k. Shareholder-directors should review their mix of dividends-salary to ensure they are optimised.

    A sole trader could add another person such as a spouse and set up a general partnership to even out the use of their income tax bands. A shareholder-director may ask a spouse to take on some shareholder responsibilities and receive some dividends to use their basic rate tax bands or to keep your income under £100k.

    2. Employer’s National Insurance 

    As a director-shareholder, in the light of the increase in rate from 13.8% to 15% and lower starting point from £9,100 to £5,000, alongside an increase in the annual allowance from £5,000 to £10,500, consider whether you need to change your dividends-salary mix from this month.

    For example, if your company suffers the 26.5%/25% tax rate and some or all of the increased £10,500 national insurance employer annual allowance is available to you, you’re likely to find that a director salary higher than £12,570 is more tax efficient for you.

    If you’re a sole shareholder-director without staff but with a budget for some services, consider a part time employee who can be a family member so the £10,500 annual allowance available to you. This might even save you money overall.

    As an employer facing increased national insurance costs, consider approaching employee remuneration differently. For example, bonus schemes might be replaced by a more tax efficient share option scheme or introduce a salary sacrifice scheme to replace salary or bonuses with employer pension contributions. 

    3. Pensions

    Plan, plan, plan.

    With corporation tax at 25%/26.5% for many company owners, you may wish to re-visit your company pension contributions paid into your own pension to save corporation tax. Contributions must be paid before your company year end so make sure you don’t miss that.

    4. Annual Investment Allowance and Electric Cars Allowance – 100%

    The Annual Investment Allowance rewards investment of up to £1m on plant and equipment or eligible commercial property refurbishment with 100% tax relief. Similarly, new electric cars purchased benefit from 100% tax relief with no limit.

    If you plan to incur these costs near to your year end, such as 30 June 2025, ensure you meet the conditions for a claim in this year, so you don’t have to wait a year to get the cashflow tax saving.

    Remember hire purchase contracts work, so you don’t need to have bought the assets outright to get full tax relief, assuming the hire purchase contract is good value overall.

    5. Entrepreneurs Relief (BADR)

    If you’re thinking of selling your business or liquidating and your business is eligible for BADR, ensure you exchange or receive your liquidation distribution by next 5 April 2026 so you don’t pay the higher 18% (currently 14%) applying in the next tax year.

    6. Director Small Wins

    With too many tax increases around at the moment, remember use what is still available to you. Maximise your director treats for the tax year ended 5 April 2026; trivial benefits under £50 each, totalling an annual £300 each, annual parties expenditure up to £300 each including guest or have a private health care check.

    7. Furnished Holiday Lets (FHLs) Cessation

    FHLs now have the same tax treatment as assured longer term lettings.

    Tax losses from your FHLs can be brought forward and offset against future property profits. However, tax reliefs such as capital allowances are more restricted and the split of profits between joint spouse owners require a formalised approach.

    Review your property ownerships, who should own what percentage and your repair and refurbishment plans,  ensuring you implement your requirements correctly and in good time. For example, HMRC needs to be notified promptly if you want rental profits to be allocated between you and your spouse in certain way, otherwise your will each be taxed 50:50 which may not be optimal.

    8. Non-Domiciled Tax Changes

    The changes are the biggest for many years. If you are UK tax resident but not a UK domicile, known as a ‘Non-Dom’, take specialist advice on the implications for you. Your income tax, capital gains and inheritance tax may all be affected.

    9. Tax Returns Additional Information

    Sole traders will be required to include the date you started or ceased your business. Understand the implications of the dates you use, because these dates affect your registration date with HMRC and your loss reliefs or capital allowances claims, but the date can be debateable. For example, when did you really start your business? During a marketing phase, when you contacted potential clients or when you raised your first invoice? It depends on the whole picture.

    Shareholder-directors now need to provide details of your shareholding in your company such as percentage shareholding, company name and registered number. Make sure your dividends always agree with the amount in your company accounts.

    10. Interest Charged By HMRC Increased To 8.5%

    Be careful about underpaying your tax bills. The interest rate HMRC will charge you on underpaying your tax such as self assessment payments on account or your corporation tax is now 8.5%, which is pretty expensive. If you overpay tax, HMRC will pay you 3.5% which is better than most business accounts, but a 5% difference against the 8.5% charged on underpaid tax.

    Therefore, where there is some doubt about your final tax bill, you may wish to err on the side of overpaying rather than underpaying your tax.

     

    Each taxpayer is different and you should only act after being advised about all the financial impacts of your actions. 

  • 2025 Tax Year End Planning

    1. Frozen Allowances

    With continued frozen tax allowances, more people are getting caught by a 40%, 60% or 45% tax rate. 

    As a business owner, you have more options than a regular employee, but it’s worth everyone checking in with what is available and affordable. Some sole traders work less to keep their profits under the 40% higher rate band of £50k or an employee may decide to go part time.

    Shareholder-directors should review their mix of dividends-salary to ensure they are optimised. For example, if your company suffers the 26.5% marginal tax rate and some or all of the £5k national insurance employer annual allowance is available to you, you’re likely to find that a salary higher than £12,570 is more tax efficient for you.

    A sole trader could add another person such as a spouse and set up a general partnership to even out the use of their income tax bands, or an employee might make more payments into a pension scheme, as described next.

    2. Employer’s National Insurance Increase

    In the light of the increase in rate from 13.8% to 15% and lower starting point from £9,100 to £5,000 consider whether you need to change your shareholder-director dividends-salary mix from 6 April 2025. 

    Perhaps in the next tax year, you also need to approach employee remuneration differently. For example, bonus schemes might be replaced by a more tax efficient share option scheme or introduce a salary sacrifice scheme to be replace salary or bonuses with employer pension contributions. 

    3. Pensions

    With higher corporation tax of 25%/26.5% for many company owners, you may wish to re-visit your company pension contributions to ensure you optimise your corporation tax relief.

    With a March year end if your profits might be higher in the year to 31 March 2025 than in the year to 31 March 2026, you may find you’re likely to save more tax from making pension contributions in this earlier year, subject to the £60k annual allowance.

    High sole trader or employee earners should always check they’re keeping taxable earnings under £100k wherever possible which might be achieved by paying more into your pension scheme from personal funds before 5 April 2025.

    If your income is over £100k, you’ll save an extra 40% from gross pension contributions made to get income down in the range between £100k and £125k. Under £100k, you save an extra 20%, whereas for income over £125k, you save an extra 25%. Your pension pot receiving 20% direct from the government, boosting its value in the background.

    4. State Pension Top Up

    The deadline to top up your state pension for years from 6 April 2006 is 5 April 2025. From 6 April 2025 this is being reduced to 6 years.

    Therefore check your Personal Tax Account, which despite its name also shows your state pension years. You can identify any missing years, any errors and check whether it’s worth making the payments.

    State pension credit years can arise from a variety of sources, but if you need to make the most expensive Class 3 national insurance payment, it costs £907 to add on a missing year, but it might be less if you were self employed.

    5. Spouse Dividends

    Dividend tax is at its highest level and as dividends also form part of your gross income trapped within the frozen allowances mentioned above, you may ask your spouse to take on some shareholder responsibilities and receive some dividends to use their basic rate tax bands or to keep your income under £100k.

    6. Annual Investment Allowance and Electric Car First Year Allowance – 100%

    For all businesses, sole traders and limited companies, the Annual Investment Allowance rewards investment of up to £1m on plant and equipment or eligible commercial property refurbishment with 100% tax relief. Similarly, new electric cars purchased benefit from 100% tax relief with no limit.

    If you plan to incur these costs near to your year end, such as 31 March 2025, ensure you meet the conditions for a claim in this year, so you don’t have to wait a year to get the cashflow tax saving.

    For example, investing £100k might save £25k of corporation tax (25%), or £45k of income tax (45%) which is better in your pocket one year earlier than with HMRC.

    Remember hire purchase contracts work, so you don’t need to have bought the assets outright to get full tax relief, assuming the hire purchase contract is good value overall.

    7. Double Cab Pick Ups

    Before the IHT changes in April 2026, the earliest tax change upsetting farmers and others is the expensive tax changes to double cab pick ups taxing them like ‘normal’ cars from 6 April 2025. This means that capital allowances and taxable benefits in kind will be based on CO2 emissions.

    Purchase, lease, order your new or 2nd hand DCPU by 5 April 2025 to continue to enjoy the current rules or replace your current one after 5 April 2025 with a single cab pick up or other commercial vehicle. 

    8. Entrepreneurs Relief (BADR)

    If you’re in the middle of a sale or liquidation of your business eligible for 10% BADR ensure you exchange or receive your liquidation distribution by 5 April 2025 so you don’t pay the higher 14% coming in from 6 April 2025.

    9. Director Small Wins

    Remember to maximise your director treats for the tax year ended 5 April 2025; trivial benefits under £50 each, totalling an annual £300 each, annual parties expenditure up to £300 each including guest or have a private health care check.

    Each taxpayer is different and you should only act after being advised about all the financial impacts of your actions. 

  • Tax Free Christmas Activites and Parties

    What are the tax free limits?

    You can spend a maximum of £150 including VAT per staff member plus another £150 for a guest in total over a tax year. The main condition is that ALL members of staff at that location must be invited, so remember to include employees on zero hours contracts.

    In addition to the £150 annual party limit, you may also send a gift to staff with a value up to £50 including VAT, such as a Turkey, wine or chocolates.

    What is the tax treatment and accounting required?

    The cost is fully tax deductible with no benefit in kind income tax or national insurance to worry about. Your staff will feel appreciated and you save 19%/25%/26.5% corporation tax. Ensure that the costs are called Staff entertainment or Christmas party in your Profit & Loss Account.

    The £150 includes all costs such as travel and hotels. Divide the total cost of each function by the total number of people, including guests, to arrive at the cost per head.

    The VAT is fully recoverable when paying for staff entertaining. If you make a small charge to your staff’s guests and pay over a small amount of VAT, the VAT on the total cost for the guests is also fully recoverable.

    Similarly, small gifts up to £50 are fully tax deductible and VAT may be recoverable if only one small gift is made during a year. Perhaps these costs could be called Staff welfare to help keep them separate from your £150 calculations!

    NB Ensure you don’t go over the £150 or £50, otherwise the entire amount is taxable.

    I’m a director and don’t have any staff. Can I benefit from this favourable tax treatment?

    As you are the only director/employee you might think you can’t have a Christmas party – wrong! 

    You can avail yourself of the £150 per head exemption as a member of staff (the only one!) and also a guest. You can also have a gift with a value of up to £50, but you’re likely to be restricted to doing this up to a total annual cost of £300 including VAT so check what other company gifts you’ve taken so far. In this case, we would advise that VAT can’t be reclaimed.

    Now you can have a fabulous tax subsidised Christmas activity or party !

  • FHLs – What Should You Do Before 6 April 2025

    These are the questions to ask yourself before going any further:

    • Is your FHL business profitable or loss-making?
    • Are you planning any significant refurbishments?
    • How much is your interest cost? 
    • Do you have other income from employment, self employment or a limited company?
    • Do you rent out other non-FHL rental properties?
    • Are you thinking of retiring or semi-retiring?
    • Do you make pension contributions based on FHL income?
    • Do you have family members already as part owners or potential part owners?
    • Did you start your FHL business recently or several years ago?
    • Has the property value increased since purchase?
    • Do you carry out a trade beyond simple property letting or might you want to start one?

    Your optimum tax efficient answer, will depend on your answers to these questions and probably a few more! Here are a few suggestions based on certain scenarios that we often see:

    1. Recent purchase of one FHL property

    We’ve seen an increase in FHL property purchases by employees and business owners since Covid, often funded by borrowings, which could have fed into the previous government’s reasoning to change these rules.

    Large amounts have often been spent making the property FHL-ready such as buying furniture, crockery, white goods and linen, decorating, safety improvements and adding cupboards. There are therefore carried forward tax losses.

    If you’ve not yet incurred these costs for your FHL, you may wish to do so to benefit from FHL rules which allow tax relief for more costs such as your initial purchases of furniture, crockery, white goods and linen.

    The property is expected to be profitable in the future after deducting buy-to-let interest. 

    Example ignoring brought forward losses:

    • Salary £40,000
    • Expected Rental Profit Before Interest £12,000 
    • Interest Paid £4,800
    • Currently, your income tax bill is: 20% of (£40,000 + £12,000 – £4,800) – £12,570 = £6,926
    • From 6 April 2025 your tax bill will become: 20%/40% of (£40,000 + £12,000) = £8,232 less 20% of £4,800 = £7,272
    • An increase of £346 every year without an increase in income.
    • Another impact from entering the higher rate band is halving your 0% tax band for interest income from £1,000 to £500, potentially adding a further £100 tax cost.
    • If your income is nearer to £60,000 before interest and you have children, your child benefit will start to be withdrawn. 
    • If your income is nearer to £100,000 before interest, you start to lose your tax free personal allowance!

    Your actions might be:

    1. Increase pension contributions against your salary to keep your income in the basic rate band, however, this clearly reduces your day-to-day cash to live on.
    2. If you’re an employee you can’t do too much about your salary unless you’re thinking of retiring or doing less work.
    3. If you’re a limited company owner, you may consider reducing the salary-dividends you take out of your company and if the £40,000 is mostly dividend income which won’t support personal pension contributions, you’d need to consider replacing some of this with company pension contributions.
    4. Increase the rent you charge to compensate for your increased tax cost. You’ll no longer be obliged to rent out the property for a certain number of days, so your model can become fewer renters at a higher rent.
    5. Shop around for a better buy-to-let mortgage to reduce your interest cost, although we often see this is pretty much under control.
    6. Transfer a proportion of your property to your spouse or adult children to spread your income across the family, however capital gains tax will be due on non-spouse transfers at 18%/24% unless you claim ‘holdover relief’ to delay the tax due until the recipient sells it.
    7. If you’ve owned the property for two years, sell your property before 6 April 2025 to benefit from 10% BADR (Business Asset Disposal Relief) assuming it’s not withdrawn on Budget Day.
    8. Sit it out, receive a reduced net of tax income and wait for future capital growth.
    9. Provide other services and argue that you’re carrying out a normal trade, similar to say a B&B or hotel.

    Losses – Your brought forward tax losses will be used up more quickly than before, being offset against £12,000 rather than £7,200 (£12,000 – £4,800), but may still offer some delay in the impact illustrated above.

    2. Professional landlord with a mix of FHLs and ASTs making an overall profit

    Landlords with several properties often without any other significant income may be known as professional landlords. Some properties may be funded by borrowings, and some are more profitable than others, with often a property needing a significant amount spent on it each year. Properties may be owned by both spouses, often also by adult children.

    Where a few FHLs are refurbished in the same year, this might cause an overall net FHL tax loss. Currently, losses from FHLs can only be offset against profits from FHLs, ditto ASTs. Moreover, the 

    Example after deducting any losses:

    • Expected FHL Rental Profit Before Interest £60,000 
    • Interest Paid on FHLs £10,000
    • Expected AST Rental Profit Before Interest £50,000
    • Interest Paid on ASTs £15,000
    • Currently, your income tax bill is: 20%/40% of (£60,000 – £10,000+£50,000) – £12,570 = £27,432 less 20% of £15,000 = £24,432
    • From 6 April 2025 your tax bill will become: 20%/40% of (£60,000 + £50,000) – £7,570 reduced personal allowance = £33,432 less 20% of £25,000 = £28,432
    • An increase of £4,000 every year without an increase in income.

    Your actions might be:

    1. Increase the rent you charge to compensate for your increased tax cost. You’ll no longer be obliged to rent out FHL properties for a certain number of days, so your model can become fewer renters at a higher rent or they might become AST renters.
    2. Shop around for a better buy-to-let mortgage to reduce your interest cost, although we often see this is pretty much under control.
    3. Transfer more of your properties to your spouse or adult children to spread your income further across the family, however capital gains tax will be due on non-spouse transfers, at 24%. 
    4. FHLs allow flexible allocation of profits and losses which will no longer be available. In particular HMRC regards joint spouse ownership to be a deemed 50% share unless they receive a declaration of trust and Form 17 in good time and which can’t be done retrospectively. It will be advisable to review this before 6 April 2025. 
    5. Transfer FHL properties to non-spouse family members, but claim ‘holdover relief’ to delay the gains for the recipients to pay 18%/24% on the entire gain when they sell them.
    6. Incorporate your property portfolio using capital gains tax incorporation relief to defer capital gains tax otherwise due. However Stamp Duty Land Tax will be a cost which might be a price worth paying for long run control over your income tax position and full tax relief for interest.
    7. Sell some FHL properties before 6 April 2025 to benefit from 10% BADR (Business Asset Disposal Relief) assuming it’s not withdrawn on Budget Day. You may choose the properties with the highest gain for the maximum benefit. Possibly reinvesting in new properties.
    8. If your FHL rents are currently chargeable to VAT, consider whether you may no longer need to be VAT registered.

    Losses – If you’re planning to refurbish a few FHLs, the new rules allow any FHL tax loss to be offset against both types of rents from 6 April 2025. As the FHL rules allow more costs to be tax deductible, you might bring forward some work to before 6 April 2025 using these rules while you can. You’ll still get tax relief either in 2024/25 if you still have enough FHL profits or in 2025/26 agaisnt all properties. Going forward, combining tax losses across FHLs and ASTs is likely to be helpful.

    3. Long term owner of a couple of FHL properties, nearing retirement age

    You have made fairly steady profits each year and seen a large increase in market value earmarked to enjoy in your retirement. 

    These tax changes will cost you 24% capital gains tax instead of 10% and even more income tax than illustrated above once your state pension starts to be paid. You may therefore decide to bring forward your plans. You may even decide to move into one of the properties.

    Example:

    • Market value £600,000
    • Original cost including stamp duty and solicitors £300,000 
    • Capital improvements not claimed for income tax £50,000
    • Selling costs £10,000
    • Tax free annual exemption £3,000
    • Capital gain £237,000
    • Capital gains tax of 10% is due on £237,000 = £23,700, assuming sufficient lifetime BADR of up to £1m remains available. 
    • From 6 April 2025, the capital gains tax due is 24% of £237,000 = £56,880, an increase of £33,180.

    Your actions might be:

    1. If affordable, maximise pension contributions during this tax year using your FHL rental profits as pensionable income while you can.
    2. Cease your FHL property business before 6 April 2025, locking in the favourable 10% BADR rate, ensuring you sell all properties within 3 years of cessation.

    Property tax is complicated. It’s therefore essential to obtain appropriate tax advice before taking any action suggested above, including Inheritance Tax implications. It’s likely some of the tax rates referred to above will increase in the Budget on 30th October, some of which may be immediately effective, so please check those changes at the time. 

  • Tax Under Labour – Top 5 Things To Consider

    1. Pension Income Tax Relief – The temptation to raise several billion from higher earners must be great. Restricting tax relief to 20%, is still 20%, and is the tax rate most people pay during their lifetime and in retirement. The Chancellor, should she feel the need, might particularly blame this one on the ‘unexpected’ poor state of the country’s finances.

    This may encourage you to maximise your pension contributions before Budget Day on 30th October or before 6 April 2025. It would be odd to make a change effective mid tax year, but still possible! 

    Company owner-managers making company pension contributions may still benefit from 25%/26.5% tax relief making this look even more tax efficient in comparison.

    2. Capital Gains Tax Rates (CGT)– Most people don’t pay capital gains tax. If you do it’s a 18%/24% rate on buy-to-let residential/second home properties or 10%/20% on selling a successful business or other assets. It’s easy to argue this should be closer to the 40% rate many of the same people pay in income tax. 

    If you were planning to sell an asset anyway you may decide to sell it soon. Even if you weren’t, it may be a reason to lock in the lower rates, if you believe they will increase.

    In this area, it’s easy for the Chancellor to make the increase effective immediately on Budget Day so you may want to aim to exchange before 30th October rather than before 6 April 2025. 

    3. Pensions Inheritance Tax (IHT) – Wealthier semi/full retirees are often not drawing their pension (above the 25% tax free lump sum) before 75. If you die before 75, there’s no inheritance tax due, leaving ‘only’ the rest of your estate to pay 40% above the threshold.

    Without a lifetime limit on pension pots, and with the increased £60k per year gross contribution limit, you can understand why many are paying maximums into their pension pots, not for a pension but for inheritance tax protection! Even after 75, the beneficiaries pay only their marginal tax rate. This might be 20% if beneficiaries keep their other income low, possibly encouraging older adult children to reduce hours or stop working, which is presumably not what the government wants.

    As you’ll still benefit from tax relief, for now, from paying into a pension pot, it may be worth carrying on as planned, unless you’d rather invest in (currently) other inheritance tax friendly areas such as unquoted shares. If you stopped making payments or started to withdraw your pension earlier than planned, you may end up with that cash in your estate which would anyway suffer inheritance tax. It may therefore be sensible to wait-and-see what’s announced in the Budget.

    4. Furnished Holiday Lets (FHLs) – Although already announced by both the previous and current governments, the changes treating FHLs the same as normal Assured Shorthold Tenancy (AST) lettings aren’t effective until 6 April 2025. 

    Existing FHLs will lose a semi-trading status which essentially enabled:

    • Full tax relief on mortgage interest
    • 10% capital gains tax up to £1m of lifetime gains, 20% above that instead of 18%/24% for other assets
    • Better tax relief on fittings and furnishings
    • Flexible spousal split of profits and losses

    The knock-on effect of the mortgage interest relief change is potentially very expensive. Your income before tax is increased by the mortgage interest, which can take you into unexpected tax bands such as the 40% tax band at £50k, child benefit loss between £60k to £80k, loss of tax free personal allowance after £100k or 45% tax rates from £125k. With only a 20% tax credit after your (higher) tax has been calculated, you pay more tax overall.

    Any FHL tax losses in existence on 5 April 2025, will be available to reduce other property rental profits in later years, which isn’t currently possible. Therefore, if you have a mixed portfolio of FHLs and ASTs, ensure any FHL losses are correctly calculated taking advantage of existing rules such as first time purchases of kitchen equipment, bed linen etc which will can reduce rental profits on your other properties from 6 April 2025. 

    If all this looks too expensive or unattractive compared with future net-of-tax capital growth, you may wish to sell up before 6 April 2025, pay 10% capital gains tax and invest your cash elsewhere. This won’t upset the government too much, as, in theory, these properties are released into the rented or owned sectors for normal homes. If your rental business ceases altogether before 6 April 2025, you may have three years in which to sell and benefit from the 10% rate.

    Alternatively, incorporation of your FHL business to ensure corporation tax relief for mortgage interest and then control over income tax may look more attractive than before.

    5. Non-Doms Abolition – Foreign Income Gains (FIGs) and IHT – A welcome simplification announced by both governments but not so welcome tax liabilities once non-UK domiciled people have been tax resident for 4 years. Enjoy no UK tax on your worldwide income for the first 4 years, whether you bring it into the country or not, after which it’s all subject to UK tax, with a credit (usually) for any tax paid elsewhere. 

    If you’re in your first 4 years of residency, keen to bring in some cash or assets into the UK, you may now be able to do so tax free before your 4 years is up. However, not for any FIGs that arose before 6 April 2025 which will still be taxed in the UK under the Remittance rules.

    This sounds like it could be good for certain areas of the economy in the first 4 years, such as luxury purchases or high end property purchases. But will it encourage people to set up business interests and stay for longer?  For these, Business Investment Relief remains available and may remain attractive.

    If you’re here for 10 years or more, you’ll now also pay IHT, like everyone else, on your UK and worldwide assets. Don’t try to avoid it after 10 years by leaving temporarily, as you’re still caught for the following 10 years after leaving the UK. 

    There are still lots of details to come out, presumably some soon after the summer break, so only take action when you have the full facts or are willing to take a risk. You may take the view that the direction of travel doesn’t suit you and you decide to leave the UK. Others may be attracted to come to the UK to enjoy the four years ‘tax free’ and then leave.

     

    Other – Sign Posting – VAT on school fees may be a great idea to signal an element of levelling up, but, in all likelihood, it won’t be a significant overall net win for the economy. Meals, transport, books and childcare during holiday clubs remain VAT-free, so expect detailed invoicing and allocation of prices to these categories. It’s interesting as to whether private medical services will ultimately suffer the same fate! There seems little difference to me.

    In all decisions referred to above, take appropriate advice such as investment advice, because tax mustn’t be the only consideration in any financial decision.

  • Budget 2024 – Your Country Needs You

    1. Employee & Self Employed NI Reductions – 6 April 2024. VAT Threshold Increase – 1 April 2024

    In time to see several payslip improvements before the election, but not necessarily the self employed unless they prepare an early tax return, this should be encouraging. It could be possibly one reason for someone who hasn’t yet gone back to work since Covid, to think again…. 

    The maximum saving for an employee is 4% of £37,700 = £1,508, and on average pay of about £35k it’s £900, which does start to get more interesting.

    The total self employed Class 4 reduction of 3% is very welcome. Along with the abolition of Class 2 this saves the average self employed person £650. The Press Release refers to an average sole trader profit of £28k which sounds about right. After deducting the Class 4 tax free threshold of £12,570, 3% is worth £463 and add on the Class 2 saving gets to you to about £650.

    Despite the many complaints about thresholds of £50k and £100k, there are lots of people in work and self employment earning less than this who are being targetted.

    Family companies will need to revisit the dividend-salary debate and calculations, lower NI clearly tipping in favour of more salary than you may have taken before.

    A small mention for the VAT threshold increase from £85k to £90k which will prevent some businesses from working less to avoid getting into the VAT system. However, it’s only a 5.8% increase which doesn’t offset inflation. Businesses who don’t want to be VAT registered, are likely to suffer from a lack of real growth. 

    2. Higher Income Child Benefit Charge Improvements – 6 April 2024

    Again, this is in time to be appreciated before an election. The starting threshold increase from £50k to £60k and the reduction in child benefit from that now to £80k rather than £60k means that child benefit is taken away from you more gradually and will feel a lot fairer. 

    After this, from April 2026 – following consultation – it is planned that child benefit will be based on household income, which many commentators wanted from the beginning when it was first brought in. Perhaps IT systems can now cope with this? Or it’s become obvious that it discourages either parent near the threshold to work any harder.

    3. Furnished Holiday Lettings (FHL) – Abolished – 6 April 2025

    Most employees won’t be affected by this apart from potentially benefitting from more properties being sold or moved into the normal rental property pool.

    The tax benefits for FHLs include full tax relief for loans against the property so they may become unaffordable for some landlords to continue. If so, there’s a small encouragement one year earlier to sell up…..

    4. Residential Properties Capital Gains Tax – Small Reduction – 28% to 24% – Exchanges From 6 April 2024

    The normal capital gains tax rate for higher rate taxpayers on other assets, apart from residential property, is 20%, so this 24% is a half-way house. If FHL landlords need to sell they at least save a bit of capital gains tax.

    On the other hand, it might encourage some professional landlords already providing ‘normal’ AST rentals, to stick around to provide rental properties for hard-working people.  

    Remember the tax free Annual Exemption is halving from April from £6k to £3k, so the net saving is reduced slightly. 

    Interestingly, the 24% rate makes owning rental properties in a limited company paying 26.5%/25% corporation tax look less favourable than before. 

    5. Creative Industries 

    Playing to one of the UK’s strengths and therefore likely adding to growth, there was good news for films, orchestras, theatres, museum and galleries. We can at least be entertained after our hard work.

    6. Other Simplifications To Make You Feel Good

    Workers feel aggrieved that others seem to get a better deal, so these may help:

    Abolition of Stamp Duty Mulitple Dwellings Relief – 1 June 2024 – No longer rewarding owners of multiple properties and saves court time arguing about what multiple properties actually mean!

    Abolition of Non-Dom status – April 2025 – This will go, but there’ll be something available for a limited period, looking a lot simpler, short term and fairer.

    Public Sector Productivity Improvements – Lots going on here, which should make our experiences feel more streamlined and efficient – eventually! No-one minds paying tax, if it’s spent wisely.

    It might also have been an election Budget – we shall we see….