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Welcome...
To October's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Section.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
Please contact us for advice in your own specific circumstances. We're here to help!
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| Making Tax Digital (MTD) for Income Tax starts in six months |
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Making Tax Digital (MTD) for Income Tax begins in April 2026. It will initially affect sole traders and landlords earning over £50,000 annually. The thresholds will gradually lower to £30,000 in 2027 and £20,000 in 2028.
MTD will require the use of MTD-compatible accounting software for Income Tax Self-Assessment (ITSA). Quarterly tax submissions will be made instead of a single annual return.
This government initiative to modernise the tax system by digitising records and submissions was originally announced in 2015, and aims to reduce errors, save time, and combat tax fraud - especially among small businesses. MTD is already in place for VAT-registered businesses and sole traders. It is estimated that 864,000 sole traders and landlords will need to comply.
There are concerns that this change will potentially add administrative and financial burdens for small businesses. The transition phase may cause stress and confusion, especially for those unfamiliar with digital tools. Experts urge better education and support to help businesses adapt. It is also believed that regular quarterly updates will help businesses maintain up-to-date financial records, enabling better cash flow management and early identification of issues.
Let us know if you'd like help preparing for these changes or exploring accounting software options.
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| 100,000 HMRC accounts hit by scammers |
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HM Revenue and Customs (HMRC) revealed that it suffered a phishing attack that led to the compromise of around 100,000 personal tax accounts. The incident was described by HMRC officials as 'organised crime', targeting identity data outside HMRC systems.
Scammers managed to extract £47 million through fraudulent PAYE repayments. The breach involved individual PAYE accounts, not corporate ones, and accounts for 0.2% of the PAYE population.
Despite the breach, affected individuals have not suffered financial loss, according to HMRC. They stated that 'This was organised crime phishing for identity data outwith of HMRC systems, so stuff that banks and others will also unfortunately experience and then trying to use that data to create PAYE accounts to pay themselves a repayment and/or access an existing account' and stressed that this was 'not a cyber-attack, we have not been hacked, we have not had data extracted from us.'
The attack began last year and involved international jurisdictions. Arrests have been made as part of the investigation. HMRC locked down compromised accounts and has contacted or is in the process of contacting all affected taxpayers.
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| Government facing legal challenges over 'family farms tax' |
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Chancellor Rachel Reeves announced changes in her October 2024 Budget that would reduce inheritance tax relief for farms and family-owned businesses. Starting April 2026, these entities will receive a £1 million exemption. Any assets above that threshold will face a 20% inheritance tax.
A group of farmers and business owners is seeking a judicial review. They argue the government failed to conduct a proper consultation before finalizing the policy, saying that the consultation held between February and April 2025 was deemed too narrow and technical.
The group is being represented by the law firm, Collyer Bristow, instructed by Alvarez & Marsal Tax - the group's advisors. Their goal isn't to overturn the policy but to ensure a fair consultation process. Many farmers are asset-rich but cash-poor, making the tax particularly burdensome. Thousands of them protested, warning the tax could force them to sell land or businesses to cover the bill.
The Treasury estimates the changes could raise £520 million annually by 2029-30. However, the Office for Budget Responsibility flagged the policy with a 'high' uncertainty rating.
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| The Autumn Budget - potential tax changes |
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Chancellor Rachel Reeves has set the date for the Government's Autumn Budget. It will take place on the 26th of November. Speculation over tax reforms has begun to ramp up as Ms Reeves is under increasing pressure to grow the economy and fill the huge hole in the public finances. Here are eight potential proposals:
- Inheritance Tax (IHT) - A lifetime cap on tax-free gifts (e.g., £100k or £200k), which could result in significant IHT bills for heirs if exceeded.
- ISAs - Possible restrictions on the cash portion of the £20,000 annual ISA allowance to encourage investment over saving.
- Property Taxes
- Replacing stamp duty and council tax with an annual property tax.
- Introducing higher council tax bands.
- Applying Capital Gains Tax (CGT) to main residences sold above a certain threshold.
- Income Tax - Labour pledged not to raise income tax, NI, or VAT directly. However, extending the freeze on tax thresholds could act as a 'stealth tax,' pulling more people into higher tax brackets.
- Capital Gains Tax - Possible reduction in CGT allowances or increase in rates (currently 18% for basic rate taxpayers and 24% for higher rate taxpayers).
- Dividend Tax - Tax-free dividend allowance has dropped from £2,000 to £500. Further reductions possible, though dividends within ISAs remain tax-free.
- Wealth Tax - Some Labour members advocate for a new tax on individuals with assets above £5-10 million. Critics warn it could drive wealthy individuals out of the UK.
- Pensions - limiting salary sacrifice schemes and altering pension tax relief.
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| October Questions and Answers |
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Q: My husband has been out of work for a year, so his income has dropped below the Personal Allowance. Is it correct that I can now qualify for the Marriage Allowance?
A: To be eligible for the Marriage Allowance, one partner (in the marriage or civil partnership) must not be paying any income tax, and the other must be a basic rate taxpayer.
The lower earner can transfer £1,260 of their Personal Allowance to the higher earner, reducing the latter's tax bill by £252 (20% of £1,260). This can be done via a self-assessment tax return (if you are already registered) or online on the GOV.UK website.
Q: I'm thinking of going freelance but am unsure of how to account and save for any tax I might have to pay. Can you give any advice?
A: Going freelance can be rewarding, but it does come with risks and pitfalls you should make yourself aware of. Make sure you have a solid financial plan and are realistic about your expected level of income.
If you think you'll earn at least £50,000 per year, you will need to be compliant with Making Tax Digital from next April (see earlier article in this newsletter). If you think your turnover will reach above £90,000 you will also have to register for VAT. Keeping up-to-date financial records using HMRC approved MTD software will help you calculate your VAT obligations.
Regarding your personal tax to be paid, as a rule of thumb you should aim to set aside 40% of the net value of your invoices received from customers. This will cover you for tax, national insurance and possibly a pension contribution.
Please get in touch with us if you would like to discuss your business plans in detail and get further tax planning advice.
Q: We've sold inherited assets at less than the estate valued them at but have already paid the Inheritance tax (IHT) based on the higher valuation. Is there anything we can do?
A: Yes, there is. There are an increasing number of cases of families successfully reclaiming overpaid IHT, but many are unaware that they can even do this.
Based on your question, I believe you've paid IHT within the six months deadline but have sold some assets later. If those assets, such as property or stocks and shares, have fallen in value since the initial valuation, then you may be able to reclaim the overpayment in IHT.
The executors of the estate should submit the relevant forms to HMRC upon disposal of the asset. For example, form IHT35 is used for qualifying investments sold within 12 months of death and IHT38 for property sold within four years.
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1st
- Corporation Tax payments are due for companies with a year-end of 31st December.
19th
- For employers operating PAYE, this is the deadline to send an Employer Payment Summary (EPS) to claim any reduction on what you'll owe HMRC.
- It is also the deadline for employers operating PAYE to pay HMRC by post, for September.
22nd
- Deadline for employers operating PAYE to pay HMRC electronically, for September.
31st
- Corporation Tax Returns (CT600 form) are due for companies with a year-end of 31st October.
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Please contact us if we can help you with these or any other tax or accounts matters.
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