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Month: March 2025

New tax year planning

Written by admin on . Posted in Budget, Company Director, Employment Tax, High Income Child Benefit Charge. No Comments on New tax year planning

The start of the new tax year warrants as much planning as the end of the old tax year.

While the end of the tax year on 5 April is a major focus of tax planning, it doesn’t end there. The following day may require much less immediate attention, but there is an argument for considering it to be just as important. For example:

  • Personal allowances The personal allowance for 2025/26, the new tax year, remains at £12,570, the same as it has been since 2021/22. Above that level, income tax will normally enter the equation. If you (or your spouse/civil partner) do not have enough income to cover the personal allowance, then you could consider transferring investments between yourselves so that the income generated escapes tax. You should also consider whether or not to claim the marriage allowance if your partner pays no tax and you pay no more than the basic rate (or vice versa).
  • At the opposite end of the income scale, once your income (after certain deductions) exceeds £100,000, you start losing your personal allowance at the rate of £1 for each £2 of excess. In those circumstances, a transfer of investments and the income generated can also make sense – this time by reducing your taxable
  • Other tax allowances and bands Similar principles apply to other allowances, such as the personal savings allowance (up to £1,000), the dividend allowance (£500) and the thresholds of tax bands. It is much easier to shuffle around future income at the start of the tax year than attempt to do so as 5 April looms near.
  • High income child benefit charge (HICBC) If you or your partner (marriage is irrelevant) have income (after certain allowances) of over £60,000 and both claim and receive payments of child benefit, then whichever of you has the higher income is taxed on that benefit. The tax charge is 1% of the child benefit for each £200 of income over the £60,000 threshold, meaning the tax matches the benefit at £80,000. If you have two children, this is equivalent to an extra 11.26% added to your marginal tax rate. Shifting your investment income could therefore save tax, even if you both pay the same marginal rate of tax.

For more details on these and other new tax year opportunities, please talk to us – as with year-end planning, the sooner, the better.

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Late payment interest warning

Written by admin on . Posted in self-assessment, Tax, Time To Pay Arrangements. No Comments on Late payment interest warning

A warning for the 1.1 million taxpayers who missed the 31 January filing deadline. It isn’t just penalties you will be incurring for subsequent late payment, but also late payment interest.

A record amount of late payment interest was paid to HMRC during 2024 to a total of £409 million, more than triple what it was three years ago.

Why the increase?

The interest rate charged by HMRC was 2.6% at the start of 2022 but increased to an average of 7.6% for 2024. The rate has been 7.0% since 25 February 2025:

  • With tax allowances and thresholds frozen since 2021 – and with no increases on the cards until 2028 – more taxpayers are either being drawn into the tax net or facing higher rates of tax.
  • The reductions to the capital gains tax (CGT) exemption have also contributed.

If that were not bad enough, things are only going to get worse from 6 April 2025, from when HMRC will be adding a 1.5% surcharge to the late payment interest rate. So, if nothing changes, the current rate will jump to 8.5%.

Preventative measures

With the rate of late payment interest so high, it will almost certainly make sense to use savings to pay off any overdue tax liabilities.

With another tax year ending, get your self-assessment tax return in as early as possible. You will then know what your tax liability is well in advance of the due date and can plan accordingly.

Regular saving into a separate bank account is a good approach. Or set up a budget payment plan with HMRC to make weekly or monthly payments towards your next self-assessment tax bill.

Simply burying your head in the sand over an overdue tax liability will only see the debt spiral. You should engage with HMRC and try to agree a payment arrangement even though this will not prevent interest being charged.

Details about setting up a budget payment plan with HMRC can be found here.

Photo by Maarten van den Heuvel on Unsplash

Heads Up: New Reporting Requirements for Dividend Data

Written by admin on . Posted in Company Director, Corporation Tax, Director Disqualification, Dividends, self-assessment. No Comments on Heads Up: New Reporting Requirements for Dividend Data

Starting with the 2025/26 tax year, directors of close companies (owner-managed companies) will need to separate the dividend income received from their companies. This change will have an impact on almost 900,000 directors.

In very broad terms, a close company is a company that is under the control of its directors or five or fewer shareholders.

At present, directors report just the total dividend income figure, which means HMRC can’t tell which dividends a director receives from their own company or from other sources. By separating out dividends, HMRC will be able to see the total remuneration package received by an owner-manager. This helps them to focus their compliance activities.

Disclosure

From 6 April 2025, directors of close companies will have to disclose:

  • name of the company and its registration number;
  • percentage shareholding in the company; and
  • amount of dividend income received from the company for the tax year.

The question on the tax return about whether an individual is a director of a close company will be changed from voluntary to mandatory.

In regard to the percentage shareholding, this will be the highest percentage held during the tax year. For some directors, providing this information will not be straightforward; for example, where a company has different classes of share.

Employee hours data

On a more positive note, the proposal that employers would have to report the actual hours worked by each employee has been shelved. The implementation date had already been put back from April 2025 to April 2026.

The Government has recognised that requesting this information as part of the real-time reporting process would have been unduly complex, costly and burdensome for businesses. The cost of the initial implementation alone was forecast to be nearly £60 million.

The starting point for determining whether a company is ‘close’ or not can be found here.

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Overseas workday relief set to improve

Written by admin on . Posted in Employment Tax, Income Tax, PAYE. No Comments on Overseas workday relief set to improve

Employees coming to work in the UK should see an improvement in the new version of overseas workday relief set to be introduced from 6 April 2025.

Current system

Under the current system of overseas workday relief, earnings for employment duties performed overseas are exempt from UK tax if:

  • The employee is not domiciled in the UK;
  • The employee is taxed on the remittance basis; and
  • The earnings are not remitted to the UK.

Relief is available for a maximum of three tax years.

From 6 April 2025

From 6 April 2025, domicile – along with the remittance basis – will be replaced by a new regime based solely on residence. Overseas workday relief will then be available to an employee coming to work in the UK if they are a qualifying new resident:

  • They can claim relief for up to four tax years after arriving in the UK, with a separate claim required each year. The claim will be made on the employee’s self-assessment tax return.
  • As is currently the case, a claim will exempt remuneration for duties performed overseas. However, it will not make any difference whether or not this remuneration is remitted to the UK.
  • Relief will be capped (per tax year) at the lower of:
    • £300,000; and
    • 30% of the employee’s worldwide employment income.

A qualifying new resident is someone who was not UK resident for the ten consecutive tax years immediately before they arrived in the UK.

Under the current system, there is no entitlement to the income tax personal allowance and the capital gains tax annual exempt amount as a result of using the remittance basis. It will be the same under the new system, because a claim for overseas workday relief for a particular tax year will result in the loss of both allowances.

HMRC’s technical note on reforming the taxation of non-UK domiciled individuals (with overseas workday relief covered on pages 12 to 16) can be found here.

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What’s new on MTD?

Written by admin on . Posted in Landlord, Making Tax Digital, MTD, self-assessment, Self-Employed. No Comments on What’s new on MTD?

A busy start for HMRC on Making Tax Digital (MTD) for 2025 with focus falling on new guidance for three-line accounts and joint property income.

Self-employed individuals and landlords with an annual income of more than £50,000 will start using MTD from 6 April 2026. The £50,000 test is based on overall self-employed and property income for the current 2024/25 tax year.

Three-line accounts

HMRC has confirmed a three-line account approach:

  • Currently, when completing a self-assessment tax return, self-employed individuals and landlords whose income from either self-employment or property is below the VAT registration threshold of £90,000, need only enter one figure for total expenses.
  • Therefore, keeping digital records for MTD should be a matter of classifying amounts as either income or expense.
  • Each quarter, only the total income and expense figures will be submitted to HMRC.

The one exception is when a landlord incurs residential finance costs, which must always be recorded separately because they are not a deductible expense.

Joint property income

Joint property owners only need to record their share of the property’s income and expenses. If a landlord chooses to, they can simply record income on a quarterly basis and expenses on an annual basis at the end of the tax year. Individual transactions will not have to be captured; only a total figure for each income and expense category.

If the joint property owner is eligible to use a three-line account approach, it gets even simpler. A total quarterly income figure and a total expenses figure at the year end. Recording and reporting will then be:

  • Each quarter: record a single income figure and submit to HMRC.
  • End of the tax year: record a total figure for expenses and report through the end-of-year finalisation process.

HMRC’s guidance on the categories of income and expenses that need to be included in quarterly updates (if a three-line account approach is not used) can be found here.

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