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    Tag: income tax

    Winter Fuel Payments and the 2025/26 tax charge: what you need to know

    Posted on by Rebecca Campbell

    Did you receive a Winter Fuel Payment in 2025? If so, it could be fully recovered through tax if your income is above £35,000. In our latest blog, we explain what individuals need to know to avoid unexpected deductions.

    When does a Winter Fuel Payment tax charge apply?

    The charge applies if an individual’s total income for the 2025/26 tax year (before deductions such as the personal allowance) exceeds £35,000.

    Total income includes all earnings, state pension, private pensions, taxable investment income and any other income subject to tax such as property income.  Capital gains and tax-free state benefits are excluded.

    This means the full payment will be clawed back, not just the amount above the threshold. The test is applied to individual income, not household income. One person in a couple may be affected while the other is not.

    Example

    HMRC guidance explains how this works in practice:

    • One spouse has income of £22,000
    • The other spouse has income of £36,000

    Both may receive a Winter Fuel Payment, however, only the higher earner faces a tax charge. The lower earner keeps their payment in full, while the higher earner has theirs recovered through tax.

    How will HMRC collect the tax?

    Through Self Assessment

    Individuals who complete a Self Assessment tax return will see the charge applied in their 2025/26 return, due by 31 January 2027 if filed online.

    HMRC plans to pre-populate this charge on online returns, however, the responsibility for accuracy remains with the taxpayer. If the charge applies but does not appear, it must be included manually.

    Through PAYE

    Individuals who do not complete a Self Assessment return will usually see the charge collected via an adjustment to their PAYE tax code for 2026/27.

    For a typical £200 Winter Fuel Payment, this could mean around £17 per month extra tax deducted from a pension or salary.

    Some PAYE codes issued in February 2026 may not yet include the adjustment, but HMRC has confirmed that codes will be updated automatically in April 2026.

    Opting out – and opting back in

    To avoid the payment being clawed back, individuals can opt out of receiving Winter Fuel Payments, however, a separate opt-out is required each year. The Department for Work and Pensions (DWP) is expected to release an online form in April 2026.

    Individuals who opted out for 2025 but now expect their 2025/26 income to fall below £35,000 can opt back in, however, this must be done by 31 March 2026.

    Practical points to consider

    This change could lead to unexpected tax deductions, especially for individuals who do not usually deal with tax returns or PAYE adjustments.

    It is sensible to:

    • Review expected 2025/26 income
    • Consider whether the £35,000 threshold will be exceeded
    • Check PAYE tax codes when issued
    • Seek advice if you are unsure whether the charge applies or whether opting out is appropriate

    Need help?

    If you are unsure whether the Winter Fuel Payment tax charge will affect you, or whether you should opt out, get in touch. Email enquiries@pmm.co.uk, and one of our expert advisers will be happy to help.

    Growth, credibility and survival: what’s really at stake in November’s Budget

    Posted on by Rebecca Campbell

    The run-up to any Budget inevitably brings with it a flurry of speculation and selective leaks. Often these are nothing more than flag-flying exercises so policy ideas can be floated to test the reaction of the press and public before any real decision has been taken. It seems this year is no different. What matters, however, is separating the noise from the reality: what the Chancellor can do, what she might do, and what she should do.

    Income tax remains the government’s single largest source of revenue, accounting for around 27% of receipts and 11% of national income. It is the most obvious lever for any Chancellor looking to raise funds. But the Labour Party’s manifesto pledged not to increase taxes on working people and that commitment already looks fragile. The rise in employers’ National Insurance contributions earlier this year was framed as something different, but it represented a broken promise by stealth.

    There have also been rumours of National Insurance being extended to rental income – a puzzling idea given that NIC has historically been a tax on earnings rather than investment returns. A more coherent approach might be to recognise that the tax system already differentiates between earned and unearned income. Not long ago, the basic rate was 22% on earnings and 20% on investment income. The Chancellor could revisit this structure and perhaps nudge earnings up to 21% while raising the rate on interest and rental income to 24%. Such a move would raise revenue while leaning on those with greater investment wealth, rather than purely on earned income.

    Another near certainty is the continued use of fiscal drag. By freezing thresholds in the face of inflation, the Treasury allows more taxpayers to be pulled into higher bands without the political fallout of an explicit rise in rates. But there is a real problem with the personal allowance. Left unchanged for so long, it risks dragging pensioners with only the state pension into the tax net. That would be politically toxic. I believe the Chancellor should use this Budget to raise the allowance, even modestly, to protect those on the lowest incomes.

    Inheritance Tax is always politically sensitive, but changes in the last Budget have already prompted greater use of gifting. Possible next steps include extending the seven-year survival period or introducing a US-style cap on lifetime gifts exempt from IHT. Either would be radical and controversial, so the government has to weigh the revenue benefit against the risk of alienating middle-income households who increasingly view IHT not as a tax on the wealthy, but as one on families who have worked and saved throughout their lives.

    Pensions remain a constant target for reform, and I can see three possibilities: 1) restricting or reshaping the tax-free lump sum. This would be politically explosive, given that many have planned their retirements and even final mortgage payments around this entitlement. 2) Introducing a flat rate of relief on contributions. This would simplify the system and redistribute relief away from higher earners, although at the cost of dampening incentives to save. 3) levying employers’ NIC on pension contributions. That would raise revenue, but at the expense of both businesses and employees, who ultimately share the burden. None of these options are straightforward, and each risk undermining long-term confidence in retirement saving.

    When Labour came into power, they spoke endlessly of a £22bn black hole. That narrative dominated to such an extent that it risked talking the UK economy into recession. This time around, the government has been quieter. That feels like a deliberate choice by a relatively unpopular administration which is trying to dampen expectations, avoid fuelling pessimism, and buy time. But the Chancellor cannot rely solely on delay. Her policies will only succeed if the economy grows. Growth, in turn, requires confidence and not constant tinkering. It also requires investment from both the private sector and individuals.

    When you combine all of these factors, this Budget must offer something beyond tax rises and fiscal drag. Reliefs for businesses investing in the UK, or incentives for individuals to back British companies, would send an important signal. They would, of course, cost money in the short term but would support the growth the government ultimately needs.

    I know I’m not alone in thinking this, but the decision to delay the Budget until late November may not be accidental as it gives the Chancellor more time to hope for better growth figures. If that happens then it could potentially soften the blow of whatever tough measures she feels compelled to announce.

    For now, the Chancellor faces a delicate balancing act between fiscal responsibility and political credibility, and between raising revenue and sustaining growth. Whether she succeeds will depend not only on the measures announced next month, but also on whether she can offer a clearer, and more confident vision for the economy than we have seen so far.

    It does all make you wonder whether this will be her last Budget. As we know, political cycles move quickly, and so too do ministerial careers.

    Nearly 3 million taxpayers to join Making Tax Digital – are you ready?

    Posted on by Rebecca Campbell

    HMRC’s latest figures reveal that nearly 3 million individuals with self-employment or property income will be required to comply with Making Tax Digital for Income Tax (MTD for ITSA) between April 2026 and April 2028.

    At PM+M, we understand that MTD can feel daunting for businesses and landlords alike. With deadlines approaching, now is the time to prepare — and we’re here to make the transition seamless.

    The phased rollout of MTD

    HMRC is introducing MTD gradually, based on income levels:

    • From April 2026 – Anyone with self-employment or property income above £50,000 must keep digital records and submit quarterly updates. This affects around 864,000 taxpayers.
    • From April 2027 – Those with income between £30,000 and £50,000 join the scheme, bringing in an additional 1,077,000 taxpayers.
    • From April 2028 – The final group, with income between £20,000 and £30,000, will be included, adding 975,000 more taxpayers.

    By the end of the rollout, around 2.9 million individuals will be within the scope of MTD ITSA.

    Who will be affected?

    HMRC data shows that large numbers of people will be drawn into MTD as thresholds lower:

    • More than 600,000 self-employed individuals and 260,000 landlords have income between £20,000 and £30,000 – they will join in 2028
    • Around 800,000 self-employed individuals and 182,000 landlords fall within the £30,000 to £50,000 band – they will be required to comply from 2027
    • Over 600,000 self-employed individuals, 118,000 landlords, and 141,000 people with mixed income already earn above £50,000 – meaning they are first in line from 2026

    This illustrates the scale of the change: it’s not just high earners, but also smaller businesses and landlords who will be affected.

    The digital readiness gap

    One of the biggest challenges is that many taxpayers are still unprepared for digital tax reporting:

    • 65% of those in scope currently use an authorised agent (such as an accountant)
    • Among taxpayers without an agent, 83% do not use software to submit returns
    • By contrast, most represented clients already use software – meaning those without professional support are the least prepared

    Why you should act now

    With nearly three million people moving to MTD, waiting until the deadline could put you at risk of non-compliance, unnecessary penalties, or administrative headaches. Transitioning early gives you time to:

    • Get comfortable with digital record-keeping
    • Adopt MTD-compliant software
    • Ensure you’re submitting updates correctly and on time

    How PM+M can help

    We provide tailored solutions to make your MTD journey stress-free:

    • Software setup + training – we’ll recommend and implement the right digital tools for your business
    • Quarterly submissions – we can manage updates directly with HMRC, keeping you compliant
    • Ongoing support – from troubleshooting software to tax planning, our expert team is here year-round

    Whether you’re a sole trader, landlord, or running a small business, we’ll ensure you stay ahead of the curve.

    Join us at our MTD drop-in days

    To help you prepare, we’re hosting two free drop-in days where you can speak directly with one of our MTD specialists about any queries you may have – no appointment needed.

    Thursday 25 September – Blackburn office (New Century House, Greenbank Technology Park, Challenge Way, Blackburn, BB1 5QB)

    Tuesday 30 September – Bury office (First Floor, Sandringham House, Hollins Brook Park, Pilsworth Road, Bury, BL9 8RN)

    Both sessions run from 10am to 4pm. Throughout the day, our team will be on hand to answer your questions on how MTD for ITSA will affect you, what digital records you’ll need to keep, the software options available, and how to make the transition to cloud accounting as smooth as possible.

    These events are open to everyone – whether you’re a sole trader, landlord, or part of a finance team – so feel free to drop in for a brew and a chat.

    Don’t leave MTD until the last minute

    The shift to digital tax reporting is one of the biggest changes in decades. With phased deadlines already set, the sooner you act, the smoother the process will be.

    Contact PM+M’s MTD experts today to discuss how we can help you transition to Making Tax Digital with confidence. Email enquiries@pmm.co.uk for more information.

     

    The key to successfully running a family business

    Posted on by Rebecca Campbell

    Running a family business can have many advantages if managed correctly and in harmony, but it can also bring many challenges which could lead to potential conflicts, affecting business performance and growth.

    One key point to consider when running a family business, is creating a clear separation between any family and business matters to avoid any issues that could affect the day to day running of the business and hinder long term business growth.

    In our recent blog, our accounting + advisory team layout some key ways to successfully create harmony when running a family business:

    Set a clear long-term vision

    Setting a clear long-term vision from the outset is essential for the success of any family business. This will help ensure your business goals are aligned, you follow a consistent strategy and therefore decisions can be made quickly and efficiently, avoiding any unnecessary conflict. By establishing a common vision, it means each family member can focus their efforts on what truly matters – ensuring the business runs smoothly and remains resilient through challenges.

    Make use of outsider expertise

    It is important to reach out for help in areas where the family don’t have expertise. Typically, this includes law and finance but often can include marketing, advertising and sales. Engaging with experts allows for different opinions and a fresh perspective that can help shape your vision and goals. It also allows for unbiased decision making that can form neutral opinions outside of your family views.

    Outline clear roles and responsibilities

    Setting clear roles and responsibilities from the outset ensures everyone understands their accountability. This helps team members focus on their own work, reduces overlap, and minimises the risk of any conflict or disputes between family members.

    Ensure that business and family matters are kept completely separate

    Although this can be difficult, especially when you spend time together both at work and outside of it, keeping any family matters separate from business matters will minimise disruption to business activities. It is important to differentiate between both family life and work in order to keep those healthy relationships.

    Succession planning

    Succession planning is a key challenge for businesses of all sizes. This process should be collaborative and transparent to build trust and continuity. It’s important for all family members within an organisation to understand each individual’s timeline for working in the business and therefore to plan who will take over their roles and responsibilities when the time comes.

    What areas of tax should you consider when handing over a family business?

    When it comes to retirement for a family business, thought should be given to ensuring any benefit from appropriate tax reliefs is obtained which could help save you a lot of money. There are various ways you can look to do this and it’s vital to understand all the options in detail before making any decisions, however some of the common considerations include:

    Capital Gains Tax (CGT)– This should be considered when passing down a business to a family member. Subject to certain conditions, CGT will not be due on a qualifying transfer made as a gift. However if these conditions are not met, CGT may be due on the value as if it were a sale at market value. There are also CGT reliefs which could be used if CGT is payable.

    Income tax – It’s important to understand how you will fund a retirement and what levels of income tax you might need to pay. This could depend on whether you retain an interest in the family business and receive dividends or a salary, verses if you were to draw on a pension.

    Inheritance Tax (IHT) – This should be considered if a business is passed onto other family members, as IHT could become due. Rules around the reliefs available for qualifying businesses are changing from 6 April 2026, so now is the time to understand what liability could become due on your estate, and whether any planning can be undertaken to reduce the exposure to IHT.

    Get in touch

    For further information or advice on how we can help you navigate the challenges that come alongside running a family business or help you to plan for the future, please get in touch with a member of the team by emailing enquiries@pmm.co.uk or calling 01254 679131.

    HMRC to issue 1.4 million letters for unpaid tax

    Posted on by Rebecca Campbell

    HMRC is set to send around 1.4 million letters over the coming months as part of its annual compliance exercise to recover unpaid income tax for the 2024/25 tax year.

    The letters, known as Simple Assessments, are issued when HMRC identifies income that hasn’t been fully taxed through the Pay As You Earn (PAYE) system or Self Assessment. These assessments typically relate to income exceeding the individual’s personal allowance, where additional tax is owed.

    Who will receive these letters?

    The letters are being sent to individuals whose financial records suggest underpaid tax due to:

    • Interest from savings or dividends
    • Income from second jobs or freelance work
    • Overclaimed tax-free allowances
    • Pensions that were not fully taxed

    HMRC uses data from employers, banks, building societies, financial institutions, and the Department for Work and Pensions (DWP) to determine whether extra tax is due.

    Most letters are expected to be issued during July and August, in line with HMRC’s usual summer compliance schedule. However, additional letters may continue to be sent into the Autumn, depending on when new data becomes available.

    What should taxpayers do?

    If you receive a Simple Assessment letter, it’s important to review it carefully. You’ll have until 31 January 2026 to:

    • Pay the full amount owed, or
    • Agree a payment plan with HMRC

    Payments can be made through GOV.UK, by bank transfer, or cheque.

    If you believe your assessment is incorrect, you can:

    • Query it within 60 days of receipt. If HMRC agrees, a revised notice will be issued.
    • If the query is rejected, you still have the right to appeal online within 30 days.

    Why is HMRC using Simple Assessments?

    Simple Assessments are part of HMRC’s ongoing effort to reduce the administrative burden for taxpayers with relatively straightforward tax affairs. The system allows HMRC to collect unpaid tax without requiring a full Self Assessment return, streamlining the process for both individuals and the tax authority.

    Don’t ignore the letter

    While these notices are routine, HMRC stresses that failure to act could result in penalties, interest charges or even enforcement action.

    Get in touch

    If you’re unsure whether your notice is accurate or need help understanding your tax position, get in touch with a member of the tax team by emailing enquiries@pmm.co.uk.

    Fee Protection Insurance: what is it and why do you need it?

    Posted on by Rebecca Campbell

    HMRC is intensifying its compliance efforts, making tax investigations more common. In the Spring Statement 2025, the government allocated £100 million to recruit an additional 500 compliance officers, aiming to raise over £1 billion annually in unpaid taxes by 2029-30. As a result, tax investigations are likely to become even more frequent, reinforcing the importance of fee protection insurance.

    Dealing with a tax enquiry can be expensive, but fee protection insurance can safeguard you from unexpected costs. Tax manager, Julie Walsh, explains everything you need to know…

    What triggers a HMRC investigation?

    Tax investigations occur when HMRC identifies discrepancies, risks, or patterns in your tax filings. However, your tax return can also be selected at random, even if everything appears correct. Common triggers include:

    • Late or incorrect tax returns
    • Unusual account activity
    • Large fluctuations in reported income
    • High-risk industries (e.g., cash-heavy businesses)

    What can HMRC investigate?

    HMRC can check various taxes and financial records, including:

    • Income Tax
    • VAT
    • Corporation Tax
    • Capital Gains Tax
    • Payroll records (PAYE)

    Investigations fall into three categories:

    1.Aspect enquiry – HMRC examines a specific part of your tax return.

    2.Full investigation – A comprehensive review of your tax affairs.

    3.Random check – No specific reason, just routine compliance.

    Why fee protection insurance matters

    Defending an HMRC enquiry can accumulate significant professional fees. Fee protection insurance covers your accountant’s costs, ensuring you receive expert representation without the financial burden. While fee protection insurance does not cover any additional tax found to be owed, it provides crucial financial support by covering the costs of defending your case. This allows you to fully comply with HMRC’s investigation without the stress of excessive accountancy fees.

    What if you don’t have fee protection insurance?

    Without cover, you’ll bear the full cost of professional fees, which can escalate depending on the complexity of the investigation. These expenses can run into thousands of pounds, adding stress to an already challenging process.

    Stay protected

    Investing in fee protection insurance ensures you’re not left facing rising costs. At PM+M, we offer a comprehensive protection plan tailored to your needs. Contact Julie today, by clicking the button below, to learn more about how we can help protect you and your business from unexpected tax enquiry expenses.

    Roger Phillips – tax partner at PM+M – reacts to the Autumn Budget

    Posted on by Rebecca Campbell

    Roger Phillips, Tax Partner at PM+M: Working people will pay the price for today’s Budget, no matter how much the Treasury dresses it up

    It’s been 112 days since Labour came to power, and after three months of febrile speculation, Rachel Reeves finally delivered the most hyped-up budget that I can remember in 20 years of being a tax professional. This prolonged period of speculation hasn’t been helpful as the markets, businesses and taxpayers have been crying out for stability and certainty.

    Much of the talk in advance of this Budget was around the £22bn black hole, which was there for anyone to see if they had delved into the data which is fairly readily available – and I expect the new government were well aware of this before they penned their manifesto.  As well as dealing with the black hole, it’s clear that this government wants to borrow, spend and grow the economy.

    The Chancellor’s change to the way in which her “fiscal rules” operate, combined with the tax rises that we have seen today, should give her the headroom to do this. But this will come at a cost – a cost which, despite assurances, will fall on the category of people who the government have seemingly been unable to define in the days leading up to this Budget – and the people who they said would be protected from tax rises in their manifesto: “working people.”

    Costs to business – employer’s NIC

    To a degree, the government had tied their own hands in their manifesto by saying that they wouldn’t increase income tax or NIC for working people. The jump in Employer’s NIC to 15% from April 2025 is being spun as Labour having not broken their manifesto commitment, as this cost will be borne by business rather than workers. However, the announcement that threshold at which it gets paid come down from £9,100 per year to £5,000 did come as surprise and will inflict further pain for employers across the UK.

    By the letter of the law, this ‘spin’ may be true. The cost will be paid by employers. However, when this is combined with the increased cost burden in the form of a national minimum wage increase, these costs will undoubtedly be felt by employees in the future, either through reduced pay rises, or in the worst of cases, the loss of jobs for those where these increased employment costs are unsustainable by businesses. The pain is likely to be most felt by those in the already squeezed hospitality and retail sectors despite the announced 40% relief on their business rates. The PM intimated that he doesn’t want people to see lower amounts going through people’s payslips and into their bank accounts but, indirectly, it will, no matter how the government dresses this up.

    Capital Gains Tax, Inheritance Tax and Pensions

    Capital gains tax and inheritance tax are relatively low fund raisers for the government – and paid by relatively few.

    The jump in the rates of CGT (the lower rate will rise from 10% to 18%, and the higher rate will go up from 20% to 24%) will not be huge money spinners for the government. The rates have not been equalised with income tax, as some were calling for, which is sensible. However it is disappointing not to see some kind of relief for inflation being introduced for those realising long term gains.

    IHT appears to be in line for some relatively radical reform. An extension of the freezing of the IHT thresholds to 2030 will pull more families into IHT. The biggest announcement, on which the Chancellor spent a very short period of time announcing, was that inherited pensions will now be subject to IHT.

    Additionally, there will be reform to the BPR and APR rules – effectively placing a cap on those reliefs equivalent to £1m per taxpayer, with anything over and above that being taxed at an effective IHT rate of 20%. Some drastic changes from the current position where pensions can be inherited tax free and shares in family companies attract no IHT on death.

    The government claims that there is ‘no return to austerity’, but with a total rise in taxes of £40bn, this is the largest any chancellor has announced since Norman Lamont in 1993. Time as they say will tell.

    Changes to income tax charges for trusts and estates now in force

    Posted on by Rebecca Campbell

    The 2023 Spring Budget introduced changes affecting the way trusts and estates are charged to income tax – and they came into force last month, effective from 6 April 2024.

    In our latest blog, tax partner, Wendy Anderson, explains what these changes mean…

    What are the changes?

    Trusts and estates with income of £500 or under, from interest, dividends or rent, will not have to file a return from 2024/25 onwards. The tax liability of trustees and personal representatives in such cases will be considered nil.

    For trusts and estates with incomes exceeding £500 from all sources, the entire income will be subject to taxation at the ‘basic rate’ in the case of an estate, or at the ‘rate applicable to trusts’ for trustees.

    The £500 limit is reduced proportionally where a settlor has established more than one trust to a minimum of £100 per trust, but this excludes interest in possession trusts, settlor interested trusts, vulnerable beneficiary trusts and heritage maintenance trusts.

    This reform supersedes the previous concession for estates which meant that if the sole income was interest, and the tax due totalled less than £100 (i.e. less than £500 of interest income per year), then no tax was reportable or payable. The ‘starting rate band’ for trusts, allowing the initial £1,000 of trust income to be taxed at basic rates rather than the rate applicable to trusts, will also be abolished.

    Beneficiaries of an estate are also affected by the recent changes where the income is below the £500 limit. In this case, the ‘net income’ of a UK estate is treated as £nil and therefore is not chargeable in the hands of the beneficiary when distributed from the estate.

    However, it’s important to note that for trusts, the exemption does not override or replace the tax credit and tax pool charge associated with discretionary income distributions. Trustees will therefore still need to pay sufficient tax to frank an income distribution (currently 45%).

    Are there any other changes on the horizon?

    HMRC have hinted at their intention to make changes to Inheritance Tax (IHT) regulations to remove non-taxpaying trusts from reporting requirements. If this was to go ahead, it would be a welcome change for many trusts that, despite there being no IHT due on an exit or 10 year anniversary, are still required to submit a return because the value of their assets exceeds 80% of the available nil rate band.

    However, we haven’t heard any further detail on these proposals, and with rumours of IHT being scrapped altogether, it may mean these changes are not implemented.

    We will keep you updated as and when further information is provided by HMRC.

    Get in touch

    If you are concerned about the changes to income tax charges for trusts and estates or would like to speak about your personal circumstances in more detail, please contact Wendy Anderson by clicking the button below.

    Roger Phillips – tax partner at PM+M – reacts to the March 2024 Budget

    Posted on by Laura Bannan

    It’s fair to say that this Budget threw up no great surprises as there was limited scope for any sizeable changes to tax, spending or borrowing. With the spectre of Kwarteng and Truss’ dual legacy still in the air, coupled with it being an election year, the Chancellor simply couldn’t risk being seen as fiscally irresponsible. He had to tread a fine line of giving away something to appease the right in his own party but without spooking the markets.  I don’t think he could have feasibly done much more as unfunded and grandiose tax cuts were – thankfully – off the table.

    By choosing the cheaper – and some might say less headline grabbing – option of cutting national insurance by a further 2% rather than slashing income tax, the Chancellor has professed to putting more money in the coffers of millions of working people. The changes should mean that someone who earns £30,000 a year will be around £58 “better off” a month when the national insurance cuts that were announced in the Autumn Statement are factored in. However, when you look at it in the round, it will have little impact as we are all still facing the highest tax burden in recent memory – as he didn’t take the opportunity to increase the personal allowance or tax thresholds – and therefore the effect of fiscal drag will likely outstrip the NIC saving for many.

    Cutting income tax would have been significantly more expensive as it benefits both workers and pensioners. The announced cut of 2% in employee NIC will cost about £10 billion a year, whilst a 2p cut in income tax would have cost £13.7 billion a year. I also had concerns that if he did capitulate to the right – and had cut income tax or announced a raft of short-termism, vote grabbing measures – there might have well have been inflationary consequences, so I think he’s made the right call, especially as the government is so constrained by the highest public sector debt levels since the 1960’s, low public spending, weak economic growth and overall tax levels that are beyond the highest level as a share of GDP, since World War II.

    The Chancellor has helped some families by way of a long-overdue reform of the high-income child benefit charge tax trap, largely seen as unfair by many – although he decided to shift the issue further up the earnings ladder for the time being, rather than choosing to get rid of it altogether – so this will please some, but not all.

    The increase in the VAT registration threshold from £85,000 to £90,000 was long overdue – and anything that acts as a barrier to growth should be addressed. The news will cut taxes for some small businesses in the North West and right across the UK – however, he could have been braver and increased the threshold even further – or alternatively he might have considered a more dramatic reform to the VAT registration rules, as has been called for by some well-respected tax commentators.

    There is a fear that the decision to abolish the current ‘non-dom’ status to fund tax cuts for working families could have led to a decline in investment in the UK, as those affected may be more inclined to move to other locations. The abolition of the concept of “domicile” and the introduction of a new residency-based system sounds like a sensible solution – although as ever the devil will be in the detail as to how this will work in practice for those looking to come to the UK – and whether it will have the unintended impact of making taxpaying individuals leave the UK for other shores.

    Other tax changes included the scrapping of the furnished holiday let regime – so a tax rise for those who currently benefit from it, and a modest reduction in CGT for higher rate taxpayers where they sell residential property – the rate dropping from 28% to 24%.

    In terms of stamp duty, we saw the Chancellor abolish multiple dwellings relief. This was not necessarily the stamp duty change that many in the property sector were hoping for.

    This Budget was largely aimed at workers, and it was interesting that there was no real mention of anything for pensioners. Perhaps he is hoping the triple lock guarantee will be enough to win that vote.  In reality, the Budget was always going to be about the election – and making sure nothing was done to rock the country’s current fragile economy.

    All in all, he may have achieved that and hopefully the markets will be reassured. I’m sure the Chancellor is now hoping that he has persuaded some voters that the Conservative party isn’t economically, and politically, dead in the water. That will of course, remain to be seen. It will now be interesting to see when the Prime Minister calls for a general election, and whether there will be enough time for the Chancellor to try to win a few more votes with another fiscal event before that.

    MTD for ITSA deferred for 2 years

    Posted on by Helen Buchan

    The treasury has confirmed that there will be a delay of 2 years to the timetable for Making Tax Digital for Income Tax Self-Assessment. Due to come into effect from April 2024, this deadline has now been pushed to April 2026.

    This is welcome news given the overwhelming calls from tax and accounting bodies that the IT structure simply isn’t ready for implementation yet. However, it does mean it’s another movement of goalposts which makes it difficult for businesses and landlords to plan ahead with any degree of certainty.

    The full adjustments announced to the scope and timing of MTD for ITSA include:

    • The 2-year delay until April 2026 for mandatory MTD ITSA filing
    • Minimum income reporting level increased to £50,000, with those earning more than £30,000 mandated to join the scheme in 2027
    • The situation for landlords and sole traders earning less than £30,000 will be reviewed
    • Partnerships will not be brought into MTD for ITSA as previously planned in 2025
    • Points-based penalty system will be extended to MTD ITSA filers when they join

    The minister wrote, “The government understand businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition for MTD for ITSA represents a significant change for taxpayers, their agents, and for HMRC.”

    They have allowed more time to prepare, “so that all businesses, self-employed individuals, and landlords within the scope of MTD for Income Tax, but particularly those with the smallest incomes, can adapt to the new ways of working.”

    The full statement can be read here.

    However, there has been no confirmation as to whether this is likely to impact the basis period reform for the self employed and partnerships. The timing of this was originally aligned to fit in with the start of MTD for ITSA in April 2024 to get everyone onto a real time, tax year basis of profit reporting.

    We will keep you updated on any further changes and how these may impact you.

    Get in Touch

    If you have any questions in relation to MTD for ITSA, please get in touch with your usual PM+M adviser or email enquiries@pmm.co.uk.

    Autumn Statement 2022 – what can we expect?

    Posted on by Rebecca Campbell

    The much-anticipated Autumn Statement on 17 November is going to be crucial in laying out the government’s economic approach for the next few years. Rishi Sunak has already committed to a ‘low tax, high growth’ economy, and the Chancellor, Jeremy Hunt, promises to create confidence and stability in the UK economy, whilst lowering debt – a challenging balancing act.

    What can we expect in the upcoming Autumn Statement, and what measures do we believe the PM and his Chancellor should focus on to achieve short-term (and long-term) growth?

    Tax cuts

    It seems clear that the tax cuts briefly promised by Liz Truss and Kwasi Kwarteng are not going to happen and, in all likelihood, we will all end up paying more tax rather than less for the next few years.

    Corporation tax

    We already know that the corporation tax rate is set to increase from 19% to 25% on 1 April.  The question is what else will be done to business taxes?

    One suggestion is a scaling back of the currently very generous R&D tax credit regime.  A recent report commissioned by the government illustrates that for every £1 of tax relief, the large company RDEC scheme generates more investment by businesses that the more generous SME scheme.  We may therefore see a scaling back or even abolition of the SME scheme.   Much of this has been fuelled by abuse of the scheme by a minority of unscrupulous businesses and advisers and it is unfortunate that this could spoil the relief for those using it legitimately to fund much needed R&D.

    Income tax

    To achieve the sort of tax increases that we need to get the national finances back on track, only income tax, National Insurance and VAT are big enough taxes to make a difference quickly.  Changing the rates of these taxes would mean breaking the triple lock, a core manifesto pledge.  It remains to be seen whether the Prime Minister and Chancellor are brave enough and have the political backing to do that.

    What is probably more likely is an extension of the fiscal creep approach which we have already seen Rishi Sunak apply when he was Chancellor, by further extending the freeze on income tax rate thresholds.  Meaning that more and more taxpayers will be dragged into paying tax and moving up into higher tax rate bands over the next few years.

    We could also see some increases in dividend tax rates.  We already know that the health and social care surcharge, which has been abolished for earnings, will remain for dividends.  The question is whether the chancellor will take that a step further and choose to add further to dividend tax rates.

    Support for hospitality – cut to VAT?

    Although the government have previously recognised the damage caused to the hospitality industry throughout the pandemic, the cost of living and energy crises may be the final straw for many businesses that have barely recovered from the forced closures over the past two years. A reintroduction of the 5% reduced rate of VAT could go some way to support the hospitality industry through the Winter.  Whether that will happen remains to be seen.

    Capital gains tax

    Whilst capital gains tax provides only a small part of the overall tax take, we periodically see debate about whether rates will increase, which in turn provokes a flurry of activity and business sales.

    Rumours are currently circulating that the Chancellor may choose to increase the headline rate of capital gains tax or that he may choose to tweak, restrict or possibly even abolish the principle private residence exemption which currently exempts gains on selling your main residence from tax.  If so, it may be that there is a window of opportunity before changes taking effect on 6 April, although that could have a challenging impact on the property market if property investors or second home owners rush to dispose of them before tax rate changes take effect.

    The UK energy market

    As we all know, the government needs to fix the UK energy market. Part of that solution in the short term is ensuring businesses are less reliant on ‘purchased’ power by increasing their green credentials. Although businesses do currently receive tax relief on investments into green and renewable equipment, it isn’t enough to make it economically viable for most companies to really make the commitment.

    Investment in renewable energy usually sees a payback in 5-7 years, therefore, the introduction of an interest-free loan scheme to promote investment in renewables could be a solution – smoothing out energy costs. Alternatively, accelerated, or enhanced tax relief for companies who do invest in green and renewable equipment (similar to R&D tax relief) could be something else the government consider.

    The property market

    Possible solutions the government may be considering to help solve the housing crisis include:

    • Introducing an annual tax on second homes
    • Tax relief on mortgage interest for first time buyers
    • Stamp Duty exemption for homeowners who are downsizing

    Further strategies could include:

    • VAT exemption on home improvements that reduce energy consumption and reduce carbon emissions

    Pensions and investments

    It is likely that we will see some fiscal creep in the freezing of the pension lifetime allowance at its current £1,073,000 for a further 2 years, thus dragging more pension savings into tax.

    We may also see the Chancellor finally biting the bullet and removing higher rate income tax relief for pension contributions.  Whether this would happen immediately or on 6 April remains to be seen, but if you are planning a lump sum pension contribution soon, making it this week would perhaps make sense.

    Making tax digital

    The next phase of the government’s masterplan to create a real time tax system is Making Tax Digital for Income Tax (MTD for ITSA).  This is due to come into effect on 6 April 2024, meaning that self employed people and landlords will need to start planning for it and moving to MTD compatible digital accounting systems next year.

    It seems clear that there is some way to go for HMRC and the various software houses to get into a position where a viable system will work and, for this reason as well as the fact that it will impose additional compliance costs on taxpayers at a time when many other costs are increasing, we have seen the major accountancy bodies calling for a deferral of the introduction of MTD for ITSA.  I very much hope that the Chancellor listens to this and pushes it back to allow time for a more orderly introduction.

    Get in touch

    Clearly all of the above is speculation.  We will need to wait until 17 November to see what will actually happen to our taxes.

    If however you would like to discuss any of the matters discussed in this article, contact your usual PM+M adviser, or get in touch with Jane Parry by clicking the button below.

    Ensure you are up to date with the Chancellor’s announcements in the upcoming Autumn Statement by attending our seminar on 18 November at Stanley House. Our panel of experts will be providing valuable insights into what the government’s plans mean for you and your business. Find out more and book your place by clicking here.