Income tax changes for individuals

Keeping up with tax changes can feel overwhelming, especially when thresholds are frozen and small tweaks quietly increase the tax you pay. At A&C Chartered Accountants, our role is to help you see what’s coming, understand the impact, and make confident decisions before HMRC comes knocking.

Here’s what’s changing – and what you should be thinking about now.

Personal allowance: still frozen

Your tax-free personal allowance remains at £12,570 for 2026/27.

Once your income goes over £100,000, the allowance starts to reduce, disappearing entirely at £125,140. This remains one of the most punishing parts of the tax system, effectively creating a 60% tax rate in that band.

Planning here is critical – and pensions often play a big role.

Income tax bands: thresholds frozen, dividends more expensive

The income tax thresholds are staying exactly where they are until 2030/31. With wages rising, more people are being pulled into higher tax bands without technically getting richer.

For most income types, rates stay the same. However, from 6 April 2026, dividend tax rates increase:

• Basic rate dividends: 10.75% (up from 8.75%)

• Higher rate dividends: 35.75% (up from 33.75%)

• Additional rate dividends: 39.35% (unchanged)

Your dividend allowance remains £500, which is now doing very little heavy lifting.

Big change ahead: property and savings income from April 2027

From 6 April 2027, the government plans to introduce separate income tax rates for property income and increase tax on savings income:

• Basic rate: 22%

• Higher rate: 42%

• Additional rate: 47%

These new property rates will apply in England and Northern Ireland, with Scotland and Wales setting their own versions.

If you’re a landlord or rely on interest income, this is a clear signal to review your structure and long-term plans sooner rather than later.

Savings and dividends: allowances unchanged

You’ll still benefit from:

• Personal savings allowance

  • £1,000 (basic rate taxpayers)

  • £500 (higher rate taxpayers)

  • £0 (additional rate taxpayers)

• Dividend allowance: £500

With inflation and interest rates where they are, many people are now exceeding these limits without realising it.

Self-employed National Insurance: no relief from the freeze

Class 4 NICs remain at:

• 6% on profits between £12,570 and £50,270

• 2% above that

Like income tax, these thresholds are frozen until 2030/31, quietly increasing the overall tax burden on sole traders and partners.

Voluntary National Insurance: more expensive and more restrictive

From April 2026:

• Class 2 NICs increase to £3.65 per week

• Class 3 NICs increase to £18.40 per week

If you live abroad, the rules tighten significantly:

• Voluntary Class 2 NICs will no longer be available

• The minimum UK connection increases from 3 years to 10 years

If you’re relying on voluntary contributions to protect your state pension, this needs checking carefully.

ISAs: still valuable, but changing

For 2026/27, the overall ISA allowance stays at £20,000.

From April 2027:

• The cash ISA limit drops to £12,000

• Over-65s can still put the full £20,000 into cash ISAs

ISAs remain one of the simplest and most effective tax-free planning tools available.

Pensions: still one of the most powerful planning tools

Full income tax relief continues for qualifying pension contributions. With frozen allowances and rising tax rates elsewhere, pensions remain central to sensible long-term tax planning.

This is especially important for anyone earning over £60,000 or approaching £100,000.

Child Benefit: unchanged, but still catches people out

The High-Income Child Benefit Charge continues to apply where income exceeds £60,000, with full clawback at £80,000.

It’s calculated at 1% for every £200 over the threshold – and applies even if the child isn’t yours, as long as they live with you.

This is one of the most commonly missed tax charges we see at A&C Chartered Accountants.

Foster carers and Shared Lives carers

Qualifying Care Relief increases by 3.8% from April 2026, in line with inflation.

Self assessment penalties: tougher on late payment

From April 2027, HMRC will roll out a new penalty regime:

• Late filing penalties become more lenient

• Late payment penalties become significantly harsher

This makes cashflow planning and timely submissions more important than ever.

Venture Capital Trusts (VCTs): relief reduced

From April 2026, VCT income tax relief drops from 30% to 20%. They may still have a place in some portfolios, but the numbers need revisiting.

What should you do now?

These changes aren’t dramatic headlines – but they add up. Frozen thresholds, higher dividend tax, and new property income rates mean many people will pay more tax without changing their behaviour.

HMRC is moving towards a system that is more digital, automated and less forgiving of delays or errors. Good intentions matter less than robust systems.

Penalties are increasing

From April 2026, late filing penalties for corporation tax returns will double. Repeat late filings can lead to penalties of up to £2,000 per return.

Further reforms are expected, with tougher treatment for deliberate non-compliance.

Digital communication becomes standard

From spring 2026, HMRC will issue digital letters by default for users of its online services. Paper correspondence will still be available but only if you opt out.

Cryptoasset reporting expands

From 2026, UK-based cryptoasset service providers will report tax-relevant information about users to HMRC, aligning crypto reporting with traditional financial accounts.

PAYE, VAT and debt recovery

HMRC is exploring wider use of Direct Debit for PAYE and VAT, increasing debt recovery activity and expanding enforcement teams.

The overall direction is clear: faster reporting, quicker enforcement and less tolerance for late payment.

Reducing risk through preparation

The safest position for businesses and individuals is accurate record keeping, timely submissions and clean reconciliations.

Employment taxes continue to be an area where small changes can have a big impact if they’re missed. As we move towards 2026/27 and beyond, there are several updates employers should be aware of – some immediate, others on the horizon.

National Insurance Contributions: rates unchanged, costs still rising

For employees, NICs remain unchanged for 2026/27:

• No NICs on the first £12,570

• 8% on earnings between £12,570 and £50,270

• 2% on earnings above £50,270

For employers, NICs continue at 15% on earnings above £5,000 per employee.

The employment allowance remains at £10,500 for eligible businesses, helping to offset part of this cost.

There are higher thresholds for employees under 21 and apprentices under 25, and other variations can apply, so payroll accuracy remains essential.

Salary sacrifice pensions: major change coming in 2029

From 6 April 2029, the NIC exemption for employee pension contributions made via salary sacrifice will be capped at £2,000 per year.

Any salary sacrifice contributions above this amount will:

• Still qualify for income tax relief

• But will become subject to employee and employer NICs

Salary sacrifice remains valuable, but this change will reduce the NIC advantage for higher contributions and should be factored into longer-term remuneration planning.

Homeworking tax relief removed from April 2026

From 6 April 2026, employees will no longer be able to claim tax relief on unreimbursed homeworking expenses.

The long-standing £6 per week flat-rate claim will be withdrawn.

Employers can still:

• Reimburse eligible homeworking costs

• Do so without triggering income tax or NICs

This shifts responsibility firmly onto employers to decide whether and how homeworking costs are supported.

EMI schemes: a big win for growing companies

The Enterprise Management Incentive (EMI) scheme is being significantly expanded for options granted on or after 6 April 2026.

Key changes include:

• Company option limit increasing from £3 million to £6 million

• Gross asset limit increasing from £30 million to £120 million

• Employee limit increasing from 250 to 500

• Maximum option life extending from 10 to 15 years

In many cases, these changes can also apply to existing EMI options that have not yet been exercised or expired.

From April 2027, the requirement to notify HMRC of EMI grants will be removed, reducing administration.

For growth-focused businesses, this makes EMI a much more accessible and powerful retention tool.

Expanded tax-free workplace benefits

From 6 April 2026, income tax and NIC exemptions will be extended to cover employer reimbursements for:

• Eye tests

• Homeworking equipment

• Flu vaccinations

This gives employers more flexibility to support staff wellbeing without increasing tax costs.

Company cars and benefits in kind

The move to bring employee car ownership schemes (ECOS) fully into benefit-in-kind rules has been delayed until 6 April 2030, with transitional arrangements running to April 2031.

For plug-in hybrid vehicles:

• A temporary BIK easement applies from 1 January 2025 to 5 April 2028

• This prevents sharp tax increases due to new emissions standards

• Transitional rules may apply until 5 April 2031

BIK charges for vans and fuel will increase in line with inflation from April 2026.

Mandatory payrolling of benefits delayed

Mandatory payrolling of benefits in kind will now begin from April 2027, rather than April 2026.

Although delayed, HMRC is clear that employers should start preparing early. Updating payroll processes, software and internal controls will take time, and last-minute changes are likely to be costly.

PAYE changes for umbrella companies

From 6 April 2026, where umbrella companies are used:

• Employment agencies, or end clients if no agency exists, will become jointly and severally liable for PAYE liabilities

This significantly increases risk for businesses engaging workers through umbrella arrangements and makes due diligence more important than ever.

Loan charge review and settlement opportunity

Disguised remuneration schemes remain tax avoidance and have been repeatedly challenged in the courts.

Following an independent review, the government will introduce a new settlement opportunity for outstanding loan charge cases.

Key points include:

• A £5,000 reduction in outstanding liabilities for anyone who settles

• Many individuals could see liabilities reduced by 50% or more

• Around 30% of people may settle without paying anything

This applies retrospectively from 5 April 2019.

Anyone affected should seek advice before engaging with HMRC.

What employers should be doing now

Employment taxes are becoming more complex, not less. The common thread across all of these changes is preparation.

At A&C Chartered Accountants, we help employers:

• Keep payroll compliant and up to date

• Review benefits and remuneration structures

• Prepare for payrolling of benefits

• Navigate EMI schemes and incentive planning

• Reduce risk around PAYE and HMRC scrutiny

If you want clarity on how these changes affect your business or workforce, now is the right time to review things properly rather than react later.

For landlords and property-based businesses, tax and regulatory costs continue to rise. Planning now needs to account for longer-term affordability, not just short-term compliance.

Property-related tax increases

Alongside new property income tax rates, a high-value council tax surcharge will apply to properties valued over £2 million.

The surcharge will range from £2,500 to £7,500 depending on property value and will apply to the homeowner. These additional costs are likely to feed through into rents and returns.

VAT thresholds remain frozen

The VAT registration threshold remains at £90,000, with deregistration at £88,000.

As turnover increases with inflation, more businesses are being pulled into VAT earlier, often without a corresponding increase in profitability.

Business rates changes for retail, hospitality and leisure

From April 2026, new lower multipliers will apply to eligible retail, hospitality and leisure properties with rateable values below £500,000.

These replace the temporary reliefs available in 2025/26. Transitional reliefs and small business support schemes may still apply in some cases.

Visitor levy consultation

A consultation is underway on allowing local authorities in England to introduce a visitor levy on overnight stays in commercially let accommodation.

There are no immediate changes, but accommodation providers should monitor developments closely.

Planning for rising fixed costs

For landlords and property-based businesses, cost increases are increasingly structural rather than temporary.

Tax around selling assets, passing on wealth and succession planning is becoming less generous and more complex. For business owners, landlords and families, the decisions you make over the next few years could have a lasting tax impact.

At A&C Chartered Accountants, we are increasingly helping clients plan earlier and more deliberately, rather than reacting once a transaction is already underway.

Capital Gains Tax and the importance of timing

For most capital disposals in 2026/27, Capital Gains Tax will apply at 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers.

From 6 April 2026, the Capital Gains Tax rate for Business Asset Disposal Relief increases from 14% to 18%. For anyone considering selling a business or qualifying assets, timing is now a critical planning decision rather than an afterthought.

Employee Ownership Trusts now offer less certainty

Following the November Budget, Capital Gains Tax relief on disposals into an Employee Ownership Trust has been reduced from 100% to 50% with immediate effect.

Half of the gain is now chargeable straight away. That chargeable element does not qualify for Business Asset Disposal Relief or Investors’ Relief. The remaining 50% is held over and may become taxable on a future disposal by the trustees.

Employee Ownership Trusts may still be appropriate, but the tax outcome is no longer as straightforward as it once was.

Incorporation relief becomes claim-based

From 6 April 2026, incorporation relief will no longer apply automatically when a business is transferred into a company.

A formal claim will need to be made through the self assessment tax return, supported by transaction details, tax computations and confirmation of the type of business transferred. This increases both administrative burden and the risk of errors if the process is not handled properly.

Inheritance Tax thresholds remain frozen

Inheritance Tax continues to apply at up to 40% after available allowances. The nil rate band remains at £325,000 and the residence nil rate band at £175,000, both frozen until 2031.

The residence nil rate band continues to be withdrawn once an estate exceeds £2 million. Where no taper applies, a married couple may still pass on up to £1 million free of Inheritance Tax.

Changes for business owners and farmers

From 6 April 2026, reforms to Agricultural Property Relief and Business Property Relief will significantly change how business and agricultural assets are treated.

Relief at 100% will be capped at £1 million of combined qualifying assets, with relief above that reduced to 50%. Relief on AIM shares will also fall from 100% to 50%.

Unused relief allowances will become transferable between spouses, potentially allowing up to £3 million to pass free of Inheritance Tax where business or agricultural assets are involved. However, transitional rules mean early action still needs careful planning.

Pensions brought into the Inheritance Tax net

From April 2027, unused pension funds will be included in an individual’s estate for Inheritance Tax purposes, regardless of any trust arrangements.

This represents a clear shift away from pensions being used primarily as a long-term estate planning tool.

Planning ahead

Disposals, succession and estate planning now require earlier conversations and a joined-up view of income tax, Capital Gains Tax and Inheritance Tax.

Tax relief on business investment remains generous, but it is becoming more nuanced. Understanding which relief applies, when to invest and how expenditure is structured is key to making the most of what is available.

At A&C Chartered Accountants, we focus on aligning commercial decisions with tax efficiency, rather than letting tax relief drive investment choices.

Annual Investment Allowance remains at £1 million

For 2026/27, the Annual Investment Allowance remains at £1 million, providing 100% relief on most qualifying plant and machinery.

This continues to exclude cars and may need to be shared between businesses in a group or between multiple businesses under common ownership.

Writing down allowances reduce

From April 2026, the main rate writing down allowance reduces from 18% to 14%, while the special rate remains at 6%.

This reduces long-term relief where first-year allowances are unavailable, making upfront planning more important.

New 40% first-year allowance

For qualifying expenditure incurred on or after 1 January 2026, a new 40% first-year allowance will be available.

This is most useful where the Annual Investment Allowance has already been used or is unavailable. Cars and second-hand assets remain excluded.

Electric vehicles and charging points

The 100% first-year allowance for new electric vehicles and electric charging points has been extended to April 2027, continuing to support lower-emission investment decisions.

Full expensing for companies

Limited companies can continue to claim full expensing, giving 100% relief on main rate assets and 50% on special rate assets.

This is particularly valuable for companies that do not have access to the Annual Investment Allowance.

Structures and Buildings Allowance

The Structures and Buildings Allowance remains at 3% per year and applies only to qualifying construction contracts signed after October 2018.

It suits some businesses better than others and should be reviewed carefully before relying on it as part of an investment strategy.

Taking a strategic approach

Investment reliefs remain attractive, but timing, classification and business structure all matter.

• National Insurance and income tax thresholds will remain frozen for a further three years beyond 2028.

• Cash ISA contributions for under-65s will be capped at £12,000 per year from April 2027, with the remainder of the existing £20,000 allowance available only for investment ISAs.

• The two-child benefit cap will be removed from April 2026.

• Infected blood compensation payments will be exempt from inheritance tax.

Property and Wealth

• A new annual property surcharge, referred to as a mansion tax, will apply to high-value homes.

• Properties valued above £2 million will pay £2,500 per year.

• Properties valued above £5 million will pay £7,500 per year.

Pensions and Investment

• From 2029, the tax advantages available through pension salary sacrifice will be limited.

• Only the first £2,000 of salary-sacrificed contributions each year will retain National Insurance benefits.

• Contributions above this amount will be taxed in the same way as standard pension contributions.

Business and Economy

• The Chancellor intends to more than double fiscal headroom to £21.7 billion.

• The OBR has revised its productivity growth forecast down to one per cent.

• Apprenticeship training for under-25s will be made free for small and medium-sized enterprises.

• Additional funding will be provided to devolved governments, with further decision-making powers passed to regional leaders.

Transport, Levies and Public Spending

• A new mileage-based charge for electric vehicles will be introduced.

• Fully electric cars will be taxed at 3p per mile and plug-in hybrids at 1.5p per mile.

• Remote gaming duty will rise from 21 per cent to 40 per cent.

• Five million pounds has been allocated to secondary school libraries and eighteen million for playground development across England.

• Changes to the Motability scheme will remove eligibility for luxury vehicles.

We will continue to monitor developments as further detail is published, and will contact clients again if additional guidance or implications arise.

Rachel Reeves is scheduled to deliver her Budget at 12.30pm today, with forecasts pointing towards a package aimed at stabilising public finances and reducing long-term pressure on taxpayers. While initial reports suggested significant income tax rises, it now appears the Chancellor intends to rely on threshold freezes, alongside further tax reform and cost-of-living support.

This article outlines the key measures expected to be announced and what they could mean for individuals, homeowners, electric vehicle drivers and businesses.

Income Tax: Threshold Freeze Likely to Continue

The Chancellor is reportedly no longer planning an increase to headline income tax rates. Instead, the Government is expected to extend the freeze on income tax thresholds to generate additional revenue through so-called fiscal drag, gradually bringing more people into higher tax brackets as wages increase.

Savings and Investment: ISA and Dividend Changes Under Review

The Budget is expected to cut the annual cash ISA allowance from £20,000 to an estimated £12,000. There is also speculation that dividend tax allowances will be reduced, impacting investors and business owners who take income through dividends. These proposals remain unconfirmed until the Budget is delivered.

Property Taxes: High-Value Homes Expected to Face New Charges

A new mansion tax is expected to apply to residential properties valued above £2 million. The detail of how the levy will be calculated and collected has not yet been specified, but the policy reflects the Government’s focus on wealth-based taxation.

Transport and Fuel: Electric Vehicle Road Pricing Under Consideration

Electric vehicle owners may face a new 3p per mile tax to offset decreasing fuel duty revenue. Meanwhile, the existing 5p fuel duty cut is expected to remain in place, with additional government funding for EV grants and charging infrastructure. Although widely reported, this measure will only be confirmed once the Budget is published.

Health and Sugar Duty Expansion

The Budget is expected to extend the existing sugar tax to cover pre-packaged milkshakes, lattes and similar products, including those made with plant-based milks containing added sugar. The current threshold may also be tightened, meaning more products fall within the tax scope.

Cost of Living Measures: Support for Low-Income Households and Commuters

Expected measures designed to support household budgets include:

• A rise in the National Minimum Wage to £12.71 per hour for adults aged 21+, and £10.85 for 18–20-year-olds.

• A freeze on rail fares across the network.

• NHS prescription charges in England are likely to remain frozen.

• The Government may remove the two-child limit on Child Tax Credit and Universal Credit.

Who Could Be Most Affected

Those on lower wages may benefit from minimum wage increases and frozen transport and prescription costs, while higher earners and investors could face increased tax pressure through threshold freezes and changes to ISA and dividend allowances. Homeowners with property valued above £2 million, and electric vehicle drivers, may experience the most direct financial impact if the expected measures are confirmed.

The Autumn Budget 2024 signalled some significant changes on the way for families, landowners and business owners. From 6 April 2026, the current level of Inheritance Tax (IHT) relief available on agricultural and business assets is expected to be reduced. At the moment, Agricultural Property Relief (APR) and Business Property Relief (BPR) can offer up to 100% relief on qualifying assets. Draft legislation was released in July 2025 that sets out how these changes may take shape.

What’s Changing?

A new £1 million allowance will apply to the combined value of business and agricultural property that currently qualifies for 100% relief under APR and BPR. This allowance will sit alongside your existing IHT nil-rate bands and exemptions.

Once the value of qualifying property exceeds this £1 million allowance, the rate of relief on anything above it is expected to drop to 50%.

This allowance is expected to apply to:

• Property held at death

• Lifetime gifts made to individuals within seven years of death

• Chargeable Lifetime Transfers such as gifts into most trusts

Another important change is to BPR on shares listed on non-recognised stock exchange markets. This would include AIM-listed shares – meaning the current 100% relief for many AIM share portfolios may no longer be available.

The Practical Impact

Imagine someone owns shares in an unquoted trading business worth £2 million. Under the current rules, the entire value may qualify for 100% BPR, so no IHT would arise on these shares.

Under the proposed rules:

• The first £1 million would still benefit from 100% relief

• The remaining £1 million would be relieved at 50%

• This means £500,000 becomes taxable under IHT rules

Their usual £325,000 nil-rate band could be offset, but there may still be a taxable amount left, depending on the rest of their estate.

What This Means for You

These changes could create new exposure to IHT where previously there was none. The key is understanding your position early. That means taking a clear look at:

• The size and type of assets in your estate

• How these assets are structured

• How your Will distributes them

Small adjustments can sometimes make a meaningful difference. Reviewing your Will and estate plans ahead of April 2026 could help maintain relief where possible and reduce avoidable tax.

Next Steps

The rules are still proposals and not yet final. However, building awareness now gives you space to act thoughtfully rather than reactively.

If you hold business interests, farmland, AIM shares, or are planning to gift assets to family or trust arrangements, our team at A&C Chartered Accountants can help you understand what the changes may mean for you and outline your options clearly.

Making Tax Digital for Income Tax is being rolled out, and HMRC has now published guidance explaining how individuals who cannot use digital systems can apply for an exemption. If someone qualifies as digitally excluded, they will not be required to keep digital records or use MTD-compatible software — but it’s essential to have HMRC’s formal agreement first.

What Does ‘Digitally Excluded’ Mean?

In simple terms, a person may be considered digitally excluded if they cannot use digital tools because of:

• Their age

• A disability

• Religious beliefs

• Where they live (for example, poor broadband connection)

• Or any other genuine reason that prevents digital use

However, HMRC has made it clear that some reasons will not be accepted. For example:

• Preferring paper returns

• Not being used to software

• Only having a few transactions each year

• The time or cost involved in switching to digital tools

The test is based on ability, not preference.

How to Apply for an Exemption

If you believe you (or someone you support) are digitally excluded, you can apply by contacting HMRC either by phone or letter.

Phone: 0300 200 3310
Write to:
Self Assessment
HM Revenue & Customs
BX9 1AS
United Kingdom

If someone else will contact HMRC on your behalf (such as a family member), you’ll need to authorise them first.

Your application should include:

• Name, address and National Insurance number

• How the tax return is currently submitted, and who helps with it

• Why digital systems cannot be used — with any supporting details

• Whether you have an accountant or representative

• Any additional needs you have so HMRC can support you appropriately

If writing, use the heading:
‘Making Tax Digital for Income Tax – digitally excluded application’

HMRC aims to respond within 28 days. If they decide you are not digitally excluded, you can appeal in writing using the address in their response.

Already Exempt from MTD for VAT?

If HMRC has already agreed digital exclusion for VAT, then the same exemption should apply for Income Tax — as long as your circumstances have not changed. You will simply need to provide:

• Your National Insurance number

• Your VAT registration number

• Confirmation of the reason for your VAT digital exemption

How We Can Help

If you or someone you care for may be affected, A&C Chartered Accountants can guide you through the process and help make sure everything is explained clearly to HMRC. Feel free to get in touch to talk through your situation in confidence.

In the last edition, we outlined HMRC’s Advisory Fuel Rates (AFRs) from 1 September 2025. One update worth noting is that there are now two separate rates for fully electric company cars, depending on where the vehicle is charged.

From 1 September 2025:

• 8p per mile where the vehicle is charged at home

• 14p per mile where the vehicle is charged using public charging points

These rates are reviewed quarterly and are designed to help employers reimburse employees for the cost of business mileage in a company car. They’re also used when calculating the VAT element of business fuel, and for employees repaying an employer for any private mileage used.

Key Updates to HMRC Guidance

• If the cost per mile of using public chargers is higher than the AFR, a higher rate can be used, as long as there is evidence to support it.

• Where a company car is charged both at home and at public chargers, mileage can be apportioned to reflect the split.

  • Any apportionment must be fair and reasonable, and employers should be able to explain how it has been calculated.

This development reflects the practical reality that public charging is generally more expensive than residential charging, and it gives more flexibility where electric vehicle charging habits vary.

We’re in full Budget season, and speculation will swirl until 26 November 2025. One rumour currently causing concern is whether the Government might cut or remove the 25% tax-free pension lump sum. Our Tax Specialist partners, Forbes Dawson, have written about this topic and explored whether withdrawing your pension lump sum early is a wise move or a reaction to uncertainty.

The issue

If this rumour turns out to be true, it could be an easy win for the Government. It would:

1. Target higher earners.

2. Stop people from moving wealth out of the inheritance tax (IHT) net, since pensions will become subject to IHT from 6 April 2027.

3. Be relatively straightforward to implement.

However, the policy would also affect many ordinary savers, not just the wealthy. To soften the impact, the Government could reduce the tax-free limit, for example to £50,000, rather than removing it entirely.

As a result, many people are rushing to take their tax-free pension lump sums before the Budget, hoping the Government won’t apply any changes retrospectively.

Does withdrawing your pension lump sum early make sense?

Financial experts are urging caution. Withdrawing your pension lump sum means removing money from a tax-free environment where it can continue to grow, which could affect your long-term returns. On the other hand, the potential removal of the 25% tax-free allowance is a worrying prospect for many savers.

If you are considering taking your lump sum, it’s important to make sure the money continues working for you. Possible strategies include:

1. Spending it sensibly – money you spend on yourself isn’t subject to inheritance tax.

2. Gifting to children or family members – as long as you live for seven years after the gift, it will generally fall outside your estate for IHT purposes.

3. Reinvesting into ISAs – couples can invest up to £40,000 per year between them, gradually rebuilding their tax-free savings.

4. Helping children fund their own pensions – contributions made from earned income receive tax relief, though future rule changes are possible.

5. Relocating strategically – some countries have more favourable pension tax treaties, though this can be complex and should be approached with care.

Final thoughts

Even before the proposed IHT changes, there were valid reasons for some individuals to extract their pension lump sums and carry out further tax-efficient planning. For example, beneficiaries may still face income tax when drawing down inherited pension funds after the member’s death (if over 75).

Withdrawing a lump sum can therefore help reduce future income tax liabilities and manage inheritance tax exposure if the funds are spent or gifted more than seven years before death.

However, people shouldn’t rush to withdraw lump sums purely based on Budget speculation. Instead, it’s worth asking whether doing so aligns with your broader financial and estate planning goals.

The Chancellor is set to deliver the Autumn Budget 2025 on 26 November, and this one is shaping up to be significant. With the government facing ongoing fiscal challenges, we may see further tax rises aimed at tackling the public finance deficit.

Before we look ahead, it’s worth remembering that several measures announced in the Autumn Budget 2024 haven’t yet taken full effect — and they’ll continue to shape the financial landscape for individuals and businesses alike.

Key Measures Still to Come from Autumn Budget 2024

Capital Gains Tax (CGT)

We’ve already seen increases to CGT rates from 30 October 2024 and 6 April 2025, but there’s more on the horizon.
From 6 April 2026, the CGT rate under Business Asset Disposal Relief (BADR) is set to rise from 14% to 18%, further increasing the tax burden for business owners selling qualifying assets.

Inheritance Tax (IHT)

The previous Budget also outlined major changes to IHT, including:

• Restrictions on 100% relief for business and agricultural property from 6 April 2026.

• Inclusion of unused pension funds and death benefits within IHT estates from 6 April 2027.

These changes mean estate and succession planning will become even more important over the next few years.

What’s Unlikely to Change

Labour’s 2024 manifesto promised no rises in National Insurance, Income Tax, or VAT rates — and for now, that commitment still stands.

The Corporate Tax Roadmap (October 2024) also confirmed:

• The 25% main rate of Corporation Tax will remain.

• The small profits rate and marginal relief will be retained.

• The £1 million annual investment allowance and permanent full expensing will continue.

However, despite earlier promises to unfreeze thresholds, it now looks like Income Tax and IHT thresholds will stay frozen until 5 April 2030, extending the period of ‘fiscal drag’ for taxpayers.

What Could Change

While the government has made some clear commitments, there are several areas where we could see new announcements or reforms.

• National Insurance Contributions (NICs): The scope could be widened to include landlords, bringing parity with those running trading businesses.

• Pension tax relief: Currently given at the saver’s marginal rate (20%, 40%, or 45%), this could be capped at a flat rate — potentially around 30%.

• Salary sacrifice schemes: Employer pension contributions made via salary sacrifice may lose their exemption from Benefit in Kind rules, making them subject to NICs and Income Tax.

• Capital Gains Tax alignment: CGT rates (18% or 24%) could be aligned with Income Tax bands, meaning rates could reach as high as 45%.

• Inheritance Tax: Further restrictions to IHT reliefs or limits on lifetime gifting exemptions may be introduced.

• VAT registration threshold: Currently £90,000, this could be lowered or even abolished, bringing more small businesses into the VAT system.

• VAT on domestic fuel: There are rumours this could be reduced to 0% from its current 5% rate to ease cost-of-living pressures.

What This Means for You

While no one can predict the exact contents of the Autumn Budget 2025, the direction of travel is clear — the tax landscape is tightening, and preparation is key.

At A&C Chartered Accountants, we’re already working with clients to plan ahead, assess potential impacts, and identify strategies to remain tax-efficient and compliant.

If you’d like to discuss how any of these potential changes might affect your business or personal finances, get in touch — we’d be happy to help you stay one step ahead.

A recent First Tier Tribunal case, Charlotte MacDonald v HMRC, has highlighted the importance of demonstrating that a trade is carried on with a genuine intention to make a profit. The taxpayer was denied sideways loss relief for losses arising from the organisation of an annual ‘woodland shoot’ on an estate.

Background to the case

The taxpayer had been running an annual shoot for several years and sought to offset trading losses against her general income under the sideways loss relief rules. HMRC challenged the claim on the grounds that the activity was not being carried on with a view to the realisation of profits.

What the rules say

A taxpayer can claim sideways loss relief to offset trading losses against their general income in the year of the loss, the previous year, or both. However, the relief is only available if the loss arises from a trade that is carried on:

• on a commercial basis, and

• with a view to the realisation of profits.

Both conditions must be satisfied for the claim to succeed.

The Tribunal’s findings

The Tribunal agreed with the taxpayer that the shoot was operated on a commercial basis. It was not merely a hobby, and there was clear evidence that the activity was run with some level of commercial intent.

However, the Tribunal also found that the shoot had made losses in almost every year since it began, with only one year of minimal profit over a 15-year period. There was no reasonable prospect that the trade would ever become profitable.

Because the activity was not carried on with a view to the realisation of profits, the conditions for sideways loss relief were not met, and the appeal was dismissed.

What this means for taxpayers

This case is a useful reminder that HMRC will closely scrutinise any sideways loss relief claims. It’s not enough for an activity to be commercial in nature — there must also be a realistic expectation of profit.

If you operate a small trade or side venture that has been making losses, it’s important to keep detailed records and ensure there is a clear plan to make the business profitable.

At A&C Chartered Accountants, we can review your trading position and help determine whether a sideways loss relief claim is appropriate. If you’re unsure about your eligibility or want to avoid the risk of a dispute with HMRC, get in touch with our team for tailored advice.

HMRC withdrew Form VAT652 (Error Correction) on 8 September 2025. This form was previously used to notify HMRC of VAT return errors that could not be corrected on the next VAT return.

There is now a new procedure in place for correcting VAT errors, and it’s important for businesses to understand how to handle any mistakes to avoid unnecessary penalties.

Correcting errors on your next VAT return

If you discover an error on a VAT return, the first step is to check whether it can be corrected on your next VAT return. You can amend the next return if:

• The total net errors (output VAT less input VAT errors) are less than £10,000; or

• The net errors are between £10,000 and £50,000 and also less than 1% of the Box 6 figure on the VAT return in which the correction is being made.

HMRC has published an online tool that allows businesses to check whether they need to notify HMRC of VAT return errors. This service can be found on the HMRC website.

When to use the online error correction service

If the error cannot be corrected on the next VAT return, it must be disclosed using HMRC’s new online error correction service. The service can be accessed through the HMRC website and requires a Government Gateway user ID and password.

For those unable to use the online service, disclosures can still be sent to HMRC’s Error Correction Team either by post or by email:

• Post: BT VAT, HMRC, BX9 1WR

• Email: inbox.btcnevaterrorcorrection@hmrc.gov.uk

Penalties for careless errors

If an error arises as a result of careless behaviour, HMRC may still charge penalties even if the adjustment has been made on the VAT return. HMRC makes it clear that including the correction on the return does not count as a formal disclosure.

This means that without notifying HMRC separately through the online error correction service, businesses could still face unprompted penalties if the error is later identified by HMRC.

How A&C Chartered Accountants can help

If you’ve found a VAT error and are unsure how to correct it, or whether you need to notify HMRC, we can help guide you through the process. Our team can review your VAT returns, assess the nature of the error, and ensure that the correction is handled correctly to minimise the risk of penalties.

If you’d like to discuss a VAT correction or need help using HMRC’s new service, get in touch with our team at A&C Chartered Accountants today.

The Department for Business and Trade (DBT) has confirmed that major reforms to Statutory Sick Pay (SSP) will take effect from April 2026. These changes are designed to improve employee rights but will also increase costs for many employers.

Key changes to SSP from April 2026

• SSP will be payable from the first day of sickness absence, rather than from the fourth day as at present.

• The £125 per week earnings threshold will be removed, meaning more employees will qualify for SSP.

• For employees earning less than £125 per week, SSP will be the lower of:

  • 80% of their normal weekly earnings, or

  • The standard SSP rate (currently £118.75 per week).

What this means for employers

The reforms are likely to increase payroll costs, particularly for businesses with higher levels of staff absence. This comes on top of recent increases to the National Minimum Wage and Employers’ National Insurance.

It is also worth noting that, unlike statutory maternity or paternity pay, SSP cannot be reclaimed from HMRC. Businesses will therefore need to plan ahead and factor these additional costs into their budgets.

Preparing for the changes

Employers should take the following steps ahead of April 2026:

• Forecast potential increases in payroll costs.

• Review sickness absence policies.

• Ensure payroll systems are updated to handle the new rules.

• Train payroll and HR teams to manage compliance.

Planning now will help employers manage the impact of these reforms and ensure employees are paid correctly.