UK Tax News

2025 Budget

Published: 26 Nov 2025

Updated: 26 Nov 2025

Written by Ray Coman

Delivered this afternoon, against a stated £30 billion shortfall in the public finances, Rachel Reeves’ second Budget prioritised widening the tax base rather than adjusting headline rates. The overall tax burden will move to its highest post-war level, driven primarily by fiscal drag (the continued freezing of thresholds) alongside targeted measures on wealth, property and investment.

Key implications include:

Frozen thresholds

New mansion tax

Dividend tax rise

Rental profits and bank interest tax hike

ISA threshold to lower

Curbs to salary sacrifice

Mileage tax for electric cars

Other key changes

Summary

Frozen thresholds

The chancellor announced a freeze in the personal allowance, higher-rate tax threshold and personal allowance abatement threshold until the 2030/31 tax year. Together with freezes on other thresholds such as VAT registration, the capital gains tax annual exemption and the inheritance tax nil-rate band, the freeze is an effective tax rise. People’s income and wealth rise with inflation, but if the thresholds remain fixed, more people are drawn into the tax system over time. This is a process known as fiscal drag.

New mansion tax

A new levy will be charged on properties with a value of over £2 million starting from April 2028. The surcharge has valuation bands: starting at £2,500 per year for homes worth £2–2.5 million, rising to £7,500 per year for homes worth over £5 million. For property transactions or disposals, see our section on Property Stamp Taxes.

Dividend tax rise

Starting April 2026, both the basic rate and higher-rate tax on dividends will increase by 2 percentage points. There appear to be no changes to the additional rate of tax on dividends (which applies to total income over £125,000). This will affect both investors and owner-managed businesses and contractors operating as companies. Relevant background can be found in our income tax rates section.

Rental profits and bank interest tax hike

Commencing April 2027, the basic rate, higher rate and additional rate tax on property income and bank interest will increase by 2 percentage points. For landlords, our guidance on the Let Property Campaign and property-related tax rules may be relevant.

ISA threshold to lower

The ISA allowance, currently £20,000, will be cut to £12,000 for investors under 65 years old. The change will take effect from the 2027/28 tax year and will not affect the stocks and shares ISA or other ISA types. The overall ISA limit of £20,000 will therefore stay intact.

Curbs to salary sacrifice

Taking effect from April 2026, the national insurance relief for making workplace pension contributions will be heavily curtailed. Salary sacrifice is a scheme whereby a reduction in salary is compensated for by an increase in workplace pension contributions. Currently the schemes are effective because pension payments made direct from earnings reduce the amount that is subject to both tax and national insurance. See our detailed rates at National Insurance Contributions.

The amount of pension contribution that can be made via salary sacrifice while still attracting NI relief will be capped at £2,000 per annum. The cap applies to the combined value of both employee and employer contributions. Once the £2,000 threshold is crossed, both employee and employer NI will be charged on the value of the pension contribution. Since income tax is unaffected, any contributions over £2,000 will be just as tax-efficient in a SIPP as in a workplace scheme. Other pension contribution limits, such as the annual allowance and associated limits, remain unchanged. Relevant reference tables can be found under Pension Rates.

Mileage tax for electric cars

From April 2028, there will be a mileage-based tax for electric and hybrid vehicles, raising revenue as fuel duty declines. Background rates are available in our Mileage Allowance and Advisory Fuel Rates sections.

Other key changes

• Increase in basic and new state pension of 4.8% (in line with the triple lock). See State Pension.
• Increase in basic minimum wage. Relevant tables can be found at National Minimum Wage.

Summary

With approval ratings under pressure, the Government has concentrated tax increases on higher earners and those with greater accumulated wealth. Fiscal drag is the effective tax rise, but it is delivered quietly through frozen thresholds while inflation persists in the background. Threshold freezing attracts less attention than rate changes and allows the government to maintain the position that manifesto commitments on headline taxes remain intact.

Property is a slow-moving asset class, and any recurrent levy will take time to reveal its full effect. Households do not relocate quickly; family, commercial and social ties mask the early impact. The luxury sector may appear to absorb the charge at first, but as capital gradually seeps elsewhere, UK (and particularly London) competitiveness will erode. Over time this feeds through to weaker market confidence, downward pressure on sterling, and risks for employment in the wider economy.

HMRC letters about Making Tax Digital for Income Tax

Published: 25 Nov 2025

Updated: 26 Nov 2025

Written by Ray Coman

HMRC are writing to individuals whose self-employment and property income is likely to bring them into Making Tax Digital for Income Tax (MTD ITSA) from April 2026. The letter sets out the reporting system if a person’s income is above certain thresholds. MTD ITSA is an extension of work Coman & Co already carry out for quarterly VAT. Therefore, while the rules are new, their requirements can be handled by our existing processes. The guidance below expands on who is affected, how the quarterly reporting will work, and how Coman & Co intend to handle it.

What HMRC require

How the thresholds operate, and when they take effect

How the quarterly reporting works

Digital records explained

Coman & Co system for handling and charging for MTD ITSA

Options on software and data

Next steps until implementation

Summary

What HMRC require

MTD ITSA requires an individual with self-employment and property income to:

• Keep digital records of that income and related expenses.
• Send quarterly updates to HMRC using MTD-compatible software.
• Continue with yearly Self Assessment through a final declaration after the year end.

As noted above, four reports are required during the tax year. A final declaration (in effect, an online tax return) is due by 31 January following the tax year.

How the thresholds operate, and when they take effect

For MTD ITSA purposes, qualifying income is gross income before expenses. It is the combined total from self-employment, and UK and overseas property businesses.

Anyone with qualifying income over £50,000 in 2024/25 will come into MTD ITSA from 6 April 2026. The income threshold is reduced to £30,000 from 6 April 2027 (based on 2025/26 figures), and from 6 April 2028 the new reporting will be mandatory for those with qualifying income over £20,000.

MTD ITSA does not apply to people without self-employment or property income, for instance those whose only income is from employment or pension earnings. HMRC have stated that affected individuals can leave MTD ITSA if income drops below the applicable threshold.

How the quarterly reporting works

The new regulation affects the timing of reporting but does not at this stage affect what income is taxable, or other aspects of the tax rules.

It will be a requirement to keep records in digital format. Most accounting records consist primarily of income and expenses from self-employment and property. The recording can be in accounting software, or in a spreadsheet that is connected to MTD-compatible “bridging” software.

Once every three months, the income and expenditure summary for the quarter will be submitted to HMRC. The deadline for reporting will be about one month after the end of the quarter.

After the end of the tax year (on 5 April), HMRC will require a final declaration which makes any adjustments and confirms final figures.

Even though the requirement is to submit reports once a quarter, tax is still paid in the same way as now. By way of recap, that means by 31 January following the end of the tax year. The payments on account system will also be unaffected. The quarterly submissions are solely informational and tax liability will be established by the final declaration.

VAT-registered businesses will be able to align MTD ITSA quarters with VAT quarters, so that the same underlying records support both submissions. Coman & Co can assist with this so as to reduce hassle and confusion for affected businesses.

Digital records explained

Under MTD, transactions must be recorded in electronic form (software or spreadsheet), not solely as paper ledgers.

The affected self-employed people and landlords will keep full digital records of every transaction, using software or a spreadsheet linked to “bridging” software. The quarterly reports sent to HMRC will be a summary of income and expenses, but not an itemisation of every transaction. Notwithstanding, HMRC can request inspection of the transaction-level information if necessary.

It is not a requirement to operate a full accounting system, as for many that would be disproportionate for the size or complexity of the business. A clean bank feed, a structured spreadsheet, and properly stored digital receipts can be enough, provided the bridge to HMRC is in place.

PDF or email receipts should be retained where they exist. For small recurring items such as bank charges and many pay-as-you-go transport costs under about £100, the bank statement will often be the only realistic “receipt”, and in practice that is acceptable as the backing evidence.

The usual Self Assessment record-keeping period (broadly up to six years) continues to apply.

Subject to formal agreement with HMRC, a digital exclusion can be agreed for certain individuals, for instance on the basis of age, disability or location.

Coman & Co system for handling and charging for MTD ITSA

For Coman & Co, MTD ITSA sits alongside quarterly VAT as another structured reporting cycle. The skills, software and reminder systems are already in place; the main change is the volume of quarterly work.

The client decides how much of the record-keeping they want to do themselves, and we then build the HMRC-facing work around that.

At the time of writing, our working structure is:

• Quarterly filing service – currently costed at £40 per quarter for a straightforward landlord or sole-trade position, based on digital data provided in a usable format.
• Bookkeeping service – if we are also taking on the bookkeeping, data entry is charged at £0.50 per transaction, using existing systems that we already use for VAT and management accounts work.
• Annual Self Assessment Return – where we handle the annual return as well as the quarterly work, the fee is as it is currently, but we would normally apply a £60 reduction to the annual tax return fee (all other things being equal) where we carry out the quarterly service. The fee discount reflects the reduction in year-end work expected for clients for whom we carry out quarterly reporting.

We already operate a robust reminder system covering VAT, Companies House, and Self Assessment deadlines. MTD ITSA quarterly dates will be built into those same systems with the same expected reliability.

Options on software and data

Clients can either maintain records on MTD-compliant software (such as Xero, QuickBooks, FreeAgent or similar). The client grants Coman & Co access. The benefit of using software is mainly to have proper reporting tools: transaction search, supplier and customer analysis, and export functions. This tends to suit businesses and landlords who either already use software, or who want to make more active use of management information.

Alternatively, a client can maintain simpler electronic records — for example spreadsheets or CSV bank exports — and send them to us each quarter. We import them into our own system, which satisfies the digital-records requirement and is then used for quarterly submissions and the year-end work.

The “spreadsheet” approach suits individuals disinclined to use accounts software and/or for whom the transactions are few. However, reporting will be more limited: an Excel download or bank statement is the practical backing schedule, and there is no separate SQL-type query tool sitting above. It will be possible to switch between spreadsheet and accounts software as applicable.

Both routes are fully compatible with the MTD rules.

Next steps until implementation

There is no immediate reporting action required now, but affected businesses should consider:

• Filing the 2024/25 tax return if not already done so, as that tax year is used to determine if the business has a requirement from April 2026.
• Keeping business and personal bank accounts as cleanly separated as is sensibly possible.
• Getting into the habit of retaining digital receipts and invoices where they exist.

You do not need to move onto accounting software immediately unless you want to become familiar with it early. The core requirement is that, once within MTD ITSA, the records are in digital form and can be passed to HMRC quarterly.

We will contact those clients we expect to be in scope ahead of April 2026 to confirm their position and agree the most appropriate route.

Coman & Co intends to be in contact again around February and March next year with an update to affected clients setting out the requirements and deadlines and to establish the level of service required.

Summary

MTD ITSA alters the timing and format of reporting, not the underlying tax rules. The core tasks — determining income, checking expenses, calculating tax — remain the same. Once the quarters and processes are established, it should feel like an extension of work that is already familiar from VAT and annual Self Assessment.

Making Tax Digital for Income Tax is widely viewed in the business world as disruptive. There is limited upside to the regulation. At Coman & Co we have already prepared a workflow that sits alongside the way clients already manage their affairs. We have adapted to new regulation before: quarterly VAT reporting, real-time PAYE, Companies House verification requirements. Our role is to reduce the burden and make the process become routine.

ID Verification checks for directors

Published: 22 May 2025

Updated: 10 Jun 2025

Written by Ray Coman

From about August 2025, Companies House will be introducing a new ID check requirement for all company directors.  The requirement arises from The Economic Crime and Corporate Transparency Act 2023 (ECCTA), which was introduced in response to a toughening sanctions environment.

Director requirement

Gov.uk One Login

Authorised agent requirement

Consequences of non compliance

Summary

Director requirement

Each director of a UK company will be required by Companies House to carry out their own Anti-Money Laundering (AML) check.  Effectively, the Companies House platform will identify all UK directors via a real-time face recognition check.

Gov.uk One Login

Typically, the most efficient method for verification by a director is carried out using the gov.uk mobile phone app.  The App is linked to a gov.uk login which is set up separately, usually via a desktop device.  The App will scan biometric ID.  For instance, holding the outside of a passport to a smart phone will obtain biometric data.  The App will match the picture on the photo ID to the facial image on the camera of the smart device using face recognition.  Once the director’s identity has been successfully proven, he or she will be able to start using the gov.uk One Login services.

Authorised agent requirement

Coman&Co is registered as an authorised Corporate Service Provider (ASPC.)  An ASPC is also known as a Companies House authorised agent.  Our UK Anti-Money Laundering (AML) supervisory body is the ACCA.

Accountants have been required to obtain photo ID and proof of address for all new clients since the introduction The Money Laundering Regulations 2007. 

Under the regulation enforced from 2025, our agency will be required to verify the identity of directors on Companies house prior to being able to file documents with the registrar on behalf of companies.  For every director, it will be a requirement to run an Anti-Money Laundering check.  In practice, this is carried out via our in-house software, using identity document validation technology.

We are required to confirm that the photo ID obtained for all directors represents a true likeness of the director.  The director’s details are then run through our software checking: name, and ID documents, against a centralised database.

The centralised database amalgamates various databases around the world for Politically Exposed Persons (PEPs) and Criminal Records.

Once Coman&Co has confirmed the director’s identity, we login to the ACSP portal and tell Companies House that we have completed the check on the individual director.  We need to enter the director's email address associated with the check.   In response, Companies House will email a code to the director concerned.  The email address has to be unique to each director.  The corresponding code is therefore unique and lifelong and can be thought of in that sense in the same way as a national insurance number.

The code will transcend companies.  Verified directors will not need to be verified again if they wish to be appointed to another company.

In summary, the director provides their unique code to his or her accountant, which will be required to file with Companies House.

The public register will show that Coman&Co carried out the check (our supervisory body, which is the ACCA) and the date on which the AML checks were carried out.

Coman &Co will retain name, email address, home address and date of birth for all directors who are also clients.  We are required to retain the ID check information for seven years.

Consequences of non compliance

Any director that does not carry out ID verification with both the registrar and with the authorised agent, will not obtain a code.  Without the code, a company would not be able to file required annual documents- such as the confirmation statement-.  Failure to file documents will result in compulsory strike off by Companies house.  A company that has been struck off does not exist and this usually means its bank account is automatically frozen.

Summary

In addition to the checks that the directors carry out for AML purposes, the authorised Corporate Service Provider, in our case Coman&Co, is required to carry out a corresponding ID check requirement.  This will place extra administrative burden on directors; and some could be dissuaded by privacy concerns.  On the other hand, the tighter requirements should act to improve the credibility of directors putting forward heir business via a UK registered company.

Optimal 2025/26 salary for contractor companies

Published: 01 May 2025

Updated: 01 May 2025

Written by Ray Coman

The reduction in the secondary threshold from £9,100 to £5,000, from 6 April 2025 has had an impact of contractor companies.  Most companies that are set up for the purpose of providing services for the self-employed consist of just one director.  A company with one director will not entitled to the employment allowance.

Changes from 2025/26

Husband wife or multiple director companies

Paying employees over £5,000 to preserve employment allowance

Scenario calculation

Our service

Changes from 2025/26

For contractor companies consisting of only one director, the reduction in employment allowance means that a further £4,100 of director’s salary is subject to national insurance.  According to the calculation, illustrated I the table below a salary of £12,570 is still optimal.  It requires a separate payment of tax through PAYE which introduces a minor administrative burden.  The lower earnings threshold has stay about the same level of the preceding year.  The level of £6,500 for 2025/26 is the earnings at which social security benefits accrue.  Significantly, enring of £6,500 or higher in 2025/26 add a year toward the number required to secure a basic state pension.

Husband wife or multiple director companies

The employment allowance is not sacrificed where more than one person is a director even if the company consists only of directors.  The most common form of multiple director contractor company occurs where husband and wife are both directors.  The requirement is that one director is not the only person liable to employer’s national insurance (but for the employment allowance.)  Therefore, if there are only two directors (for instance a married couple) and both are paid over the second national insurance threshold; the company will be eligible for employment allowance.

Paying employees over £5,000 to preserve employment allowance

It is also worth noting that if the company has employees (who are not directors) at least one of the employees would have to earn over the secondary threshold of the employment allowance to be restored.  There is therefore an tax incentive to pay an employee at least this amount.

Scenario calculation

With the employer's national insurance Income tax is payable on almost all forms income with exception of tax free income

Our service

At Coman&Co the director’s salary is processed as a March bonus.  This reduces the number of PAYE payments throughout the year to just one and thereby reduces the hassle associated with the optimal salary and dividend for a contractor company.  We have lengthy experience providing compliance service to small business and self-employed individuals including the many that choose to operate via limited company.  We provide a full support service and ensure that it is adjusted according to changing rules to maintain tax efficiency for our clients.  Please contact us for a free, initial meeting

Spring statement 2025

Published: 29 Mar 2025

Updated: 29 Mar 2025

Written by Ray Coman

The Spring Statement did not deliver any significant tax changes, focusing instead on welfare reform and toughening of tax enforcement.

Self-employment late payment penalties will be harder starting from next week

Consultation into cash ISAs

New quarterly reporting obligations from April 2026

High Income Benefit Charge to be collectable through PAYE

How Coman&Co can help

Self-employment late payment penalties will be harder starting from next week

Making tax digital for income tax and VAT requires sole traders and landlords to keep digital record and submit a quarterly report of income and expenses to HMRC.

Currently, taxpayers are charged a penalty equal to 2% of any tax unpaid on day 16 after the filing deadline and a further 2% penalty on any amount outstanding on day 31 after the filing deadline.

From April 2025, the penalty will increase to 3% for amounts between 15 days and 29 days late and a further 3% levied on any amounts still unpaid 30 days after the due date for tax.

Any tax unpaid 31 days after the due date will be subject to a further penalty.

A further penalty will start 31 days after the due date.  This is not a fixed penalty but a daily penalty.  The interest rate is 4% per annum, but it will be increasing to 10% per annum from April 2025.

As a reminder, the filing and payment deadline for VAT is one calendar month and seven days after the end of the VAT period.  (In practice a direct debit collects the VAT three working days after the payment deadline.)

In this example, VAT for the period ended 31 May 2025 is due by 7^th July 2025.  If £10,000 is still unpaid two months later by the 7^th September, the penalty would be £200 levied on 23^th July, a further £200 on 7^th August.  Between 8^th August and 7 September there are 31 days.  The day-rate penalty based on 10% applied to £10,000 is £85.  The total penalty would therefore be £485.

Consultation into cash ISAs

The government is considering a cut to the yearly allowance for a cash ISA from £20,000 to £4,000.  This is set to direct more investment into equities.  This remains at a consultation phase presently.

New quarterly reporting obligations from April 2026

Most self-employed individuals and landlords will be required to comply with Making Tax Digital for Income Tax from April 2026.  Any landlords or sole traders with income of £50,000 or more will be required to comply from April 2026.  This threshold will decrease to £30,000 in April 2027 and again to £20,000 in April 2028.  The reporting threshold is assessed on combined rental profits and self-employment profits for individuals with both activities.

Taxpayers who are required to submit residency and remittance pages of the Tax Return will not be required to join MTD for income tax until April 2027 regardless of income.  This grace period will benefit mostly non-resident landlords.

High Income Benefit Charge to be collectable through PAYE

From 2025/26, it will be possible to pay High Income Benefit Charge through the PAYE code.  The implication is that families will not need to register for self-assessment if Child Benefit is the only reason for needing to file a Tax Return.

How Coman&Co can help

We can assist our clients with quarterly reporting of profits.  At the time of writing our fee is £40 plus VAT per quarter for assisting with the MTD requirement.  Given that this would result in reduced calculation work at the year end, our MTD clients will enjoy a £40 discount on year end tax return fees.  The fee includes up to 10 transactions per quarter and any further bookkeeping would be charged at 50 pence per entry.

For clients who would like to be able to track income and expenses, we can assist with software selection.  Coman&Co resells QuickBooks at discounted price.