Income Tax

The mandatory rollout of Making Tax Digital (MTD) for Income Tax is set to begin in April 2026. MTD for ITSA will bring substantial changes to how businesses, self-employed individuals, and landlords interact with HMRC. The system will require them to register, file, pay, and update their details through an online tax account.

To prepare for the launch of MTD for Income Tax in April 2026, it is essential to start considering the use of accounting software that is compatible with sending updates to HMRC.

You will need to use MTD for Income Tax from 6 April 2026 if all of the following apply, you:

• are an individual registered for self-assessment;
• get income from self-employment or property, or both, before 6 April 2025; or
• have a qualifying income of more than £50,000 in the 2024 to 2025 tax year.

MTD for Income Tax will then be extended to those with an income between £30,000 and £50,000 from 6 April 2027.

It was announced as part of the Budget measures that MTD for Income Tax will be extended to sole traders and landlords with income over £20,000 by the end of the current Parliament. The precise timing of this change has yet to be confirmed.

If you believe you have overpaid tax to HMRC, you can typically claim a tax refund for the excess amount. The process for making a claim varies depending on factors such as whether you submit a self-assessment return and how much time has passed since the tax was overpaid.

According to HMRC you may be able to claim a refund if you have paid too much tax on:

• pay from a job
• job expenses such as working from home, fuel, work clothing or tools
• a pension
• a self-assessment tax return
• a redundancy payment
• UK income if you live abroad
• interest from savings or payment protection insurance (PPI)
• income from a life or pension annuity
• foreign income
• UK income earned before leaving the UK

An online tool to help assist in claiming a tax refund is available at https://www.gov.uk/claim-tax-refund/y

Claims can usually be backdated for up to four years after the end of the tax year. This means that claims can still be made for tax refunds dating back as far as the 2020-21 tax year which ended on 5 April 2021. The deadline for making claims for the 2020-21 tax year is 5 April 2025.

If you need any assistance in making a claim for overpaid tax, we are here to help.

The limit on Income Tax reliefs has applied since 6 April 2013. This measure was the first time a limitation to existing reliefs had been introduced.

The cap is set at the greater of 25% of income or £50,000. This limit applies to the total amount of relevant reliefs claimed in a tax year and is calculated individually for each tax year in which relief is claimed.

The main reliefs subject to this limit are:

• trade loss relief against general income and early trade losses relief claimed on the self-employment, Lloyd’s underwriters or partnership pages;
• property loss relief (relating to capital allowances or agricultural expenses) claimed on the UK property or foreign pages;
• post-cessation trade relief, post-cessation property relief, employment loss relief, former employees deduction for liabilities, losses on deeply discounted securities and strips of government securities claimed on the additional information pages;
• share loss relief, unless claimed on Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) shares claimed on the capital gains summary pages; and
• qualifying loan interest.

The limit applies in addition to other provisions that restrict the amount of relief that can be used to reduce total taxable income for the year. The limit does not affect the amount of trading losses which may be claimed against capital gains.

HMRC’s guidance explains, with supporting examples, how the limit is calculated, the measure of income used to calculate the limit, which reliefs are subject to the limit, and how different circumstances are treated. As the 2024-25 tax year begins to draw to a close, taxpayers should seek to ensure that wherever possible, they structure their finances to avoid the cap.

The current tax benefits for the letting of properties as short-term holiday lets (known as Furnished Holiday Lets – FHL) is to be abolished from April 2025. The changes will take effect on or after 6 April 2025 for Income Tax and for Capital Gains Tax and from 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains.

The changes will remove the tax advantages that current FHL landlords have received over other property businesses in four key areas by:

• applying the finance cost restriction rules so that loan interest will be restricted to basic rate for Income Tax;
• removing capital allowances rules for new expenditure and allowing the replacement of domestic items relief;
• withdrawing access to reliefs from taxes on chargeable gains for trading business assets;
• no longer including this income within relevant UK earnings when calculating maximum pension relief available.

After the repeal, properties previously classified as FHLs will be integrated into the individual's UK or overseas property business and will be governed by the same rules as non-FHL property businesses.

An anti-forestalling rule also prevents individuals from gaining a tax advantage by entering into unconditional contracts to claim capital gains relief under the current FHL rules. This provision applies from 6 March 2024, the date the measure was first announced.

The removal of the special tax regime for holiday lets is expected to have a significant impact on many involved in the short-term holiday rental market in the UK.

It was announced as part of the Autumn Budget measures that the government will not now proceed with the reform to base the High Income Child Benefit Charge (HICBC) on household incomes.

To make it easier for all taxpayers to get their HICBC right, the government will allow employed individuals to report Child Benefit payments through their tax code from 2025 and pre-prepopulate self-assessment tax returns with Child Benefit data for those not using this service.

The income threshold at which HICBC starts to be charged has been set at £60,000 since 6 April 2024. The charge is calculated at 1% of the full Child Benefit award for every £200 of income between £60,000 and £80,000. For taxpayers with income above £80,000 the amount of the charge is the same as the amount of Child Benefit received. The HICBC therefore either reduces or removes the financial benefit of receiving Child Benefit.

Claims can be easily made through the HMRC app or online, and new claims are automatically backdated for up to 3 months or to the child’s birth date if later.

Taxpayers can choose whether to continue receiving Child Benefit and pay the tax charge or opt to stop receiving it and avoid the charge. It is usually beneficial to claim Child Benefit as doing so can safeguard certain benefits and ensure your child receives a National Insurance number.

It is rumoured that the Chancellor will delay any increase in the Income Tax higher rate tax threshold beyond the present April 2028 freeze.

The UK Income Tax higher-rate threshold was last increased in April 2021, when it was set at £50,270. This amount was intended to remain frozen through to April 2028, as announced in the 2021 Budget. Ordinarily, Income Tax thresholds adjust with inflation to maintain their purchasing power, but the freeze has introduced “fiscal drag,” where inflation pulls more people into higher tax brackets without actual increases in their purchasing power.

To counter the effects of inflation since 2021, the higher-rate threshold would need a significant uplift. As of April 2023, Consumer Price Index (CPI) inflation stood at around 23.82% from the 2021 baseline. Adjusting for this increase, the higher-rate threshold would need to rise to approximately £62,240 to match its original value in real terms. Without this adjustment, taxpayers face an increased tax burden, as more of their income falls under the higher 40% rate than it would have if thresholds were inflation-indexed.

This freeze is estimated to bring over one million additional taxpayers into the higher rate by 2028 and increase tax revenue without raising the nominal tax rates. The policy’s cumulative effect is substantial, especially in a high-inflation environment, making a case for future adjustments to reflect inflation if purchasing power parity becomes a policy goal.

There are a little over three months remaining to file your self-assessment tax return online for 2023-24. The deadline is 31 January 2025. As this date approaches, an increasing number of individuals are reaching out to HMRC’s helpline for help. 

To help ease the demand, HMRC has shared the top five reasons people are calling the self-assessment helpline and is encouraging everyone to use the online resources for quicker access to information.

The 5 most common reasons for calling the helpline are:

1. I no longer need to complete a self-assessment tax return.
2. I need to register for self-assessment.
3. Can you tell me if I still have to complete a tax return?
4. What’s happening with my self-assessment registration?
5. What’s happening with my self-assessment repayment?

Taxpayers may need to complete a tax return, even if they pay taxes through PAYE, for example, if they:

• are self-employed and have earned gross income over £1,000;
• are self-employed and earned up to £1,000 and wish to pay Class 2 NICs voluntarily to protect their entitlement to State Pension and certain benefits;
• are a partner in a business partnership;
• had a total taxable income of more than £150,000;
• have received any untaxed income including pension income over £2,500;
• received income over £1,000 from trading or providing services online;
• have to pay the High Income Child Benefit charge;
• received interest from banks and building societies or investments (more than £10,000); or
• received rental or letting income from UK land and property.

Over 12 million taxpayers need to complete their self-assessment for the 2023-24 tax year and pay any taxes due by the 31 January 2025.

If you have submitted a self-assessment return and later realise you need to make changes, there are specific rules to follow. This situation might arise if, for instance, you entered a number incorrectly or omitted certain information from your self-assessment return.

If you filed your return online, you could amend your return online as follows:

1. Sign in to your personal tax account using your Government Gateway user ID and password.
2. From ‘Your tax account’, choose ’Self-Assessment account’ (if you do not see this, skip this step).
3. Choose ‘More Self-Assessment details’.
4. Choose ‘At a glance’ from the left-hand menu.
5. Choose ‘Tax Return options’.
6. Choose the tax year for the year you want to amend.
7. Access the tax return, make the corrections, and file it again.

You must wait 3 days (72 hours) after filing before updating your return. If you opted to file your return on paper, you would need to download a new return and fill in the pages that you wish to change and write ‘amendment’ on each page. You must also include your name and Unique Taxpayer Reference on each page and then send the corrected pages to the address where you sent your original return.

If you used commercial software to submit your self-assessment return, then you should contact your software provider in the first instance. If your software provider cannot help, contact HMRC.

The deadline for making changes for the 2022-23 tax year using the methods mentioned above is 31 January 2025. If you miss this deadline, you will need to write to HMRC. For example, if you discover an error in your 2021-22 return after 31 January 2024. Your letter should specify the tax year you are correcting, explain why you believe you have overpaid or underpaid tax, and state the amount involved. You can request a refund up to four years after the end of the relevant tax year.

A final reminder that the 2023-24 tax return deadline for taxpayers who continue to submit paper self-assessment returns is 31 October 2024. Late submission of a self-assessment return will incur a £100 late filing penalty. The penalty usually applies even if there is no liability or if any tax due is paid in full by 31 January 2025.

We would recommend that anyone still submitting paper tax returns consider the benefits of submitting the returns electronically and benefit from an additional three months (until 31 January 2025) in which to submit a 2023-24 return.

Taxpayers with certain underpayments in the 2023-24 tax year can elect to have this amount collected via their tax code (in 2025-26), provided they are in employment or in receipt of a UK-based pension. The coding applies to certain debts and the amount of debt that can be coded out ranges from £3,000 to £17,000 based on a graduated scale. The maximum coding out allowance only applies to taxpayers with earnings exceeding £90,000.

Daily penalties of £10 per day will also take effect if the tax return is still outstanding three months after the filing date up to a maximum of £900. If the return still remains outstanding further higher penalties will be charged from six months and twelve months after the formal payment deadline.

Self-assessment taxpayers typically need to pay their Income Tax liabilities in three instalments each year. The first two payments on account are due by 31 January during the tax year and by the 31 July after the tax year has ended. Each payment on account is based on 50% of the previous year’s net Income Tax liability. Additionally, the third (or balancing) payment is due on 31 January after the tax year ends.

If you expect your income for the following tax year to be lower than the previous year, you can apply to reduce your payments on account. This can be done through HMRC’s online service or by submitting form SA303.

It’s important to note that you do not need to make payments on account if your net Income Tax liability for the previous year is less than £1,000, or if more than 80% of your tax liability was collected at source.

There is no limit on the number of times you can apply to adjust your payments on account. If your liability for 2024-25 is lower than for 2023-24, you can request HMRC to reduce your payments. The deadline to submit a claim to reduce your payments on account for 2024-25 is 31 January 2026.

If your taxable profits have increased, there is no obligation to inform HMRC, but your final balancing payment will usually be higher.