Income Tax

HMRC is in the process of writing to some individuals defined as a ‘Person of significant control’ (PSC) to raise awareness of potential tax liabilities and to help ensure their self-assessment tax returns are completed correctly for 2025-26.

The letters explain that an individual may be a PSC if they hold more than 25% of a company’s shares or voting rights, have the right to appoint or remove most of its directors or exercise significant influence or control over the company. HMRC stresses that the letter is an awareness campaign and is not a formal compliance check.

The letter highlights several situations that may have personal tax implications, including using company funds to pay personal expenses, using company assets without paying the market rate, transferring assets between an individual and their company, receiving interest-free or low-interest loans, exercising share options and disposing of shares, property or other assets.

HMRC is asking recipients to review their tax position and take the following action before 31 January 2027:

• Check their 2025/26 tax return. Ensure that any relevant income, benefits and transactions are reported correctly. The filing deadline is 31 January 2027.
• Review tax returns for earlier years. If errors are identified, taxpayers should amend their 2024-25 tax return and/or make a voluntary disclosure to HMRC for 2023-24 and earlier years. This could result in additional tax being due as well as interest and potentially penalties. The letter also states that any future disclosure relating to the issues raised by the letter will be treated as prompted, which may affect the penalties charged.

If you have received a letter from HMRC and are unsure whether your tax returns are correct or whether a disclosure is needed, we can help you review your position and discuss the appropriate next steps.

The Autumn Budget 2026 saw no changes to the Income Tax thresholds. From next April, the personal allowance will remain at £12,570, while the basic rate limit remains £37,700 and the higher rate threshold remains £50,270 in England, Wales and Northern Ireland. These thresholds remain frozen under previously announced policy until April 2031. Scottish Income Tax rates and thresholds differ.

From April 2027, the tax rates applying to savings income will increase. The savings basic rate will rise from 20% to 24%, the savings higher rate from 40% to 44%, and the savings additional rate from 45% to 49%.

The rates applying to property income will also increase from April 2027. The property basic rate will be 24%, the property higher rate 44% and the property additional rate 49%. These rates apply in England, Wales and Northern Ireland, while devolved arrangements may affect the rates applying in Scotland.

When these increases were first announced in last year’s Budget, the planned tax rates for savings and property income were 2% lower than the rates now due to take effect from April 2027. The Chancellor increased the planned tax rates in his Budget speech.

The tax rates on dividend income will remain unchanged in 2027-28. The ordinary rate is 10.75%, the upper rate is 35.75% and the additional rate is 39.35%. These rates apply to dividend income above the £500 dividend allowance.

The Personal Savings Allowance also remains unchanged. Basic rate taxpayers can receive up to £1,000 of savings income tax-free, while higher rate taxpayers can receive up to £500. The starting rate for savings remains 0% on up to £5,000 for eligible lower-income savers, subject to the relevant conditions.

The Government will introduce a new Pension Tax Allowance from 6 April 2027, initially for three tax years. The allowance is designed to prevent pensioners whose total income is up to the value of the full new State Pension from being brought into paying Income Tax. The allowance will be calculated at the basic rate of 20% on the difference between the full new State Pension and the Personal Allowance. For pensioners with income above the full new State Pension, the allowance will be reduced by £1 for every £3 of additional income.

It was announced as part of the Autumn Budget measures that the Trading Allowance will increase from £1,000 to £3,000 from 6 April 2027. The increase will help people earning small amounts from trading or other miscellaneous activities, while reducing the administrative burden of reporting this income to HMRC.

The Trading Allowance allows individuals to receive a certain amount of trading income tax-free. This can include income from selling goods or providing services. Where an individual's total relevant income is no more than £3,000, the allowance will mean they will not have to pay tax on that income or report it to HMRC, provided the relevant conditions are met.

Individuals whose income exceeds the allowance may also be able to claim it against their income instead of deducting actual business expenses. However, they cannot claim both the allowance and expenses against the same income. It is therefore worth comparing the available options where expenses are significant.

The Budget will also increase the trading income reporting threshold for self-assessment to £3,000 from 6 April 2027. This means that some taxpayers earning small amounts from trading may no longer need to complete a self-assessment tax return solely to report this income, although other reasons for filing a return may still apply.

The Government estimates that up to 1.4 million individuals could benefit from the changes, either through lower tax bills or simpler reporting requirements. Around 400,000 people are expected to see a reduction in their tax bill, averaging £380, while approximately 100,000 may no longer need to report their trading income to HMRC. The changes will be introduced through Finance Bill 2026-27 and will apply from 6 April 2027.

HMRC is beginning to issue tax calculation letters (P800) and Simple Assessment notices (PA302) to collect any tax owed on bank and building society interest earned during the 2025-26 tax year.

Some taxpayers may already have received a Simple Assessment for the 2025-26 tax year that did not include their savings interest. If HMRC subsequently receives details of that interest, it may issue a second notice covering the same tax year. This will show the total tax owed, including any amount from the original notice. Taxpayers should deduct any payments already made in order to reveal the outstanding balance.

Taxpayers who pay tax through PAYE generally do not need to take action, as HMRC will adjust their tax code to collect the underpayment. However, if HMRC cannot collect the tax through PAYE, or the amount owed exceeds £3,000, a Simple Assessment notice will explain the amount due and how to pay. Taxpayers whose income from savings and investments exceeds £10,000 must complete a self-assessment tax return.

Interest figures shown on bank statements and tax codes may differ because tax codes include only taxable interest, HMRC may use estimates, and some interest may be covered by tax-free allowances.

Most people can earn some savings interest without paying tax, depending on their circumstances. The Personal Savings Allowance allows basic-rate taxpayers up to £1,000 and higher-rate taxpayers up to £500 of interest tax-free. Additional-rate taxpayers receive no Personal Savings Allowance.

If you believe your Simple Assessment is incorrect you should review the notice promptly, as you have 60 days from its date to formally query it with HMRC. Anyone already registered for self-assessment for the relevant year should ask HMRC to withdraw the Simple Assessment.

If you are unsure whether an assessment is correct or how much remains payable, we can help you review the figures and understand what action may be needed.

Company directors who complete a self-assessment tax return should be aware of new mandatory reporting requirements that came into effect from the 2025-26 tax year. The changes mainly affect directors of close companies, including many owner-managed and family businesses.

Previously, directors could voluntarily identify themselves as directors of close companies on the employment pages (SA102) of their tax returns. The new requirements make this information mandatory and introduce additional disclosures to help HMRC identify income received from companies controlled by their directors.

Affected directors must provide the name and registered number of the close company, the amount of dividends received from the close company during the tax year, and the highest percentage of the close company’s share capital held during the relevant tax year.

A close company is broadly one controlled by five or fewer participators, or by participators who are directors. A participator is someone with an interest in the company’s capital or income, usually a shareholder.

The changes are intended to give HMRC a clearer picture of the relationship between directors and their companies, particularly where individuals receive dividends from businesses they own or control.

Importantly, the new rules do not mean that every company director must submit a tax return. Directors who are not otherwise required to file a self-assessment return do not have to register solely to provide this additional information.

Directors who already file returns should ensure they have the relevant company details, dividend figures and shareholding information available when preparing their 2025-26 return which is due to be submitted by 31 January 2027 at the latest.

Taxpayers who need to pay the High Income Child Benefit Charge (HICBC) for 2025-26 may be able to pay it through PAYE rather than completing a self-assessment tax return solely to report the charge.

The HICBC applies where an individual or their partner receives Child Benefit and the individual’s adjusted net income exceeds £60,000. The amount payable increases with income, reaching the full amount of Child Benefit when adjusted net income reaches £80,000.

The charge can also apply where another person claims Child Benefit for a child living with you and contributes at least an equal amount towards the child’s upkeep, regardless of whether the child is your own.

The charge can be paid through self-assessment or PAYE, depending on the taxpayer’s circumstances. HMRC allows eligible taxpayers to pay through PAYE by adjusting their tax code. Taxpayers can register using HMRC’s online service. Once registered, HMRC will adjust the tax code and notify the taxpayer and their employer or pension provider, where relevant. For the 2025-26 tax year, this must be done before 31 January 2027.

Those who have previously submitted self-assessment returns solely to pay the HICBC can also switch to PAYE. They will need to contact HMRC by telephone to leave self-assessment and register for PAYE payment. 

Anyone who must submit a tax return for another reason, such as self-employment income or taxable investment income, must continue to report and pay the HICBC through self-assessment.

Choosing to pay the HICBC through PAYE can simplify tax reporting for eligible taxpayers, avoiding the need to file a self-assessment tax return solely because of the charge.

HMRC is writing to individuals it believes may have failed to declare consultancy income from private healthcare providers on their self-assessment tax returns. The letters follow information received from private healthcare providers and form part of an HMRC campaign specifically targeting the medical sector. 

The letter asks recipients to check their tax returns and make sure all consultancy income has been included. HMRC stresses that the letter is not a compliance check at this stage but warns that failing to take action could lead to a compliance check and potentially higher penalties if errors are subsequently found.

Recipients are given 30 days from the date of the letter to respond. If a tax return is incorrect and is still within the normal amendment period, it can be amended. Where the deadline for amending the return has passed, the individual can make a voluntary disclosure to HMRC instead.

Anyone who believes they have no consultancy income to disclose is also asked to contact HMRC within the 30-day period. If the recipient does not respond, HMRC says it will continue to monitor the individual’s records and may make a decision based on the information it holds.

The letter also highlights the potential impact on penalties. If HMRC subsequently finds an error, a disclosure made after the letter has been received will generally be treated as ‘prompted’. This can affect the penalty reduction available. However, HMRC says penalties can be reduced where individuals provide full details of mistakes, disclose them promptly and take steps to put matters right.

If you think you may be affected by this campaign, we can help you review your tax returns, identify any undeclared consultancy income and deal with HMRC where necessary. Please contact us if you would like advice on what to do next.

Some taxpayers have already started to receive Simple Assessment letters from HMRC for the 2025-26 tax year, with a further tranche due to be sent between October and December 2026.

Simple Assessment is used where HMRC cannot collect income tax through PAYE or self-assessment. The PA302 letter sets out HMRC’s calculation of the tax due, based on information it holds. Common examples include tax due on pension income, savings interest, dividends or if the taxpayer has a second source of income that has not been taxed. It can also apply where someone has received more tax-free allowance than they were entitled to, or where the amount owed cannot be collected through a tax code, typically £3,000 or more.

HMRC began sending letters to working-age taxpayers from 30 June 2026, followed by letters to pensioners from 12 August. A second tranche, relating to bank and building society interest (BBSI) data, is expected to be issued between October and December 2026. In some limited cases, taxpayers may receive more than one letter for 2025-26.

Tax can be paid in full or by instalments, with the deadline depending on when the Simple Assessment letter is received. For the 2025-26 tax year, letters received before 31 October 2026 require payment by 31 January 2027. Letters received on or after 31 October 2026 require payment within three months of the date of the letter. 

HMRC expects to issue around 1.8 million Simple Assessment letters for the year. Taxpayers receiving a letter should check the calculation carefully against their own records and contact HMRC if they believe any information is incorrect or the assessment should be withdrawn. 

If you receive a Simple Assessment letter and are unsure whether the calculation is correct, what you need to pay or what action you should take, please contact us. We can review the assessment and help you understand what it means and how to deal with it.

HMRC has launched an improved online service to make it easier for individuals to register for self-assessment. Anyone who needs to submit a tax return for the first time for the 2025–26 tax year should notify HMRC by 5 October 2026 to avoid a potential penalty.

The new service is available through a Personal Tax Account and includes pre-populated information, online support during registration and the ability to save and return without losing information. Taxpayers will also receive confirmation by email or text when their registration is complete.

Once registered, taxpayers receive a Unique Taxpayer Reference (UTR), which is needed to complete their tax return. Under the new service, the UTR should appear in the taxpayer's online account within 72 hours, instead of taking up to 15 days to arrive by post.

Taxpayers who are unsure whether they need to submit a tax return can use HMRC's online checking tool. Those who need to register may include newly self-employed individuals with gross trading income above £1,000, a new partner in a business partnership and taxpayers with more than £2,500 of untaxed income.

The deadline for submitting the 2025–26 self-assessment tax return and paying any tax due is 31 January 2027.

Anyone who no longer needs to complete a tax return should tell HMRC as soon as possible. Until HMRC confirms that a self-assessment return is no longer required, taxpayers should continue to meet their self-assessment filing obligations.

The new registration service is currently available to individual taxpayers with a Personal Tax Account. Agents must continue to use the existing registration processes, including using forms CWF1 or an SA1, to register.

Self-employed people can choose to use simplified expenses to calculate certain business costs using flat rates rather than working out their actual expenses.

The system can save time and make record keeping easier, but it will not necessarily produce the best tax position. It is therefore worth comparing the flat rates with the actual costs before deciding whether it suits your business.

Simplified expenses are available to sole traders and partnerships that have no companies as partners. They cannot be used by limited companies or partnerships involving a limited company.

Flat rates can be used for certain vehicle costs, working from home and living at business premises. Other expenses must generally be calculated using the actual costs.

For vehicles, the 2026–27 rate for cars and goods vehicles is 55p per business mile for the first 10,000 miles, falling to 25p per mile thereafter. Motorcycles qualify for 24p per mile.

For working from home, the monthly flat rate is £10 for 25 to 50 hours, £18 for 51 to 100 hours and £26 for 101 hours or more.

Businesses operating from premises that are also the owner's home can also use flat rates to account for private use, depending on the number of people living there.

Records of business mileage, home-working hours and people living at business premises should still be kept. Using HMRC's simplified expenses checker can also help compare the flat-rate method with claiming actual costs before making a decision.