Permanent increase to penalty interest rates
Permanent increase to penalty interest rates The new tax year saw a change to the way interest on late paid taxes is calculated. What’s changed and what are the new charges? for more help with your Business see our Services Page Prior to 2025/26, interest was charged at the Bank of England base rate plus 2.5% on most underpaid taxes. In a push for unpaid tax bills to be settled, it was announced at the 2024 Autumn Budget that this would change to the base rate plus 4% from 6 April 2025. The government says the rate of late payment interest encourages prompt payment and ensures fairness for those who pay their tax on time. From 6 April 2025 the following rates apply: There is no corresponding change to the way repayment interest rates are calculated, i.e. the base rate minus 1%, with a lower limit of 0.5%.
Do hybrid workers take fewer sick days?
Do hybrid workers take fewer sick days A survey of 2,000 hybrid workers by International Workplace Group has revealed that more than a third are taking fewer sick days than they did when they were working full time in the office. What are the potential reasons for this? for more help with your Business, see our Business Service page. There are numerous reasons why sickness absence rates are lower for hybrid workers than full-time office workers. These include that: Alongside many other benefits, a reduction in short-term sickness absence rates is a key benefit for your business of having hybrid working arrangements in place.
Hidden MTD news in Spring Statement documents
Hidden MTD news in Spring Statement documents Chancellor Rachel Reeves kept her pledge that there would be no more tax rises at the Spring Statement, but there are some important Making Tax Digital developments hidden away in the tax related documents. What do you need to know? The timetable for Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) includes mandating sole traders and landlords with revenue exceeding £50,000 from April 2026, then £30,000 the following year. The government has published a technical note alongside the Spring Statement documents that provide further details on the measures. The note includes the following key points: For more help with your Accounting need see our Services Page For Planning help see our Financial Page There is still no certainty of if and/or when taxpayers with income below £20,000 will be brought within MTD ITSA. The note simply says “As part of the ongoing rollout of MTD, the government will continue to explore how we can best bring the benefits of digitalisation to a greater proportion of the 4 million sole traders and landlords who have income below the £20,000 threshold.”
The Spring Statement 2025
The Spring Statement 2025 Chancellor of the Exchequer, Rachel Reeves, held the Spring Statement on Wednesday 26 March 2025. In the run up to the event, the Chancellor stated that she ‘remains committed to one major fiscal event a year to give families and businesses stability and certainty on upcoming tax and spending changes and, in turn, to support the government’s growth mission’. Table of contents. To see the Full Dunhams budget report download it here The Chancellor did meet her commitment that there would be no major tax announcements but tax is only one side of the equation. The other is spending and the Spring Statement confirmed a number of the measures recently announced, namely: There were also announcements about the rollout of the Making Tax Digital (MTD) for Income Tax project. Government spending announcements National security Reductions in the Official Development Assistance budget (overseas aid) will support an increase in NATO-qualifying defence spending to 2.5% of GDP by April 2027, with an ambition to increase to 3% in the next Parliament as economic and fiscal conditions allow. The Spring Statement accelerates towards this by providing an additional £2.2 billion of funding for the Ministry of Defence next year. Reform As announced by the Secretary of State for Work and Pensions, the government wants to create a more pro-work welfare system for those who can work and to protect those who cannot. These reforms are projected to save £4.8 billion from the welfare budget in 2029/30 and welfare spending will fall as a share of GDP in the medium term. This will include: The government is also looking for efficiencies from the state, including by bringing NHS England back into the Department of Health and Social Care. The Spring Statement announces a £3.25 billion Transformation Fund to drive efficiencies across government. Growth According to the government, growth is their central mission. The government will set out capital spending plans for the Parliament at the Spending Review in June. Ahead of that, the government has announced an additional £2 billion for social and affordable housing for 2026/27, as part of the government’s ambition to build 1.5 million homes in England in this Parliament, supported by reforms in the Planning and Infrastructure Bill. To ensure the construction industry has the capacity to deliver this government’s plan to get Britain building, the government has committed to a £625 million package for skills in construction, expected to provide up to 60,000 more skilled workers this Parliament. Personal Tax Tax bands and rates The basic rate of tax is 20%. For 2025/26 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% rate applies is £50,270 for those who are entitled to the full personal allowance. The basic rate band is frozen at £37,700 until April 2028. The NICs Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these tax years as well. The government has suggested that, from April 2028, these limits will then be uprated in line with inflation. For 2025/26 the point at which individuals pay the additional rate of 45% is £125,140. The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK. There are no changes to the taxation of savings and dividend income for 2025/26. Scottish residents The tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland from that paid by taxpayers resident elsewhere in the UK. The Scottish Income Tax rates and bands apply to income such as employment income, self-employed trade profits and property income. In 2024/25 a new 45% rate was introduced, making six Income Tax rates which range between 19% and 48%. The rates and bands for 2025/26 for taxable income are as follows: £ % 0 – 2,827 19 2,828 – 14,921 20 14,922 – 31,092 21 31,093 – 62,430 42 62,431 – 125,140 45 Over 125,140 48 Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK. Welsh residents Since April 2019 the Welsh Government has had the right to vary the rates of Income Tax payable by Welsh taxpayers (other than tax on savings and dividend income). For 2025/26 the tax payable by Welsh taxpayers is the same as that payable by English and Northern Irish taxpayers. The personal allowance The Income Tax personal allowance is fixed at the current level of £12,570 until April 2028. The government has suggested that, from April 2028, it will then be uprated in line with inflation. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. This means that there is no personal allowance where adjusted net income exceeds £125,140. The government will uprate the married couple’s allowance and blind person’s allowance for 2025/26. Pension tax limits For 2025/26: Non-UK domiciled individuals Significant changes are made to the tax regime relating to non-UK domiciled individuals. Broadly, from 6 April 2025, changes will be made to replace the remittance basis of taxation, which is based on domicile status, with a new tax regime based on residence. The new regime will provide 100% relief on foreign income and gains for new arrivals to the UK in their first four years of tax residence, provided they have not been UK tax resident in any of the ten consecutive years prior to their arrival. The protection from tax on foreign income and gains arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the four-year foreign income and gains regime. Transitionally, for Capital Gains Tax purposes, current and past remittance basis users will be able to rebase foreign assets they held on 5 April
HMRC MTD ITSA webinar – worth a look?
HMRC MTD ITSA webinar – worth a look Making Tax Digital will be mandatory for some traders and landlords next year. Ahead of this, the government is ramping up its guidance to help you get ready. What is the latest offering? Some sole traders and landlords will be mandated into Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) next April. HMRC has published a video purporting to explain MTD ITSA; though it really doesn’t say anything especially helpful, rather it seems to aim to convince the customer that MTD ITSA will be very helpful. It also initially implies the mandation threshold for 2026 is £30,000 – it isn’t, it’s £50,000 dropping to £30,000 in 2027. For more Help with Personal Taxes see our Services page. Perhaps more helpful is the opportunity to register for a live webinar on 3 April. This will cover some basics regarding what you will need to do once you are required to use MTD ITSA. You can register for the webinar here.
Relaxation of self-assessment threshold
Relaxation of self-assessment threshold HMRC has promised a change to the threshold at which self-employed taxpayers need to complete a tax return. What do we know so far? Currently, those with trading income exceeding £1,000 must submit a tax return each year, even if they do not have any tax to pay. HMRC has announced that the threshold will increase to £3,000, which it estimates will mean up to 300,000 people no longer needing to submit tax returns. There is no firm date for this, with the government saying that it will happen “within this parliament”, i.e. before the next general election. If You want more Help with Your Personal Taxes The threshold applies to the gross income the self-employed person earns in a tax year, i.e. before deducting any expenses. Some affected individuals will still have an income tax liability, and HMRC intends to launch a “simple” online service to collect the tax in the absence of a self-assessment tax return. However, there is no information about what this will look like or how it will work yet.
MONTHLY FOCUS: PROFIT EXTRACTION FOR 2024/25
MONTHLY FOCUS: PROFIT EXTRACTION FOR 2024/25 – Dunhams News Blogs The 2024/25 tax year has been a reprieve from the fiddly tinkering which has plagued profit extraction in recent years. There have been no in-year changes to NI rates or corporation tax rates etc. to deal with. As a result, you can focus on your remuneration strategy with more clarity. This is a welcome relief – especially as the 2024 Autumn Budget means 2025/26 will be a different story! This Monthly Focus will help you to form a profit extraction strategy that will keep more of your profit in your bank account and not HMRC’s. Page Content:- DIRECTORS’ ALTERNATIVE BASIS SALARY AND DIVIDENDS BEYOND SALARY AND DIVIDENDS NI AND OTHER RATES AND THRESHOLDS In this section, we summarise the important rates and thresholdS. Class 1 Thankfully, there was no in-year change in NI rates for employees. From April 2024, the main rate of primary Class 1 NI was reduced to 8%. It’s possible for a director to elect for an alternative method where the NI is worked out based only on the pay received in a particular period, i.e. similar to the method for regular employees. At the end of the year an adjustment is made to reconcile any over or underpayments (see Chapter 2). The effect of this is to align the contributions with those that would be payable if the standard method of NI was used, and potentially correct over or underpayments. For employers, the rate for secondary Class 1 remains at 13.8%, but this will increase to 15% from 6 April 2025. Further, the secondary earning threshold, i.e. the amount an employer can pay a director per year is reduced to £5,000 from the same date. Class 2 and 4 For self-employed individuals, there are two classes of NI that apply. Class 2 is a fixed weekly amount of £3.45 for 2024/25. However, it no longer needs to be paid on a compulsory basis. Instead, if your profits exceed the lower profits limit, £6,725 for 2024/25 and 2025/26, it will be treated as paid for the purpose of state benefit entitlement. If profits are below this, you will need to pay on a voluntary basis in order to accumulate entitlement for the year. Class 4 is a profits-based charge. It will only apply if your self-employed profits exceed £12,570 in 2024/25 or 2025/26. Class 4 NI does not confer any state benefit entitlements and is essentially a tax in all but name. The employment allowance (EA) The EA for 2022/23 to 2024/25 is £5,000. For 2025/26 and later years it is £10,500. The EA reduces employers’ NI by the lesser of the EA and the amount of employers’ NI payable. However, the following employers are excluded: The 2024 Autumn Budget announced that the later restriction will be scrapped from 6 April 2025. This is worth keeping in mind, especially as the EA is increasing to £10,500 at the same time. For more Help with Your Accounts see our Services Pages. Dividends The dividend rates from 2023/24 have been retained. The dividend allowance (really a 0% rate) has been reduced to just £500 from April 2024. The rates are as follows for 2024/25: Dividends within the dividend allowance use up the tax band they fall into. Other recent changes affecting profit extraction Since April 2023, the main rate of corporation tax (CT) increased from 19% to 25%, with a return to marginal relief. Affected companies will have less after-tax profit available for distribution. DIRECTORS’ ALTERNATIVE BASIS In this section we look at the way that directors are subject to NI, including an alternative basis that can be advantageous in certain situations. Alternative basis v standard basis Unlike general employees, directors are able to exercise some control as to how much they get paid and when. This could allow them and their companies to unfairly reduce NI contributions. To prevent this, special rules apply so that their Class 1 NI liability is calculated according to their earnings for the tax year as a whole (the annual earnings period) instead of one linked to their pay interval. The rules mean that the director pays no NI until the annual earnings threshold (£12,570) is reached. They then pay NI on all earnings at the main percentage rate (8% for 2024/25) until the annual upper earnings threshold (£50,270) is reached, subsequently paying NI at 2% on all earnings above that. To work out the contributions due in respect of each payment, it is simply a case of working out the NI liability using the annual limits on all earnings in the year to date and deducting any NI paid to date. The effect of this is that the director enjoys a low NI burden at the start of the year until their earnings to date reach the earnings threshold. The bulk of the NI liability is then paid until earnings reach the upper earnings limit. Once that is reached, things get slightly easier in that contributions are only payable at a rate of 2% on all subsequent earnings. However, HMRC allows directors to adopt an alternative method, by which NI contributions are calculated for most of the year as for other employees, i.e. using normal monthly or weekly earnings periods and on a non-cumulative basis. The position is reviewed at the end of the year and once the final payment is made the annual liability is calculated. The contributions due on the final payment are found by calculating the annual liability less the total of any contributions paid in the year. The director still has an annual earnings period – they are simply making payments on account of that liability throughout the year. Benefits of alternative basis The alternative basis is useful for directors who draw regular payments as salary or bonuses, as it helps to spread the NI burden throughout the year. In most cases, it won’t be helpful to directors who vote their salary at the end of the year and don’t
Government seeks views on inheritance tax changes for trusts
Government seeks views on inheritance tax changes for trusts The government has opened a consultation on aspects of the application of the £1m allowance for property settled into trust qualifying for 100% agricultural property relief or business property relief. What is this looking at and how do you take part? For more help see our Personal Accounting Services. As announced at the 2024 Autumn Budget, a new £1m allowance will apply to the combined value of property that qualifies for 100% business property relief or agricultural property relief from inheritance tax. The value of the estate exceeding the allowance will be subject to relief at a lower rate of 50%. A consultation has now been launched which outlines how the £1m allowance will operate in respect of both existing trusts and trusts yet to be formed. As with any major change to the tax rules involving trusts, the transition is complicated, and the consultation asks whether the rules on application are sufficiently clear, as well as requesting views on other matters. Have your say here by 23 April 2025. The consultation also revealed key information for individuals – it is confirmed that the £1m allowance refreshes every seven years (as the nil rate band does), and transfers made prior to 30 October 2024 (Budget Day) will not use up any of the £1m allowance.
Latest advisory fuel rates for company cars
Latest advisory fuel rates for company cars The amount that employers can reimburse staff for business travel in company cars changes from 1 March 2025. What are the new rates? Advisory fuel rates for company cars are updated by HMRC on a quarterly basis due to fluctuations in fuel prices. The rates determine the amount that can be paid to an employee using a company car for business mileage, or where an employee has to reimburse their employer for private journeys. Providing HMRC’s rates are used, there are no income tax consequences for the employee. For more Help with Your accounting needs see our Accounting Services Page. HMRC has now published the rates applicable from 1 March 2025. The rates per mile will be: Engine size Petrol LPG 1,400cc or less 12p 11p 1,401cc to 2,000cc 15p 13p Over 2,000cc 23p 21p Engine size Diesel 1,600cc or less 12p 1,601cc to 2,000cc 13p Over 2,000cc 17p The rate for fully electric vehicles will stay consistent at 7p per mile. Hybrid cars are treated as either petrol or diesel cars for the purposes of advisory fuel rates. Take a look at Our Financial Services These rates apply from 1 March 2025, and although it is possible to use the previous rates for another month, some of the new rates are slightly higher so should be used from 1 March.
Late payment interest rates changed again
Late payment interest rates changed again Late payment interest rates on underpaid taxes will soon decrease again due to the recent reduction in the Bank of England’s base rate. What are the new charges? On 6 February 2025 an announcement confirmed a reduction in the Bank of England base rate to 4.5% from 4.75%. As HMRC’s late payment and repayment interest rates are linked to the base rate, they will also come down. Get more help from our Business Tax Services page. From 17 February 2025 the following rates will apply: From 25 February 2025, the rates for other taxes will be: Penalty interest can be avoided by paying your tax bill on time. You can use HMRC’s calculator to calculate the late payment interest and any penalties due for previous tax years.