director’s loans: how to stay clear of unwanted tax charges
June 2026

Many business owners withdraw funds from their companies beyond salary and dividends at some point. It could cover a short-term personal cost, help with a property deposit, or bridge the gap between dividend declarations.

That flexibility can be useful, but director’s loan accounts come with tax rules that are easy to underestimate. If the balance is not managed properly, the company may face a section 455 tax charge, the director may have a taxable benefit, and HMRC may challenge repayments that appear to be short-term fixes.

The rules matter even more in 2026/27 because the section 455 rate has increased for new loans made from 6 April 2026.

This guide explains how director’s loan accounts work, when tax charges arise, and what practical steps can help keep the position under control.

what a director’s loan account records

A director’s loan account, often called a DLA, records money owed between you and your company outside normal salary, dividends, reimbursed expenses or genuine business costs paid personally or by the company. 

If you put personal money into the company, for example, to cover early trading costs, the company owes you. The DLA shows a credit balance.

If you take money out of the company for personal use and it is not salary, a dividend, an expense repayment or another business payment, you owe the company. The DLA shows a debit balance.

This distinction matters because most owner-managed limited companies are “close companies” for tax purposes. Broadly, a close company is one controlled by five or fewer participators, or by participators who are also directors. A participator is usually someone with a share or interest in the company, such as a shareholder.

The UK had around 2.1 million actively trading companies at the start of 2025, according to government business population estimates, so these rules affect a large number of small and owner-managed companies.

Section 455 of the Corporation Tax Act 2010 is designed to stop owners extracting company profits as informal loans instead of taking a salary or dividends, which would normally carry income tax and, in some cases, National Insurance.

when section 455 tax applies

If your DLA is overdrawn at the end of the company’s accounting period, and the balance is not repaid within nine months and one day of the year-end, the company must pay a section 455 tax charge.

For loans made on or after 6 April 2026, the rate is 35.75%. This follows the increase in the higher dividend tax rate for 2026/27. Loans made before 6 April 2026 are not automatically brought into the new rate. In many cases, loans made from 6 April 2022 to 5 April 2026 remain within the 33.75% section 455 rate.

For example, say your company has a 31 March 2027 year-end, and you take a £40,000 director’s loan in May 2026. If the loan is still outstanding on 1 January 2028, the company will owe section 455 tax of £14,300.

That charge is paid by the company, not by the director personally. It is reported through the company’s Corporation Tax return, using the CT600A supplementary pages.

Section 455 is not a permanent tax. Once the loan is repaid, released or written off, the company can claim relief. But the timing can still create a real cashflow problem, because the money may sit with HMRC for some time before it can be recovered.

A few points are worth noting:

• The rules apply to loans made to participators, which usually means shareholders, and can also catch loans to people connected with them.
• Several small withdrawals can still create an overdrawn loan account. Taking £2,000 a month for personal spending can lead to the same problem as taking a £24,000 loan.
• The charge applies to the company, but the director can also face separate personal tax consequences if the loan is interest-free or written off.

exemptions worth knowing

Not every company loan gives rise to a section 455 charge. The main exemptions include:

• Loans of no more than £15,000 to a full-time employee or director who does not have a material interest in the company. Broadly, this means they do not hold more than 5% of the ordinary share capital.
• Normal trade credit on business transactions, provided it is settled within the required time limits.
• Loans made by a company whose ordinary business includes money lending.

These exemptions are useful, but they are narrow. For most owner-managed companies, the safer working assumption is that an overdrawn director’s loan account can trigger section 455 unless it is cleared properly and on time.

the beneficial loan rules and the £10,000 threshold

Section 455 is not the only issue. If a director owes the company more than £10,000 at any point in the tax year, and pays no interest or pays interest below HMRC’s official rate, the director may have a taxable benefit-in-kind.

HMRC’s official rate of interest is 3.75% from 6 April 2025 (reviewed quarterly).

Where a taxable beneficial loan exists:

• The director pays income tax on the interest they avoided paying, not on the full value of the loan. HMRC calculates this using its official rate, currently 3.75%. 
• The company reports the benefit on Form P11D.
• The company pays Class 1A National Insurance on the benefit, at 15% for 2026/27.

This can catch people out because the beneficial loan rules work separately from section 455. A loan might be repaid within nine months of the company’s year-end, avoiding a section 455 charge, but still create a P11D benefit if it exceeded £10,000 during the tax year and was interest-free or low-interest.

The simplest way to avoid this is to keep the balance below £10,000 throughout the tax year. If that is not possible, the company can charge interest at or above HMRC’s official rate and make sure the interest is actually paid.

A written loan agreement is also sensible. It should set out the amount borrowed, the interest rate, repayment terms and what happens if the balance is not cleared.

bed and breakfasting: why quick repayments may not work

HMRC is alert to directors repaying loans just before the deadline, then borrowing the money again shortly afterwards. Two anti-avoidance rules are designed to stop this.

The first is the 30-day rule. This can apply where repayments of £5,000 or more are made, and new loans of £5,000 or more are taken within a 30-day period. In broad terms, the repayment can be matched against the new borrowing, leaving the original loan outstanding for section 455 purposes.

The second is the arrangements rule. This can apply where at least £15,000 is outstanding before repayment and, at the time of repayment, arrangements exist for at least £5,000 of new loans to be made. There is no simple 30-day escape from this rule.

These rules look at the substance of what happened, not just the dates on the bank statement. Repaying a loan with the intention of withdrawing the funds later can fail, even when the timing appears carefully planned.

what happens if a loan is written off

Sometimes, a director cannot repay an overdrawn DLA, and the company considers writing it off. This is possible, but it should not be treated as an easy fix.

For a director who is also a shareholder, the written-off amount is usually treated as a distribution for income tax purposes. In 2026/27, dividend tax rates are 10.75% for basic rate taxpayers, 35.75% for higher rate taxpayers and 39.35% for additional rate taxpayers, after the dividend allowance.

The dividend allowance remains small (£500), so most of a written-off balance may be taxable.

There may also be National Insurance and employment tax points to review, especially where the director is an employee of the company. HMRC’s guidance says written-off employee loans must be reported, with Class 1 National Insurance due on the value of the benefit, though the precise treatment depends on the facts.

The company can usually claim relief for section 455 tax once the loan has been repaid, released or written off. But the personal tax cost often makes a write-off an expensive way to clear the position.

reclaiming section 455 tax

Section 455 is a temporary charge, but the reclaim process is not immediate.

A close company can claim relief where the loan has been repaid, released or written off. HMRC confirms that relief cannot be claimed until 9 months and 1 day after the end of the Corporation Tax accounting period in which the loan was repaid, released, or written off.

For example, if a company with a 31 March 2027 year-end repays a loan during that accounting period, the earliest repayment date for section 455 relief would normally be 1 January 2028.

The company will need details, including:

• The accounting period in which the loan was made.
• The date and amount of the original loan.
• The accounting period in which the loan, or part of the loan, was repaid, released or written off.
• The date and value of the repayment, release or write-off.

Partial repayments can lead to partial relief, so the company does not always need to clear the full loan before claiming some tax back.

repayment allocation: why records now matter more

The move to a 35.75% section 455 rate creates a practical planning point. Some companies may now have director’s loans made before 6 April 2026 at the 33.75% rate, as well as newer loans made on or after 6 April 2026 at the 35.75% rate.

Where repayments are made, it is important to record which loan the repayment clears. This can affect how much Section 455 tax can be relieved, and when.

If no allocation is made, HMRC may apply default principles that do not yield the most helpful result for the company. In practice, older borrowings may be treated as repaid first, leaving newer, higher-rate loans outstanding.

The point does not need to be overcomplicated. A simple written record at the time of repayment can help. For example, the director could email the company confirming that a specific payment is intended to repay the loan advanced on a particular date.

The key is to make the allocation clear before any dispute arises.

practical steps to stay clear of charges 

The rules are technical, but good habits make a big difference.

Keep the DLA up to date

Do not leave the director’s loan account until the year-end accounts are prepared. Review it monthly, especially where the director regularly pays personal costs through the company or draws funds outside payroll.

A current DLA balance makes it easier to decide whether to vote a dividend, repay funds, charge interest or adjust drawings before the position becomes costly.

Plan dividends properly

If the company has sufficient distributable profits, a dividend can be used to clear an overdrawn DLA.

This must be done properly. The company should have board minutes, dividend vouchers and evidence that profits were available at the time. HMRC can challenge dividends that were not validly declared.

A dividend cannot be paid if the company does not have sufficient retained earnings. In that case, the payment may simply worsen the director’s loan position.

Watch the £10,000 threshold 

The beneficial loan threshold applies if the total loan balance exceeds £10,000 at any point in the tax year.

This means a short spike over £10,000 can still create a reporting point. If the balance is likely to exceed the threshold, decide early whether to charge interest and how it will be paid.

Avoid circular repayments

Repaying a loan just before the deadline and then withdrawing the same funds can trigger the anti-avoidance rules.

If the company needs to clear a loan, use a real repayment, a properly declared dividend, a salary or bonus processed through payroll, or another commercial method that reflects the facts.

Put loan terms in writing

A written loan agreement helps show that the company and director intended to create a genuine loan with clear repayment terms.

This is especially important for larger balances, repeated withdrawals, interest-bearing loans or situations where the company has more than one shareholder.

Record repayment allocations

When both old and new loans are in play, state which loan each repayment clears. This is now more important because different loans can carry different Section 455 rates.

Keep the record with the company’s tax files and board papers.

Act before the year-end 

Once the accounting year has ended, the nine-month repayment clock starts. The earlier the DLA is reviewed, the more options are usually available.

A year-end review should consider the current DLA balance, likely future drawings, retained profits, dividend planning, payroll options, available cash, and the director’s personal tax position.

summing up

A director’s loan account is a normal part of many owner-managed companies. Used carefully, it can offer flexibility. Left unchecked, it can create an expensive mix of section 455 tax, benefit-in-kind charges, National Insurance and admin.

The increase in the section 455 rate to 35.75% for new loans made from 6 April 2026 makes regular monitoring even more important.

If your DLA is overdrawn, you are thinking about taking money from the company, or you want to review the position before the year-end, please get in touch. A short review now can help avoid a much larger tax problem later.

We are here to help you. Reach out today if you have any questions. 

pension allowances
June 2026

Pensions remain one of the most tax-efficient ways to save for the long term. They can help reduce taxable income, support business owners’ extraction planning, and build retirement wealth in a structured way. Problems usually arise when contributions are made without first checking the rules. That is when an otherwise sensible pension contribution can trigger an unexpected tax charge.

The good news is that most surprise tax bills come from a relatively short list of issues. The main ones are the annual allowance, the tapered annual allowance for higher earners, the money purchase annual allowance after flexibly accessing benefits, and missed carry-forward checks. For the 2025/26 tax year, the standard pension annual allowance is £60,000, but it can be as low as £10,000 in some cases.

This guide sets out the main allowance checks to make, where tax charges tend to arise, and how to build a simple review process before contributions are paid.

start with the standard annual allowance

For most people, the first check is the standard annual allowance. For the 2025/26 tax year:

• the standard annual allowance is £60,000
• it applies across all of your pensions combined, not to each pension separately
• going above it can trigger an annual allowance tax charge if you do not have enough carry forward available.

That sounds straightforward, but the key point is that the test is not based solely on the cash you personally paid in. Depending on the type of pension, the relevant figure may include:

• personal contributions
• employer contributions
• contributions made by someone else on your behalf
• pension growth measured under defined benefit rules, not just cash paid into a pot.

This is one reason people can be caught out. They assume they are safely below the limit because their own monthly contributions look modest, but the real pension input amount for tax purposes is higher.

remember that tax relief and annual allowance are not the same thing

A common misunderstanding is treating the annual allowance as the same as the amount you can personally contribute and still receive tax relief. They are linked, but they are not identical.

In broad terms:

• the annual allowance is the pension saving limit before an annual allowance tax charge may arise
• tax relief on personal contributions is usually limited to 100% of your relevant UK earnings in the tax year
• employer contributions work differently and are not limited by your personal earnings in the same way, although other tax rules still need to be considered.

This matters for directors and business owners in particular. Someone with a low salary may assume they cannot build pension funding efficiently, but employer contributions may still be a valid route. The reverse also applies: someone can stay within their earnings-based personal tax relief limit and still face an annual allowance issue if total pension input is too high.

check whether the tapered annual allowance applies

Higher earners need to take a second look, because the standard £60,000 annual allowance does not apply in every case.

HMRC says the annual allowance is reduced for some high-income individuals. Under the current rules, tapering starts to matter where:

• threshold income is over £200,000
• adjusted income is over £260,000.

Where the taper applies:

• the annual allowance is reduced by £1 for every £2 of adjusted income above £260,000
• the minimum tapered annual allowance is £10,000.

This is one of the main sources of surprise tax bills because it often affects people whose income varies. Bonuses, dividends, partnership profits and employer pension contributions can all alter the position. A contribution that looked fine based on last year’s income can become more problematic if profits or total remuneration rise sharply.

watch for the money purchase annual allowance

Another major trap is the money purchase annual allowance, often shortened to MPAA.

For the current tax year, the MPAA is £10,000. It can apply if you have flexibly accessed money from a defined contribution pension. Once triggered, it reduces the annual allowance for money purchase pension contributions and can limit future pension funding more sharply than many people expect.

In practice, this catches people who:

• took taxable income from a pension
• thought the access was a one-off event with no future impact
• later wanted to restart or increase contributions
• assumed the standard £60,000 allowance still applied.

If you have taken money from a pension, do not assume future contributions can be planned in the normal way. Check whether the MPAA has been triggered before making further contributions.

do not overlook carry forward

Carry forward is often the difference between an efficient contribution and a tax charge.

HMRC says unused annual allowance from the previous three tax years can potentially be carried forward to the current tax year, subject to the rules. The individual must have been a member of a registered pension scheme in those earlier years.

Carry forward can be useful where:

• profits rise sharply in one year
• a business wants to make a larger employer contribution
• retirement planning has been delayed and needs catching up
• earlier allowances were not fully used
• a large bonus is being paid.

But carry forward is also an area where people make assumptions too quickly. Check the following.

• Were you a member of a registered pension scheme in each year you want to carry forward from?
• What was your actual annual allowance in those years?
• Did tapering apply in any of them?
• Has the MPAA affected the position?
• What pension input was already used?

Carry forward is powerful, but only when the numbers have been checked properly.

know where surprise tax bills usually come from

Unexpected pension tax charges rarely come from the pension itself. They usually come from weak planning around it. The most common causes are:

• assuming the annual allowance is always £60,000
• missing that tapering applies for higher earners
• forgetting that the MPAA was triggered
• ignoring employer contributions when adding up total pension input
• failing to review defined benefit accrual properly
• relying on carry forward without calculating unused allowance accurately
• making year-end contributions in a rush without checking income first.

Most of these are avoidable with a short annual review.

be especially careful if income changes year to year

People with steady salaries often find pension allowance planning easier than those with variable income. Extra care is usually needed if you are:

• a company director taking salary and dividends
• a business owner making employer contributions
• a partner with changing profit allocations
• someone receiving bonuses or irregular earnings
• approaching retirement and adjusting contribution levels
• taking ad hoc pension withdrawals while still contributing elsewhere.

These situations do not make pension planning unsuitable. They simply mean the allowance checks need to be done in the actual tax year, not based on assumptions.

keep a simple contribution review process

The safest approach is to review pension funding before the end of the tax year, not after a contribution has already gone in. A sensible review should cover:

• total expected pension input for the current tax year
• whether the standard annual allowance applies in full
• whether threshold income and adjusted income bring tapering into play
• whether the MPAA has been triggered
• how much unused carry forward is available
• whether personal contributions are within earnings limits for tax relief
• whether employer contributions would be more efficient in your case.

This review does not need to be complicated, but it does need to happen before a large contribution is paid.

keep an eye on other pension tax limits too

The annual allowance is the main issue for avoiding surprise tax bills from contributions, but it is not the only pension tax measure worth knowing about.

HMRC’s current pension scheme rates show that for 2025/26:

• the standard individual lump sum allowance is £268,275
• the standard individual lump sum and death benefit allowance is £1,073,100.

These are less likely to create an immediate contribution surprise for most people than the annual allowance rules, but they still matter for wider retirement planning and benefit access.

a practical checklist before making pension contributions

Use this checklist before increasing pension funding.

Confirm the basic limit

• Start with the standard annual allowance of £60,000 for 2025/26.

Add up all pension input

• Include personal contributions.
• Include employer contributions.
• Include all pension arrangements, not just one scheme.

Check whether tapering applies 

• Review threshold income.
• Review adjusted income.
• Do not assume higher income automatically means tapering, but do not ignore the test either.

Check whether the MPAA applies

• Have you flexibly accessed a defined contribution pension?
• If yes, confirm whether the £10,000 MPAA is now the working limit.

Review carry forward

• Check the previous three tax years.
• Confirm unused allowance rather than estimating it.
• Make sure you were a member of a registered pension scheme in those years.

Check personal tax relief scope

• Make sure personal contributions fit within relevant UK earnings if you are relying on personal tax relief. 

Avoid rushed year-end decisions

• Large late-March contributions often create the most avoidable errors.
• Review the numbers while there is still time to adjust.

frequently asked questions

What is the pension annual allowance for 2025/26?

The standard annual allowance is £60,000 for the 2025/26 tax year. It covers total pension saving across all your pensions, not each pension separately.

What is the minimum tapered annual allowance?

The tapered annual allowance can reduce the annual allowance down to £10,000 for some high-income individuals. 

What is the money purchase annual allowance?

The MPAA is £10,000 for the current tax year and can apply after flexibly accessing money from a defined contribution pension.

Can unused pension allowance be carried forward?

Potentially, yes. HMRC says unused annual allowance from the previous three tax years can be carried forward to the current tax year, subject to the rules.

Why do people get caught out?

Usually because they assume the standard annual allowance applies without checking tapering, MPAA, total pension input or carry forward properly.

how can we help

Pension planning works best when contribution decisions are checked before money goes into the scheme. The fastest wins usually come from confirming the real annual allowance position, checking for taper or MPAA issues, and making sure carry forward has been calculated properly.

We can help you:

• review how much pension input has already been used this tax year
• check whether tapering may reduce the standard annual allowance
• confirm whether the MPAA has been triggered
• assess carry forward from earlier years
• compare personal and employer contribution routes
• help structure pension funding without creating an avoidable tax charge.

looking ahead

Pensions still offer strong tax advantages, but the rules are not always as simple as the headline allowance suggests. For many people, the best way to avoid surprise tax bills is not to contribute less, but to check more carefully before contributing.

A short review each tax year is usually enough to spot the main risks. If income is changing, retirement plans are shifting, or pension withdrawals have already started, that review becomes even more important.

Speak to us for further pension planning advice.

MTD for income tax: you april 2026 checklist
June 2026

Making Tax Digital for income tax (MTD IT) starts from 6 April 2026 for sole traders and landlords with qualifying income over £50,000. For many businesses and property owners, the change is less about extra tax and more about changing how records are kept and how income is reported to HMRC through the year. HMRC says those in scope will need to keep digital records, send quarterly updates through compatible software, and then complete a year-end process through that software. HMRC has also confirmed that this rollout will widen in later phases, to qualifying income over £30,000 from 6 April 2027 and over £20,000 from 6 April 2028.

The main risk is leaving preparation too late. Businesses that already keep clean digital records and reconcile income regularly are likely to find the transition manageable. Those still relying on paper files, spreadsheets with manual rekeying or a year-end tidy-up may find April 2026 more disruptive than expected. This guide sets out who needs to act now, what the new process looks like, and the practical checks worth making before the start date.

check first whether you are in scope

The April 2026 start date does not apply to everyone in self assessment. It applies first to sole traders and landlords whose total qualifying income from self-employment and property was more than £50,000 in the 2024 to 2025 tax year. HMRC’s eligibility guidance says the test is based on qualifying income from those sources, not total income from all sources. That means salaries, dividends and savings income do not count towards the threshold for deciding whether April 2026 applies, although those figures may still be relevant later in the tax return process.

Qualifying income can include:

• income from self-employment
• income from UK property
• income from foreign property
• income from more than one business or property source combined.
  

HMRC also says income from ceased self-employment or property sources can still count towards qualifying income for the threshold test if it appears on the relevant tax return. That is worth checking where a business has changed, split or ceased activity during the year.

be clear on who is not starting in april 2026

A lot of unnecessary concern has come from people assuming MTD IT will apply to every taxpayer from April 2026. It will not.

As things stand:

• sole traders and landlords with qualifying income over £50,000 start from 6 April 2026
• those over £30,000 start from 6 April 2027
• the government has set out plans for those over £20,000 to start from 6 April 2028
• limited companies are not within this April 2026 MTD IT rollout
• partnerships are not part of the first phase starting in April 2026.
  

That makes this a narrower change than some headlines suggest, but it is still significant for many landlords, sole traders and owner-managed businesses operating outside a company. Thresholds are for gross income, not net.

understand what the new process actually involves

MTD IT is not just a digital version of the current self assessment return. HMRC says the process has three main parts.

You will need to:

• create, store and correct digital records of self-employment and property income and expenses
• send quarterly updates to HMRC using compatible software
• submit a year-end tax return process, including any other income and gains, and pay tax due by 31 January following the end of the tax year.
  

HMRC has described the quarterly submissions as light-touch quarterly updates rather than extra tax returns. That wording matters, because the update is a summary of digital records for the period, not a full tax calculation each quarter.

get familiar with the quarterly deadlines

For many clients, the biggest change in habit will be the reporting rhythm. HMRC’s current guidance says the quarterly update deadlines are:

• 7 August
• 7 November
• 7 February
• 7 May
  

That means businesses in scope from 6 April 2026 will move away from a single annual reporting mindset for business and property income. The work will need to be spread through the year, even though the tax payment timetable remains separate.

This is one reason April 2026 preparation matters. The businesses that struggle are likely to be those still treating bookkeeping as a once-a-year job.

know what records must be kept digitally

HMRC’s digital record guidance is fairly direct. Businesses within MTD IT must create and store digital records of self-employment and property income and expenses. For each item of income or expense, the record needs to include:

• the amount
• the date
• the category of income or expense.
  

HMRC says MTD IT uses the same categories of income and expenses as self assessment. For self-employment, that includes items such as sales, takings, fees, stock costs, travel, office costs and financial costs. For property, it includes rent and property expenses such as repairs, maintenance and services.

In practice, the key point is that a rough spreadsheet total or a box of invoices handed over after the year end is no longer the standard MTD is built around. The system expects business and property records to be digital and kept up to date.

check whether your software is ready

Compatible software is central to the new regime. HMRC says those in scope will need software that works with MTD IT to keep records, send quarterly updates and complete the year-end submission. There are both full bookkeeping products and bridging-style options on HMRC’s recognised software list, depending on how a business prefers to work.

Before April 2026, review whether your current set-up can handle:

• digital record-keeping for all business and property income streams
• quarterly updates to HMRC
• year-end submission through the same or linked software
• inclusion of other sources of income and gains at the end of the tax year, where relevant.
  

A business may not need the most expensive system on the market, but it does need one that matches how the records are kept in real life.

review how many income streams need tracking

One of the more practical issues is that many people affected by MTD do not have just one tidy source of income. A taxpayer may have:

• one or more self-employments
• UK rental income
• foreign property income
• ceased sources still relevant to the threshold test
• other personal income that still needs to be included at the year-end stage.
  

That means the bookkeeping question is not only “Do I have software?” but also “Does my set-up properly separate and capture each source?”

This matters because weak source separation creates avoidable problems later, especially where one person has both trading and property income.

do not assume the old annual tidy-up will still work

Under the old habit pattern, many sole traders and landlords could leave bookkeeping in poor shape for months and still pull together a tax return before 31 January. MTD IT is designed to change that.

A sensible shift now is to move towards:

• monthly bookkeeping
• monthly or quarterly reconciliations
• clearer digital storage of invoices and expense evidence
• regular review of business and property categories
• fewer year-end adjustments caused by incomplete records.
  

This is not only about compliance. More regular records usually make it easier to track profit, cashflow and tax exposure through the year.

understand the first-year penalty position properly

One of the most useful current easements is that HMRC says it will not apply penalty points for late quarterly updates in the first mandatory year, 2026 to 2027, for those required to join from April 2026. However, that does not mean there is no consequence to poor compliance.

HMRC also says:

• digital records still need to be kept
• quarterly updates still need to be sent before the tax return can be completed
• penalties can still apply for late tax returns
• penalties and interest can still apply if tax is paid late.
  

So the easement is helpful, but it is not a reason to delay preparation. It mainly gives affected taxpayers and agents more room to settle into the quarterly cycle without immediate late-update penalty points.

check whether an exemption may apply

Not everyone who would otherwise fall within the thresholds has to use MTD IT. HMRC’s exemption guidance says some people are automatically exempt, including:

• those with qualifying income of £20,000 or less
• those without a national insurance number
• trustees and personal representatives, in relation to those roles
• certain Lloyd’s members
• some people who are not physically or mentally capable of using the system, depending on the conditions met.
  

HMRC also says people may be exempt if they are digitally excluded, meaning it is not reasonable for them to use compatible software to keep records or submit them. Agents can apply on behalf of clients in that position. HMRC has said those clients should still be prepared for MTD while an exemption application is being considered, in case it is refused.

That makes exemption an issue to review early rather than close to the deadline.

prepare for the year-end step, not just the quarterly updates

Quarterly updates are only part of the process. HMRC says that before the final year-end submission is completed, the software will need to include other sources of income and gains where relevant. The final declaration deadline remains 31 January after the end of the tax year. HMRC’s developer guidance states that the final declaration can be made from 6 April after the year end, with a deadline of 31 January the following year.

This matters because MTD IT does not remove the need to bring together the wider tax picture. It changes the route and timing for business and property records, but the end-of-year completion step still matters.

if you are below the threshold, do not ignore this completely

Businesses and landlords below the April 2026 threshold may still want to act early. HMRC allows voluntary sign-up in some cases, and the wider rollout means many taxpayers who are not affected in 2026 may still be affected in 2027 or 2028. HMRC’s current sign-up guidance says someone who will be required from a later date can choose to sign up voluntarily now for the current tax year, provided they are eligible and use compatible software.

For some, the best use of 2025 to 2026 is not early enrolment but process improvement, so it is a good time to:

• clean up records
• move to compatible software
• separate business and personal transactions properly
• improve source document storage
• get used to quarterly bookkeeping reviews.

a practical april 2026 checklist

Use this checklist to see what needs doing now.

Confirm whether April 2026 applies

• Check your 2024 to 2025 qualifying income from self-employment and property.
• If the total is over £50,000, assume April 2026 is live unless an exemption applies.
  

List all relevant income sources

• Separate each self-employment.
• Separate UK and foreign property income where relevant.
• Identify any ceased sources that still affect the threshold calculation.
  

Review digital records

• Can you record income and expenses digitally by amount, date and category?
• Are records up to date enough to support quarterly updates?
  

Check software

• Confirm whether your current software is compatible with MTD IT.
• If not, decide whether to move to bookkeeping software or a bridging option.
  

Set a quarterly timetable

• Build internal deadlines ahead of 7 August, 7 November, 7 February and 7 May.
• Do not rely on the first-year easement as a substitute for a process.
  

Review exemptions early

• Check digital exclusion or automatic exemption grounds where relevant.
• If applying, do it early and keep preparing in parallel.
  

Prepare for the year-end stage too

• Make sure the year-end process will still capture other income and gains, not just business and property summaries.

how we can help

The businesses most likely to handle MTD well are the ones that treat it as a records and process project, not just a filing deadline. The quickest wins usually come from confirming whether the threshold applies, cleaning up income sources, choosing the right software and setting a workable quarterly routine.

We can help you:

• confirm whether April 2026 applies based on your qualifying income
• review whether your records meet HMRC’s digital requirements
• choose or assess software for quarterly reporting
• separate self-employment and property records properly
• prepare an internal timetable for quarterly updates and the year-end submission
• review whether an exemption may apply.
  

looking forward

MTD IT is now close enough that affected businesses should treat it as a live change, not a future one. HMRC is already urging those in scope to act, and the move to quarterly digital reporting will be much easier where the groundwork is done before 6 April 2026. HMRC said on 5 February 2026 that 864,000 sole traders and landlords face the new rules from April 2026, which gives a sense of how many taxpayers are now in the countdown phase.

The practical message is simple: confirm whether you are in scope, get the records into good shape, check the software, and build a reporting routine before the first quarterly deadline arrives.

Need help with MTD? We can assist.

HMRC moves to digital correspondence
March 2026

Email alerts will replace automatic postal letters, directing taxpayers to view new documents in their personal tax account or the HMRC app. The change is part of HMRC’s digital by default plan, which aims for 90% of interactions to be online by the 2029/30 tax year and is expected to save £50 million per year in print and postage costs.

Only taxpayers who are digitally excluded, or those who actively opt out, will continue to receive letters by post. HMRC confirmed that anyone already using the HMRC app or a personal tax account will be among the first to move to digital notifications. When logging in, they will be prompted to provide or confirm their email address or mobile number. These details will be used solely to alert users that new correspondence is available in their online account.

HMRC stressed that taxpayers who do not use digital services will continue to receive paper letters. Safeguards will be in place to ensure that the elderly and those with disabilities can rely on traditional communication if needed.

Legislation in the Finance Bill 2025/26 will give HMRC the power to require digital contact details from users of its online services. The rollout will begin in spring 2026 and expand gradually as systems are updated.

HMRC states that the change will free staff to support those who most need help, while enhancing the speed and reliability of communications. Paper versions will remain available and must meet the same clarity standards as digital formats.

Talk to us about your finances.

government increases IHT relief cap for key assets
March 2026

From 6 April 2026, a new allowance will cap how much qualifying agricultural and business property can receive 100% relief. The allowance will be £2.5 million per estate, up from the previously proposed £1m.

Individuals will have an allowance that refreshes every seven years, and trusts will have an allowance that refreshes every 10 years. Where the combined value of qualifying business and agricultural assets exceeds the allowance, the excess is expected to qualify for relief at 50%, rather than 100%.

The allowance is expected to be available to both individuals and trusts, and transferable between spouses and civil partners. This means couples may be able to apply up to £5m of 100% APR and BPR between them, in addition to other inheritance tax allowances such as the nil rate band.

The change will be introduced through an amendment to the Finance Bill 2025/26, which the Government said it expects to bring forward in January 2026. The Government also stated that the higher threshold would reduce the number of APR-claiming estates affected in 2026/27 from 375 to 185.

The policy has been revised several times since its initial announcement at the Autumn Budget 2024. Anyone with significant farming or business assets, including those using trusts, may wish to review succession and estate planning ahead of April 2026.

Talk to us about your taxes.

salary, dividends and pensions: your 2026 pay guide
April 2026

Paying yourself from your business sounds simple until you start weighing up salary, dividends and pensions, and how each one affects your take-home pay. The “best” answer also shifts depending on profits, cashflow and what else is going on at home, for example, child benefit, student loans or whether you are close to the higher-rate tax threshold.

This guide breaks down the main options for the 2025/26 tax year and explains the key thresholds that tend to shape decisions. It is designed as a practical reference you can come back to when you are planning the year ahead, topping up income, or thinking about longer-term savings. Where it helps, we flag the points that usually need a quick check before you act.

the 2025/26 numbers that drive most decisions
These are the figures that typically matter when deciding how to extract income.

Income tax bands and personal allowance for England, Wales and Northern Ireland in 2025/26

• Personal allowance: £12,570
• Basic rate: 20% on taxable income up to £50,270
• Higher rate: 40% on taxable income from £50,271 to £125,140
• Additional rate: 45% over £125,140

The personal allowance reduces by £1 for every £2 of income above £100,000.

If you pay Scottish income tax (on non-savings, non-dividend income), the bands and rates differ. HMRC publishes Scottish PAYE rates for 2025/26.

National Insurance (NI)
NI often makes salary decisions more sensitive than people expect.

Employees (Class 1 primary) in 2025/26 (category A, most common):

• 0% up to the primary threshold
• 8% on the main band
• 2% above the upper earnings limit.

Employers (Class 1 secondary) in 2025/26 (category A):

• 15% once earnings exceed the secondary threshold.

Key thresholds include:

• Primary threshold (employee NI starts): £12,570 per year
• Secondary threshold (employer NI starts): £5,000 per year
• Lower earnings limit (protects benefit entitlement even when no NI is due): £6,500 per year.

Dividends, allowance and tax rates
Dividends do not attract NI, but they do come with their own tax rules.

• Dividend allowance: £500 (taxed at 0%, it does not extend your tax bands)
• Dividend tax rates (2025/26):

• • 8.75% (basic rate band)
  • 33.75% (higher rate band)
  • 39.35% (additional rate band)

A useful reminder from HMRC’s published material: over 90% of UK taxpayers do not receive taxable dividend income, which is one reason dividend reporting rules catch people out when they start investing or running their own company.

Corporation tax reminder (because dividends come from post-tax profits)
If you run a limited company, dividends are paid from profits after corporation tax.

For company profits (nonring-fenced) the main published rates are:

• 19% small profits rate for profits under £50,000
• 25% main rate for profits over £250,000
• profits between £50,000 and £250,000 pay the main rate reduced by marginal relief.

This matters because “dividends are lower taxed than salary” is not always true once you include corporation tax.

what salary gives you and what it costs
Salary can still play a useful role even where dividends are available.

• It uses your personal allowance predictably.
• It creates “earned income”, which can matter for certain reliefs and for personal pension contribution limits.
• It helps build entitlement for state benefits, depending on levels and credits, and the lower earnings limit is the key figure for many people.
• It is a deductible business cost for corporation tax when paid wholly and exclusively for the trade (normal remuneration rules apply).

Employer NI now starts £5,000
The employer NI threshold for 2025/26 is £5,000 per year, and the employer rate (category A) is 15%. That means a salary set close to the personal allowance may create an employer NI cost unless another relief offsets it.

Employment allowance can offset employer NI
Employment allowance can reduce an eligible employer’s annual Class 1 NI bill by up to £10,500, but not everyone qualifies.

Two common points to be aware of are:

• a company with only one director must not have that director as the only employee liable for employer (secondary) NI if it wants to claim
• connected companies can only claim once across the group.

For some single-director companies, employer NI becomes a significant cost of running a salary strategy.

For directors and NI, timing can matter
Directors are subject to specific NI calculation rules (an annual earnings period), which means payroll timing can affect deductions. This is one area where it is worth modelling rather than relying on rules of thumb.

how dividends work and the practical limits
Dividends can be a tax-efficient tool, but only when you follow the underlying company law and tax rules.

Dividends are only available when the company has distributable reserves
A limited company can only pay dividends from distributable profits (after accounting for accumulated losses). If reserves are tight, salary or pension contributions may be the only practical routes.

Dividends are not deductible for corporation tax
Salary reduces taxable profits. Dividends do not. That is why dividend planning should always include a corporation tax view, not just your personal tax position.

Dividend allowance and reporting
In 2025/26, the dividend allowance is £500, and dividend tax rates depend on your income tax band. Dividends also feed into other calculations that are based on total taxable income, for example adjusted net income (see child benefit, below).

pensions are often the most tax efficient “pay yourself later” option
For many owner managers, pensions sit alongside salary and dividends, rather than competing with them.

Pension contributions can reduce tax in more than one place
Depending on how you fund them, pension contributions can:

• reduce personal income tax (personal contributions, subject to limits and relief method)
• reduce corporation tax (employer contributions, subject to normal deductibility rules)
• avoid NI when made as an employer contribution, which is often a key advantage versus extra salary.

Annual allowance in 2025/26
The annual allowance is £60,000 in 2025/26. High earners can face the tapered annual allowance. HMRC’s published thresholds for 2025/26 include:

• threshold income limit of £200,000
• adjusted income limit of £260,000
• minimum tapered annual allowance of £10,000.

If you have already flexibly accessed pension benefits, the money purchase annual allowance is £10,000 for 2025/26.

Personal contributions depend on relevant earnings, but dividends usually do not count
Tax relief on personal pension contributions is generally limited to 100% of relevant UK earnings.

If most of your income comes from dividends, that can restrict how much you can contribute personally with tax relief. Employer contributions from your company can often solve that issue, subject to the annual allowance and the company’s position.

For non-earners and low earners, small contributions still get relief
If you earn less than £3,600 a year, you can still get tax relief on contributions up to £2,880 net (grossed up to £3,600).

Pension participation remains high
The latest government figures show that around 89% of eligible employees in Great Britain saved into a workplace pension in 2024 (21.7m people). Overall participation across all employees was around 82% (23.3m people).

For business owners, the message is simple: pensions remain a mainstream, tax-advantaged way to build long-term assets.

common approaches by business type

Limited company owner-managers
Most extraction plans blend the three routes.

1. A base salary, often set with NI thresholds and benefit entitlement in mind.
2. Dividends as the flexible top-up, assuming reserves allow.
3. Employer pension contributions where cashflow supports longer-term saving.

What changes the answer quickly is:

• whether the company can claim employment allowance
• whether your total income approaches £50,270 (upper earnings limit for NI and higher rate tax entry point)
• whether your total income approaches £100,000, where the personal allowance starts tapering.

Why employer NI now matters
If a company pays a director a salary of £12,570 in 2025/26, then:

• employee NI is generally nil at that level (it starts above £12,570)
• employer NI may apply above £5,000 at 15% unless reliefs are available.

If the company cannot claim employment allowance, that employer NI cost can reduce or remove the historical advantage of “salary up to the personal allowance”. If the company can claim employment allowance, the cost may be fully offset.

This is exactly where a tailored comparison helps, because corporation tax, profits and cash extraction needs all interact.

Sole traders and partnerships
When you do not have dividends, you draw profits. In practice, “pay yourself” planning often focuses on:

• understanding profit levels early enough to avoid surprises in payments on account
• using pension contributions to reduce taxable income where appropriate.
• watching the same thresholds (higher rate entry, personal allowance taper, child benefit charge).

If incorporation is on the table, you should run a full comparison. The decision includes legal responsibilities, profit volatility and admin costs, not just tax.

household issues that can change the “best” answer

The high-income child benefit charge and dividends
The high-income child benefit charge (HICBC) applies when adjusted net income exceeds £60,000 (for tax years starting from 2024/25 onwards).

Adjusted net income includes dividends. The House of Commons Library explains that child benefit is fully withdrawn by £80,000 under the current taper design.

This means dividend planning can have a direct impact on whether your household keeps child benefit.

Student loan repayments
If you are self employed or complete self assessment for another reason, income can be assessed across the year. HMRC works out student loan repayments from your self assessment return, and repayments are based on your income for the whole year.

A practical example from the Low Incomes Tax Reform Group shows plan thresholds for 2025/26, including Plan 1 (£26,065) and Plan 2 (£28,470), and how self assessment can apply when income is spread across sources.

For company directors taking dividends, this is worth checking carefully. Payroll deductions may not be the full story if you also complete self assessment.

what has been announced for after 5 April 2026
This guide uses 2025/26 figures, but “pay yourself in 2026” often means decisions that fall into the next tax year. HMRC has published measures that would increase dividend tax rates from 6 April 2026, including raising the ordinary and upper dividend rates.

If you expect to pay dividends around the tax year end, it may be worth scheduling a short review before 5 April 2026 to confirm timing, reserves and the most current rules.

practical checklist for the rest of 2025/26
If you want to take action before 5 April 2026, these steps usually provide the most value.

1. Forecast your total personal income for the tax year, including salary, dividends, benefits, interest, rental income and any other taxable income.
2. Identify which thresholds you are near, especially £50,270, £60,000, £100,000 and £125,140.
3. Confirm whether your company can claim employment allowance, and if not, quantify employer NI when setting salary levels.
4. Check distributable reserves before declaring dividends, and document dividend decisions properly.
5. Review pension scope, including annual allowance position, taper risk and whether employer contributions make more sense than personal ones.
6. If child benefit applies, model adjusted net income and consider whether pension contributions could reduce exposure to the charge.
7. If you are in self assessment, include student loan considerations in the forecast, especially if income is split between payroll and other sources.

Before the end of the tax year, it is worth taking a step back and checking how your actual numbers compare with what you planned, especially if profits have moved, you have taken irregular dividends or your household income has changed. A simple forecast for the remainder of 2025/26 can show whether you are about to cross a key threshold, whether a pension contribution could reduce tax, or whether a different mix of salary and dividends would leave you better off while still protecting cashflow.

If you would like a sense check, we can run a few scenarios using your year-to-date figures and what you expect to draw between now and 5 April 2026, then set out clear next steps.

Discuss the intricacies of paying yourself with our experts.

spring statement
April 2026

Gain a clear, structured understanding of the UK’s latest economic and fiscal outlook. This in-depth analysis of the Spring Forecast 2026 breaks down what the updated projections mean for growth, inflation, public finances, and the rising tax burden without the noise of speculation.

Explore how modest economic growth, falling borrowing, and historically high but stabilising debt shape the financial landscape through to 2030. With insights grounded in the Office for Budget Responsibility’s latest data and the Chancellor’s statement, this guide highlights the key trends influencing households, businesses, and long-term planning.

From fiscal drag and tax pressures to interest rates, spending risks, and market sensitivities, discover the practical implications behind the numbers and what to watch as the economic outlook evolves.

Click here to view the spring statement.

e-commerce record-keeping and HMRC reporting
April 2026

Online selling can scale quickly. That’s good for revenue, but it puts pressure on records, VAT decisions and how you report to HMRC. It also changes how your transactions “look” on paper. Instead of one sales ledger and one bank account, you often have several moving parts at once – a storefront or marketplace, a payment processor, a fulfilment partner and sometimes multiple advertising platforms feeding demand. Each one produces its own reports, timelines and deductions, and those do not always line up neatly with what hits your bank.

The other change is visibility. Digital platforms and marketplaces now report seller details and income information to HMRC each year. HMRC can cross-check what platforms report against self assessment returns, corporation tax computations, VAT returns and the digital records you keep under Making Tax Digital (MTD). That doesn’t mean selling online creates a problem by default, but it does mean gaps show up more easily, and inconsistencies take longer to explain if your records are not structured and complete.

This guide is designed as a practical reference for UK businesses selling online. It focuses on what you should keep, how long you should keep it and the reporting rules that now apply to digital platforms. It also flags the most common problem areas we see for online sellers – such as mixing up net payouts with sales, losing track of refunds or treating platform fees inconsistently – and sets out straightforward controls that keep records clean without adding unnecessary admin.

why this matters most than it used to

Online shopping remains a large share of retail activity. In December 2025, the Office for National Statistics (ONS) reported that 28.3% of retail spending was online (up from 28.0% in November 2025), and online sales values were 11.1% higher than December 2024.

For businesses, that growth often comes with:

• more transactions (and more refunds and chargebacks)
• more intermediaries (platforms, payment processors, fulfilment providers)
• more cross-border sales and shipping, which can change VAT outcomes
• more data held by third parties that HMRC can compare to your filings.
  

The goal is simple: keep clean, consistent records so you can (1) run the business well, and (2) back up your tax position if HMRC ever asks.

what counts as “selling online” for record-keeping purposes

From a compliance point of view, it does not matter whether you sell:

• through your own website (for example, via Shopify)
• through marketplaces such as Amazon, eBay or Etsy
• through social commerce or app-based storefronts
• via card payments and wallets like PayPal or Stripe.
  

What changes is where the evidence lives (your own system vs someone else’s dashboards) and whether the platform has its own reporting obligations to HMRC.

the core principle: profit is taxed, but proof is what HMRC asks for

Your tax position normally flows from profit. For example: Sales income (turnover), less allowable costs, equals taxable profit. But HMRC will not “take your word for it” if they ever check. They expect records that show:

• what you sold
• when you sold it
• what you were paid (and what fees were deducted)
• what it cost you to supply
• any VAT you charged or reclaimed (if VAT-registered)
• how you calculated the figures that went into returns.
  

That means you need to capture gross activity, not just what lands in your bank.

what to keep: a practical e-commerce records list

1) Sales records  (gross, not yet payouts)

For each sales channel, keep evidence of:

• order date and order number
• customer location (UK, EU, rest of world)
• items sold, quantities and prices
• delivery/postage charged (if any)
• discounts and vouchers
• refunds and cancellations
• VAT charged (where relevant).

Common trap: Treating the platform payout as “sales”. Payouts are usually sales minus fees minus refunds/chargebacks. If you start from payouts, your bookkeeping will often understate turnover and overstate margins.

2) Platform statements and settlement reports

Download and retain:

• monthly statements
• transaction-level exports (orders, fees, refunds)
• settlement/payout reports
• any VAT invoices the platform issues to you (for fees/services).
  

These reports can change if the platform reprocesses refunds or disputes, so saving periodic exports helps you evidence the position at the time.

3) Payment processor records

Keep:

• processor payout reports (and timing differences)
• chargeback/dispute logs
• fees and currency conversion charges
• any rolling reserves held back.

4) Evidence for costs

Keep receipts/invoices for:

• stock purchases and import paperwork
• packaging and shipping
• fulfilment and warehouse charges
• website costs, apps, subscriptions
• advertising and marketing spend
• professional services (legal, bookkeeping, insurance)
• staff costs and subcontractors (plus contracts where relevant).

5) Bank records and reconciliations

Bank statements remain important, but you should also keep:

• reconciliation schedules showing how payouts map back to sales activity
• notes explaining unusual items (large refunds, one-off adjustments).
  

If you run multiple channels, separate bank accounts (or at least separate tracking) makes reconciliation far easier.

6) Stock records

Stock can become a problem quickly for online sellers, especially where returns and damaged items are common. Keep:

• stock received notes
• inventory movement reports (including write-offs)
• returns logs (resellable vs scrapped)
• periodic stock counts.
  

This is operationally useful and also supports cost of sales and profitability analysis.

how long to keep records

Different rules apply depending on your structure and taxes.

Self-assessment (sole traders/partnerships)

If you’re self-employed or in a partnership, you must keep your tax records for at least 5 years after the 31 January filing deadline for the relevant tax year.

VAT records

VAT record-keeping is usually at least six years. If you use the VAT One Stop Shop (OSS) scheme (or previously used MOSS), HMRC notes a 10-year requirement.

Limited companies

For limited companies, you must generally keep records for six years from the end of the last company financial year they relate to (and longer in some situations, such as late company tax returns or ongoing compliance checks).

In practice, many businesses keep a consistent “six years plus current year” archive (digital where possible) because it reduces the risk of deleting something you later need.

digital platform reporting rules: what platforms report to HMRC

From 1 January 2024, UK digital platform operators must collect and report seller details and income information to HMRC annually. If you sell through a UK platform, the platform reports the information collected for a calendar year by the following January (for example, 1 January 2024 to 31 December 2024 reported by 31 January 2025).

What details platforms can ask for

For individuals, platforms may request name, address, date of birth and a tax identifier (such as a national insurance number). For companies, they can request the legal name, business address and a tax identifier (such as a company registration number).

When platforms do not report (good sellers)

The gov.uk guidance says your details will not be reported if you make fewer than 30 sales of goods in a calendar year and receive less than 2,000 euros (about £1,700) for those sales.

What this means for businesses (practically)

1. Assume HMRC can see platform-level totals (income and activity indicators)
2. Expect questions if your tax return numbers do not align with platform data. That does not mean you have done anything wrong, but it makes good record-keeping more important.
3. Check your seller profile details (legal name, address, registration numbers). Mismatches create admin later
4. Keep copies of what platforms say they reported. Platforms must provide sellers with a copy of the information reported.

A simple control: Reconcile platform totals to your books

At least quarterly, reconcile:

• gross sales per platform statement
  – minus refunds
  – minus platform fees
  – equals net payouts (which should tie back to bank receipts, allowing for timing)
  

This control catches missing months, duplicated imports and miscategorised refunds early.

VAT issues that show up often for online sellers

VAT is where online selling can change outcomes quickly, especially when you sell cross-border or store stock in multiple locations.

VAT registration threshold (UK)

In the 2025/26 tax year, the UK VAT registration threshold is £90,000 taxable turnover (on a rolling 12-month basis). You can also register voluntarily below the threshold, which sometimes helps where you have VAT-bearing costs and sell to VAT-registered customers.

Marketplace and overseas goods rules (high level)

If you sell goods to UK customers and the goods are outside the UK at the point of sale, special rules can apply. The gov.uk website sets out rules where online marketplaces can become liable for VAT in certain scenarios, including where the consignment value is £135 or less and the goods are sold through an online marketplace. If you import goods, keep import documentation (including evidence of import VAT and duty where relevant). Missing import evidence is a common reason VAT reclaims get challenged.

VAT evidence: What HMRC expects

For VAT purposes, HMRC expects readable, complete records and they generally require VAT records to be kept for at least six years. This includes:

• VAT invoices issued and received
• a record of supplies made and received
• import/export documents where relevant
• digital records required under MTD (see below).
  

If you sell to customers outside the UK, the VAT position can depend on customer location, delivery terms and where the goods are at the point of sale. Treat overseas VAT as a prompt to get specific advice early, rather than trying to “patch it later”.

making tax digital: what changes for online sellers

MTD for VAT (already live)

All VAT-registered businesses must keep VAT records digitally and submit VAT returns using compatible software. (The rules became mandatory for all VAT-registered businesses regardless of turnover from April 2022.)

Separately, HMRC applies a points-based penalty system for late VAT returns, with a £200 penalty when you reach the relevant points threshold.

MTD for income tax (from 6 April 2026)

If you are a sole trader (or landlord) with total annual income from self-employment and property over £50,000 (for the 2024/25 tax year), HMRC says you must use MTD for income tax from 6 April 2026.

Even though this start date sits in the 2026/27 tax year, it affects what you should do now because MTD relies on clean digital records and a workable bookkeeping process.

HMRC also confirms that for those mandated from 6 April 2026, they will not apply penalty points for late quarterly updates for the first year (2026/27), although penalties can still apply for late tax returns or late payment.

What online sellers should do during 2025/26

• Make sure your bookkeeping captures gross sales, fees and refunds correctly (per channel).
• Confirm you can produce a quarterly view of income and costs without a year-end scramble.
• If you use spreadsheets, check whether you need bridging software or a move to accounting software.
• Clean up your chart of accounts so “platform fees”, “payment processing fees”, “refunds” and “sales” are clearly separated.

a compliance-friendly workflow

Monthly

• Import orders and fees from each platform.
• Reconcile payouts to bank receipts.
• Check that refunds and chargebacks are posted correctly.
• File purchase invoices and receipts (digitally, in a consistent folder structure).

Quarterly

• Review VAT position (if registered): sales by VAT rate, evidence and any unusual items.
• Run a management profit and loss (P&L) and compare margins by channel (platform fee changes often show up here first).
• Check platform-reported totals vs your bookkeeping totals (where available).

Annually

• Download full-year platform reports and keep a copy (even if you can access them online).
• Check year-end stock position and write-offs.
• Review whether turnover indicates VAT registration is needed (or whether voluntary registration still makes sense).
• Confirm that your business details are consistent across platforms (legal name, address, registration numbers).

common errors that cause tax and reporting problems

1) Mixing personal and business transactions

This makes reconciliations slower and increases the risk of missing income or claiming private costs. Even a basic separation (dedicated bank account and card) helps.

2) Treating “payouts” as turnover

If you only record what hits the bank, your accounts can miss:

• platform fees (which are costs, not a reduction of turnover for bookkeeping purposes in many set-ups)
• refund timing differences
• chargebacks and reserves.
  

It also makes VAT reporting harder because VAT normally starts from the taxable supply, not the payout.

3) Incomplete VAT evidence

Missing VAT invoices, unclear supplier details or lost import paperwork can all block VAT recovery.

4) Ignoring overseas and multi-location stock issues

If you store goods in different jurisdictions (including fulfilment networks), you can trigger registration and reporting obligations outside the UK. This is one of the areas where early advice saves time and cost.

5) Underestimating how often data changes

Refunds, partial refunds, replacements and disputes can adjust prior periods. Saving monthly exports gives you an audit trail.

practical next steps

Selling online can be operationally simple for customers, but it is rarely simple behind the scenes. The volume of transactions, the speed of refunds and disputes, and the number of third parties involved (marketplaces, payment processors, ad platforms, fulfilment partners) all make accurate reporting harder if your record-keeping is not set up for it. The biggest risk is not usually a dramatic error – it’s small inconsistencies that build up over time: missing a month of platform fees, recording payouts as turnover or letting stock adjustments and returns sit outside the bookkeeping. With the right set-up, though, it becomes very manageable.

Need further assistance? We are here to help.

tax card 2026/27 March 2026

year-end tax guide 2025/26 February 2026

Prepare for the end of the 2025/26 tax year with our practical UK Year-End Tax Guide. This guide outlines key tax allowances, reliefs, and planning opportunities to help you reduce your tax bill before 6 April.

Covering essential areas such as income tax, pensions, ISAs, capital gains tax, inheritance tax, and business tax planning, it highlights the most effective steps individuals and business owners can take now.

With tax thresholds frozen and rules continuing to change, early planning is crucial to avoid overpaying and to make the most of available reliefs.

Click here to read the full guide.