capital gains tax
September 2026

What to check before selling, gifting or transferring assets. 

Capital Gains Tax can arise in more situations than simply selling an investment for a profit.

Giving an asset to a family member, transferring ownership, exchanging one investment for another or selling something for less than its full value can all count as disposals for Capital Gains Tax purposes.

The tax is charged on the gain rather than the total amount received. However, the amount ultimately payable depends on several factors, including the type of asset, its original cost, your income, previous losses, available tax reliefs and who receives the asset.

The timing of a transaction can also affect the result.

HMRC’s latest available annual statistics show that 378,000 taxpayers incurred Capital Gains Tax liabilities of £12.1 billion in 2023/24, based on total taxable gains of £65.9 billion. These remain the latest complete annual figures available as at 7 August 2026, with HMRC’s next annual statistical release expected later in 2026.

If you are considering selling, gifting or transferring a valuable asset, working out the tax position before committing to the transaction can prevent unexpected bills and identify reliefs that may otherwise be missed.

what counts as a disposal?

Capital Gains Tax, or CGT, generally applies when you dispose of a chargeable asset that has increased in value.

A disposal does not have to involve a conventional sale. It can include:

1. Selling an asset.
2. Giving an asset away.
3. Transferring ownership to someone else.
4. Exchanging one asset for another.
5. Receiving compensation for an asset that has been lost or destroyed.

This means a transaction can create a CGT liability even if you receive little or no cash.

Common chargeable assets include second homes and investment properties, shares held outside an ISA, business interests, land, certain valuable personal possessions and cryptoassets.

Your main home will often qualify for Private Residence Relief, but that exemption is not automatic in every situation.

the capital gains tax allowance for 2026/27

Individuals have a £3,000 annual exempt amount for 2026/27. This means the first £3,000 of your net chargeable gains for the tax year can normally fall outside CGT. For trusts, this is £1,500

The allowance applies across your taxable disposals for the whole year rather than separately to each asset. You cannot carry an unused annual exempt amount forward to another tax year.

For example, suppose you make:

£8,000 gain on shares
£2,000 loss on another investment

Your net gain is £6,000.

After deducting the £3,000 annual exempt amount, £3,000 would remain chargeable to CGT, assuming no other gains, losses or reliefs apply.

The reduction in the annual exempt amount over recent years means relatively modest gains can now create a reporting or tax liability.

what are the CGT rates for 2026/27?

For disposals from 6 April 2026, the main CGT rates for individuals are:

Tax position	CGT rate
Gain falling within the available basic rate band	18%
Gain falling above the available basic rate band	24%
Gains qualifying for Business Asset Disposal Relief	18%
Gains qualifying for Investors’ Relief	18%

 

The standard Personal Allowance remains £12,570 for 2026/27 and the UK basic rate limit used for CGT purposes is £37,700. The interaction between income and gains determines how much of a taxable gain falls at 18% and how much falls at 24%. Special rules apply when calculating the available basic rate band for Scottish taxpayers.

A person who is already above the relevant basic rate band will normally pay 24% on their taxable gains unless a specific relief provides a different rate.

Someone with unused basic rate band may pay 18% on part or all of their gain.

This is one reason your expected income for the tax year should form part of any CGT calculation.

work out the real gain before estimating the tax

CGT does not normally apply simply to the difference between the amount originally paid and the amount received.

Certain costs can reduce the chargeable gain.

Depending on the asset, these may include the original purchase price, Stamp Duty or Stamp Duty Land Tax paid on acquisition, legal and professional fees associated with buying and selling, valuation fees and qualifying expenditure that enhanced the asset’s value.

For property, an extension or other capital improvement may qualify, while normal repairs and maintenance generally do not. The improvement normally needs to remain reflected in the asset when it is disposed of.

Keeping purchase documents and records of improvement expenditure can therefore make a significant difference several years later.

HMRC expects taxpayers to retain evidence including contracts, receipts, invoices, professional fees and valuations used to calculate gains.

gifting an asset does not automatically avoid CGT

One of the biggest misconceptions surrounding CGT is that giving an asset away removes the tax charge because no money has been received. Usually, it does not.

When you give a chargeable asset to another person, HMRC will generally treat the disposal as taking place at its market value on the date of the gift.

The same principle can apply if you deliberately sell an asset for less than it is worth to help the buyer.

For example, suppose you bought an investment property for £150,000 and it is now worth £300,000.

Giving the property to an adult child for nothing does not normally produce a CGT disposal value of £0. Broadly, the calculation starts by treating you as disposing of the property at its £300,000 market value.

The resulting gain then needs to be calculated after allowable costs and any available reliefs.

This can create a tax bill without the cash proceeds that would normally fund it.

Transfers to children, grandchildren and other family members should therefore be reviewed before the gift takes place.

Inheritance Tax, Stamp Duty Land Tax and other tax rules may also apply depending on the transaction, so CGT should not be considered on its own.

different rules apply to spouses and civil partners

Transfers between spouses and civil partners who live together generally take place on a no gain/no loss basis for CGT.

The person transferring the asset does not normally realise an immediate taxable gain. Instead, the receiving spouse or civil partner effectively inherits the existing CGT history of the asset.

This can offer legitimate tax planning opportunities.

For example, couples may want to consider ownership before selling an investment if one spouse has:

1. Unused annual exempt amount.
2. Capital losses available.
3. More unused basic rate band.
4. A different proportion of the asset already in their ownership.

However, a transfer needs to represent a genuine change in beneficial ownership. It should take place before the eventual disposal and should not simply be recorded retrospectively after a sale has been agreed.

A transfer does not eliminate the underlying gain. It changes which person owns the asset and may therefore change how the eventual gain is taxed.

take care following separation or divorce

Special CGT rules apply when spouses or civil partners separate. For disposals taking place on or after 6 April 2023, separating spouses and civil partners can generally make no gain/no loss transfers until the earlier of:

1. The end of the third tax year after the tax year in which they ceased living together.
2. The date on which a court grants the divorce or dissolution.

Where assets are transferred under a formal divorce or separation agreement or relevant court order, no gain/no loss treatment can continue without the normal three-year limit.

There are also specific provisions concerning the former family home and cases where one party retains a financial interest in a future sale.

The tax position should therefore be considered while financial arrangements are being agreed rather than after assets have already changed hands.

check the position before selling property

An investment property, second home, land or other property that does not qualify fully for Private Residence Relief can produce a taxable gain.

Allowable acquisition, disposal and improvement costs should be established before calculating the liability.

If CGT is due on the sale of most UK residential property, it generally needs to be reported and paid within 60 days of completion.

This deadline can arrive well before the normal Self Assessment deadline.

Property owners should therefore calculate the expected gain and identify the necessary records before completion where possible.

do not assume your main home is always completely exempt

Private Residence Relief (PRR) means many people pay no CGT when selling their main home. You can only have one PRR residence at a time.

Full relief will normally apply where the property has been your only or main home throughout your ownership, you have not let part of it out in a way that restricts relief, no part has been used exclusively for business, the property and grounds meet the relevant conditions and you did not acquire the property primarily to make a gain.

The position needs more attention where you have:

1. Owned more than one home.
2. Let the property for part of your ownership.
3. Lived elsewhere for extended periods.
4. Used part of the property exclusively for business.
5. Significant land or grounds.
6. Changed how the property was occupied over time.

Where a property has qualified as your main residence at some point, the final nine months of ownership will generally qualify for Private Residence Relief even if you were no longer living there. Different provisions can apply for certain disabled people and long-term care home residents.

Letting Relief is now much more restricted than it was historically. It is generally relevant where you shared occupation of the home with a tenant, and relief can be limited to a maximum of £40,000 per owner, subject to the detailed conditions.

property size can also affect relief

Private Residence Relief normally includes the home and its garden or grounds. The standard permitted area is 0.5 hectares, including the site of the dwelling.

A larger area can sometimes qualify where the character and size of the property make the additional land necessary for the reasonable enjoyment of the residence, but additional conditions apply.

This can become relevant when selling larger homes, properties with substantial gardens or parts of the land separately from the house.

review shares and investments before selling

You may have to pay CGT when disposing of shares, unit trusts and other investments held outside tax-exempt wrappers.

Shares held within an ISA do not create a CGT liability when sold. UK Government gilts and certain other investments are also exempt.

Where shares have been accumulated over several years, establishing their CGT cost can require more than looking at the price of the first purchase.

Special identification rules can apply where you buy and sell shares in the same company around the same date. Corporate actions, reorganisations, rights issues and previous transfers between spouses can also affect the base cost.

Before a substantial disposal, check the complete acquisition history rather than relying solely on a current investment-platform statement.

crypto transactions can create taxable disposals

Cryptoassets are also within the CGT rules for many individual investors. A disposal can occur when you:

1. Sell tokens for sterling or another currency.
2. Exchange one type of token for another.
3. Use cryptoassets to buy goods or services.
4. Give tokens to another person other than a spouse, civil partner or qualifying charity.

Exchanging Bitcoin for another cryptoasset, for example, can therefore create a taxable disposal even though no sterling enters your bank account.

Good transaction records become particularly important for anyone who trades through several exchanges or wallets.

valuable personal possessions can also fall within CGT

CGT is not restricted to property and investments. Certain personal possessions can become chargeable where their disposal value exceeds £6,000.

Examples include jewellery, paintings, antiques, coins, stamps and collections. Private cars are generally exempt. Certain assets with a predictable useful life of 50 years or less can also qualify for separate exemptions.

Special rules apply when individual items form a set, so dividing a valuable collection into separate transactions does not necessarily produce a separate £6,000 limit for every item.

consider relief before gifting business assets

A gift of a business or shares in a family trading company can create a sizeable gain even where nothing is paid by the recipient.

Gift Hold-Over Relief may allow qualifying gains to be deferred.

Broadly, the donor does not pay CGT immediately on the part of the gain that is successfully held over. Instead, the recipient takes a reduced acquisition cost, so the deferred gain can become taxable when they eventually dispose of the asset.

The relief can apply to qualifying business assets and certain shares, including shares in some unlisted trading companies. A joint claim will normally be needed.

This can make the relief useful in family business succession, but it defers tax rather than necessarily removing it.

A change to the calculation of Gift Hold-Over Relief for certain company shares has been announced to take effect for disposals from 6 April 2027. It does not apply to 2026/27 disposals, but anyone planning a business succession extending into the next tax year should review the legislation before proceeding.

business asset disposal relief changed in april 2026

People selling a business or qualifying shares should also check whether Business Asset Disposal Relief, or BADR, applies.

For qualifying disposals made from 6 April 2026, the BADR rate is 18%.

This increased from 14% in 2025/26 and 10% for qualifying disposals on or before 5 April 2025. The lifetime limit on qualifying BADR gains remains £1 million.

Conditions normally need to have been met for at least two years before disposal, so eligibility should be checked well before a business or share sale completes.

do not forget capital losses

Previous investment losses can reduce a future CGT bill if they have been properly claimed. Allowable losses arising in the same tax year are generally set against gains first.

Unused losses from earlier years can then be used against gains, although the rules are designed so brought-forward losses do not normally reduce gains below the annual exempt amount unnecessarily.

A loss does not always need to be claimed immediately. HMRC generally allows a taxpayer to claim an allowable capital loss up to four years after the end of the tax year in which the disposal took place.

Before selling a valuable asset, check whether previously reported losses are available.

the tax year can affect the result

The tax year runs from 6 April to the following 5 April. Where you have control over the timing of a disposal, completing transactions in different tax years can sometimes change the CGT result because each year has its own annual exempt amount and income position.

However, determining the CGT disposal date is not always as simple as looking at when money arrives in your bank account.

For many transactions completed under an unconditional contract, the date of the contract determines the CGT disposal date rather than the date on which payment or completion happens. The disposal date can determine the tax year, applicable rate, available annual exemption and reporting requirements.

For UK residential property, the separate 60-day reporting deadline is generally measured from completion.

Tax-year planning should therefore happen before contracts become binding.

inheriting an asset produces a different CGT starting point

Death does not normally create the same CGT charge as giving an asset away during someone’s lifetime.

For CGT purposes, assets inherited from an estate generally use their market value at the date of death as the beneficiary’s starting value, subject to the relevant rules and any value agreed for Inheritance Tax purposes.

If the beneficiary later sells the asset, the subsequent gain is broadly calculated by reference to that probate or date-of-death value rather than what the deceased originally paid.

This creates a significant distinction between lifetime gifts and inherited assets.

However, Inheritance Tax and estate-planning considerations also need to be taken into account, so the CGT outcome should not determine succession decisions by itself.

what to check before you dispose of an asset

Before selling, gifting or transferring a significant asset, establish:

1. What you originally paid and whether you have evidence.
2. The current market value, particularly for gifts or transfers between connected people.
3. Allowable acquisition, disposal and improvement costs.
4. Any previous capital losses available to claim.
5. Your other expected gains during the tax year.
6. Your expected taxable income, which may affect whether gains are taxed at 18% or 24%.
7. Whether an exemption or relief applies, including Private Residence Relief, Gift Hold-Over Relief or Business Asset Disposal Relief.
8. Whether transferring ownership before sale is appropriate, particularly between spouses or civil partners.
9. The correct CGT disposal date.
10. How the transaction interacts with other taxes, including Inheritance Tax and Stamp Duty Land Tax where relevant.
11. Whether a 60-day property reporting deadline applies.
12. Whether you will have enough cash available to pay the resulting tax.

The best point to consider these questions is before the transaction becomes binding.

Once a sale has completed or an asset has legally changed ownership, many of the available planning options may no longer be possible.

Capital Gains Tax should therefore form part of the decision to sell, gift or transfer an asset rather than being treated solely as a reporting exercise afterwards.

If you’re planning to sell, gift or transfer an asset, contact us before taking action so we can help you understand the potential Capital Gains Tax implications. 

e-invoicing: what UK businesses should do now
August 2026

Key planning points for businesses ahead of the 2029 mandate.

E-invoicing is moving from a software choice to a compliance and finance planning issue.

The government has confirmed that e-invoicing will become mandatory for all VAT invoices from April 2029. HMRC and the Department for Business and Trade are due to publish an implementation roadmap at Budget 2026, setting out the milestones businesses should expect before the mandate takes effect.

This gives businesses time to prepare, but it also means 2026/27 is a useful year to review invoicing processes, customer and supplier data, software, payment terms and VAT controls. Waiting until the final year may create avoidable cost, disruption and pressure.

This guide explains what e-invoicing is, why the UK is moving in this direction and what businesses should plan before the Budget roadmap is published.

what e-invoicing means

An e-invoice is not simply a PDF invoice sent by email.

HMRC describes e-invoicing as the digital exchange of invoice data directly between a supplier’s and buyer’s finance systems, even where those systems differ. The data can then automatically feed into the buyer’s system, reducing manual processing and improving efficiency.

In practical terms, an e-invoice uses structured data. That means the invoice information – such as supplier details, VAT number, invoice date, tax point, purchase order reference, VAT rate and payment terms – sits in a format that software can read and process.

A PDF invoice may look digital, but it often still needs manual checking, coding, approval and entry. E-invoicing aims to remove much of that manual handling.

what has the government announced?

The key points are:

• The UK will mandate e-invoicing for all VAT invoices from April 2029. This will apply to VAT invoices, which are generally used for business-to-business and business-to-government transactions where VAT is due. It will not usually apply to normal business-to-consumer retail transactions.
• The government will publish an implementation roadmap at Budget 2026. That roadmap should give businesses and advisers more detail on timing, staging, standards and practical requirements.
• The government has also announced that Peppol will be the UK’s core interoperability network for e-invoicing. This gives software providers and businesses a clearer steer on the technical direction of travel.
• The mandate is not immediate. April 2029 gives businesses a planning window. However, e-invoicing affects more than the invoice template. It touches sales processes, credit control, purchase ledger, VAT records, customer onboarding, supplier management and software integration.

why this is linked to VAT and digital reporting

E-invoicing forms part of a wider shift towards digital tax administration and better-quality business data.

For the 2026/27 tax year, the VAT registration threshold remains £90,000 and the VAT deregistration threshold remains £88,000. The standard VAT rate remains 20%, with the reduced rate at 5% and the zero rate at 0%.

Many VAT-registered businesses already keep digital VAT records and submit VAT returns through Making Tax Digital software. The e-invoicing mandate will take this further by focusing on the invoice data that sits behind those records.

Making Tax Digital for Income Tax has also started for sole traders and landlords with qualifying income over £50,000 from 6 April 2026. It will extend to those with qualifying income over £30,000 from 6 April 2027 and over £20,000 from 6 April 2028.

These changes show the same general direction: more structured records, more regular digital reporting and less reliance on manual data entry.

why businesses should not wait until 2029

The legal requirement may be three years away, but the operational work starts earlier.

Many businesses still use a mixture of PDFs, spreadsheets, email trails, manual approvals and supplier portals. That may work day to day, but it can create pressure when customers, suppliers, government bodies or software systems start demanding structured invoice data.

HMRC-commissioned research found that 59% of VAT-registered SMEs surveyed were familiar with the definition of e-invoicing, but only 29% reported using it. The same research found that PDF or email remained the most common invoicing method for sending and receiving invoices, followed by paper or physical mail.

That gap between awareness and actual use matters for planning. Businesses may think they are already digital because they send invoices by email. In many cases, they are not yet e-invoicing in the way the future regime is likely to require.

start with your current invoice process

The first step is to map how invoices move through the business today.

For sales invoices, look at how the business creates the invoice, checks the customer details, applies VAT, sends the invoice, records payment and chases overdue amounts.

For purchase invoices, look at how supplier invoices arrive, who approves them, how they are matched to purchase orders, how VAT is checked and how the payment run is prepared.

The aim is to identify where people rekey data, correct errors, chase missing information or rely on informal workarounds.

Common issues include:

• Different invoice layouts for different customers
• Missing purchase order references
• Incorrect or outdated customer addresses
• Supplier VAT numbers not checked
• VAT codes selected manually without review
• Invoice approvals sitting in email inboxes
• Credit notes handled outside the main process
• Payment terms varying between systems and contracts

These are process problems, not just software problems. E-invoicing works best when the underlying data is clean and the process is consistent.

check customer and supplier data

E-invoicing depends on accurate master data. Businesses should review customer and supplier records before they move towards e-invoicing. Poor data can cause invoice rejections, payment delays and VAT errors.

Useful checks include:

• Legal entity name
• Trading name, where different
• Registered office or billing address
• VAT registration number
• Company registration number, where relevant
• Email and finance contact details
• Purchase order requirements
• Payment terms
• Bank account details
• Customer or supplier portal requirements

VAT numbers deserve particular attention. If a business regularly invoices other VAT-registered businesses, it should have a process for checking and maintaining VAT details. E-invoicing is likely to make weak data more visible because systems will reject or flag records that do not meet the required format.

review your software before the Budget roadmap

The Budget 2026 roadmap should give more details on the path to April 2029. Before then, businesses can still ask useful questions about their current systems.

For example:

• Can the software create and receive structured e-invoices?
• Does it support Peppol, or does the provider plan to support it?
• Can it handle VAT invoice requirements properly?
• Does it integrate with the bank, payment provider, stock system, CRM or project management system?
• Can it process purchase orders, approvals and credit notes?
• Can it export clean audit trails?
• Does it support digital record keeping for VAT and, where relevant, Making Tax Digital for Income Tax?

Businesses do not necessarily need to change software immediately. However, they should open the conversation with providers early. Software roadmaps, implementation slots, training and data migration can take time.

A rushed software switch close to a compliance deadline can increase cost and risk. A planned review gives the business more control.

think about cashflow and late payments

E-invoicing is not only a compliance project. It can also support better cashflow.

Late payment remains a serious issue for UK businesses. The government’s late payment response stated that late payments cost the UK economy almost £11bn per year. It also reported that 14,000 businesses close each year as a result of late payments, and that businesses are owed an estimated £26bn in late payments at any given time.

E-invoicing will not solve every payment problem. A customer can still delay payment even when the invoice data is perfect. But e-invoicing can reduce disputes caused by missing information, wrong purchase order numbers, slow invoice entry or unclear approval routes.

Businesses should use the move towards e-invoicing to tighten payment processes. That means checking whether invoices go out promptly, whether payment terms are clear, whether customer purchase order requirements are met and whether the credit control process starts early enough.

identify customers who may move first

Some larger businesses and public sector bodies may adopt e-invoicing requirements before smaller suppliers are legally required to use them.

This means a small or medium-sized business may face practical pressure before April 2029. A major customer could request Peppol-ready invoices, structured invoice files or portal-based invoice submission as part of its own readiness plan.

Businesses should review their customer base and identify which customers are most likely to set requirements early. This may include:

• Public sector customers
• Large corporate customers
• Overseas customers in countries that already use e-invoicing widely
• Customers with strict purchase order controls
• Customers who already use supplier portals

If a small number of customers account for a large share of revenue, their invoice requirements should sit high on the planning list.

do not ignore purchase invoices

Many businesses focus first on sales invoices because that is where cash comes in. Purchase invoices also need attention.

A business that receives supplier invoices in structured form can reduce manual input, improve VAT coding, speed up approvals and gain better visibility over committed costs.

This is especially useful where a business has several approval layers, multiple sites, project-based costs or regular supplier disputes.

Purchase invoice planning should cover:

• How supplier invoices arrive
• Whether purchase orders are required
• Who approves spend
• How goods or services are matched to invoices
• How VAT is reviewed
• How credit notes are processed
• How duplicate invoices are detected
• How payment runs are authorised

A strong purchase invoice process helps control costs and reduces the risk of paying the wrong amount or paying the same invoice twice.

prepare staff and responsibilities

E-invoicing changes the work people do. Finance teams may spend less time keying in invoices and more time reviewing exceptions, checking data quality and managing approvals. Sales teams may need to collect better customer billing information at the start of a relationship. Operations teams may need to raise purchase orders more consistently.

Businesses should decide who owns the e-invoicing project. In smaller businesses, this may sit with the owner-manager or finance lead. In larger businesses, it may involve finance, IT, operations and sales.

Key responsibilities include:

• Reviewing current processes
• Speaking to software providers
• Cleaning customer and supplier data
• Updating invoice templates and VAT coding
• Training staff
• Testing new workflows
• Communicating with customers and suppliers

E-invoicing will work better where the business treats it as a finance process change, not a last-minute technical update.

what to watch for in Budget 2026

The Budget roadmap should help answer some of the remaining questions. Businesses should look out for:

• The detailed implementation timetable
• Any phased approach by business size or transaction type
• Technical standards and Peppol requirements
• Rules for receiving as well as issuing invoices
• Transitional arrangements
• Treatment of legacy systems
• Support for small businesses
• Links with VAT compliance and digital record keeping

The government has said it will continue to engage with stakeholders on legacy systems that cannot interoperate in the future system.

That point will matter for businesses using older software, bespoke systems or sector-specific platforms. These systems may still perform core tasks well, but they may need upgrades, connectors or replacement if they cannot meet future e-invoicing requirements.

a practical pre-budget action plan

Businesses do not need to complete a full e-invoicing rollout before Budget 2026. They should use the time to understand their starting point.

A sensible action plan would be:

1. List how sales and purchase invoices are created, sent, received, approved and paid.
2. Identify where the business still relies on PDFs, spreadsheets, paper, email approvals or manual rekeying.
3. Review customer and supplier data, including VAT numbers, payment terms and purchase order requirements.
4. Speak to the current software provider about e-invoicing, Peppol and planned UK compliance updates.
5. Identify customers or suppliers that may move to e-invoicing early.
6. Review cashflow and credit control processes, especially where payment delays arise from invoice disputes.
7. Check whether current software also supports wider digital tax requirements, including VAT records and Making Tax Digital for Income Tax where relevant.
8. Set an internal review date after the Budget roadmap is published.

This approach keeps the business informed without forcing premature decisions.

final thoughts

E-invoicing is not an immediate filing deadline, but it is now a confirmed direction of travel for UK VAT invoices.

The April 2029 mandate gives businesses time to prepare. The Budget 2026 roadmap should provide more detail, but businesses can already make useful progress by reviewing invoice processes, cleaning data, speaking to software providers and tightening payment controls.

The businesses that benefit most will not be the ones that simply meet the deadline. They will be the ones that use the change to reduce admin, improve invoice accuracy, speed up approvals and strengthen cashflow.

The best next step is a practical review of current invoicing. Once the Budget roadmap is published, businesses will then be in a stronger position to decide what to change, when to change it and how much support they need.

We can help you assess your current invoicing process and identify what may need to change. Get in touch with us today.

salary sacrifice 2026/27
July 2026

The benefits worth knowing and the limits to plan for. 

Salary sacrifice can be a useful way to reduce tax and National Insurance, increase pension savings and access certain employee benefits at a lower net cost.

Used well, it can reduce the tax and National Insurance paid on some benefits, preserve allowances that would otherwise be lost, and help build pension savings more efficiently. Used without care, it can reduce statutory pay, affect mortgage affordability or leave you tied into an arrangement that no longer suits your plans.

This guide explains how salary sacrifice works in the 2026/27 tax year, where the savings sit, the pension changes due from April 2029, and the practical points to check before agreeing to an arrangement.

how salary sacrifice works

Salary sacrifice is a contractual arrangement between you and your employer. You agree to reduce your gross pay in return for a non-cash benefit.

Common examples include:

• employer pension contributions
• electric cars
• cycle-to-work schemes
• workplace nursery places
• employer-funded pensions advice
• additional annual leave, depending on how the scheme is structured.

Your contract must change, and your cash pay will be reduced. Your employer then provides the benefit.

The tax treatment depends on the benefit. Pension salary sacrifice currently saves income tax and employee National Insurance on the sacrificed amount. Some other benefits remain tax-efficient, but many are caught by the Optional Remuneration Arrangement (OpRA) rules. Where OpRA applies, the tax charge is usually based on the higher of the salary given up or the taxable value of the benefit.

For 2026/27, the main rates that affect salary sacrifice savings are:

• Basic rate income tax, 20% on income from £12,571 to £50,270
• Higher rate income tax, 40% on income from £50,271 to £125,140
• additional rate income tax, 45% on income above £125,140
• employee National Insurance, 8% between the Primary Threshold (£12,570 per year) and Upper Earnings Limit (£50,270 per year), then 2% above that
• employer National Insurance, 15% above the Secondary Threshold.

There is also an effective 60% tax rate on earnings between £100,000 and £125,140, because the personal allowance is gradually withdrawn in this band. This can make salary sacrifice particularly valuable for some higher earners. 

These income tax bands apply to England, Wales and Northern Ireland. Scottish income tax bands are different, so Scottish taxpayers need to check the Scottish rates.

The combined savings depend on where your sacrificed salary falls. As a guide:

• A basic-rate taxpayer sacrificing salary that sits within the main NI band can save around 28%
• A higher-rate taxpayer sacrificing salary above the Upper Earnings Limit can save around 42%
• An additional-rate taxpayer can save around 47%, while someone sacrificing income between £100,000 and £125,140 may save more because salary sacrifice can help reduce the impact of the personal allowance taper. 

Because the employer also saves on NI, as well as the employee, some employers choose to pass on part or all of that saving by putting it towards the benefit. This can make the overall value even greater. 

what can still be sacrificed efficiently?

Many salary sacrifice arrangements lost their income tax advantage when the OpRA rules were introduced in April 2017, although employees can still retain the National Insurance savings.  For benefits caught by OpRA, the tax charge is usually based on the higher of the salary given up or the taxable benefit value, which often removes the intended tax saving.

The main benefits that can still work efficiently include:

Employer pension contributions: Pension salary sacrifice remains the most common arrangement. The sacrificed salary becomes an employer pension contribution. For now, this usually saves income tax and employee NI for the employee, and employer NI for the employer.

Cycle-to-work schemes: Bicycles and cyclist safety equipment remain protected under the excluded exemptions. Scheme rules and ownership terms still need to be followed.

Electric and ultra-low emission cars: Cars with CO2 emissions of 75g/km or less are excluded from the OpRA rules. Fully electric cars remain attractive because the benefit-in-kind percentage is still relatively low. For a zero-emission car, the appropriate percentage is 4% in 2026/27, rising to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30.

Workplace nursery places: Workplace nurseries can remain tax-efficient where the employer is properly involved in the provision and the conditions are met.

employer-provided pensions advice

The exemption for employer-provided pensions advice can apply up to £500 per tax year, subject to the rules.

For many other benefits, such as gym memberships, white goods or gadgets, OpRA can remove most or all of the tax advantage. Additional annual leave is slightly different, because it may be treated as a reduction in working time rather than a taxable benefit, but it is not usually a tax-saving arrangement in the same way as pension salary sacrifice.

pension salary sacrifice

Pension contributions remain the main use case for salary sacrifice.

For example, a higher-rate taxpayer earning £60,000 who sacrifices £5,000 into their pension would usually save £2,100 in income tax and employee NI on that slice of pay, made up of 40% income tax and 2% employee NI. The full £5,000 goes into the pension, while take-home pay falls by around £2,900 before any extra employer contribution. If the employer shares some of its 15% employer NI savings, the pension contribution may be higher.

The exact saving depends on earnings, tax code, pension scheme rules and whether the sacrificed salary falls above or below the Upper Earnings Limit.

the april 2029 pension change

A change is due from April 2029. From 6 April 2029, only the first £2,000 of each year will be exempt from National Insurance. Salary sacrificed above that limit will be subject to employee and employer NI. Income tax relief on pension contributions will continue, subject to the usual pension limits.

A few points are worth noting:

• Salary sacrifice pension arrangements can continue after April 2029
• The first £2,000 per employee will still be free from NI
• Salary sacrificed above £2,000 will attract employee and employer NI
• All non-salary sacrifice employer pension contributions will be free from NI
• The change does not stop people from contributing more than £2,000 to a pension
• Employers will need to make payroll changes before the rules start.

HMRC estimates that 7.7 million employees currently use salary sacrifice for pension contributions. Of these, 3.3 million sacrifice more than £2,000, meaning around 44% would be affected by the measure and around 56% would be fully protected by the £2,000 threshold.

For 2026/27, 2027/28 and 2028/29, the current NI treatment remains in place. Anyone planning larger pension contributions may want to review the next three tax years carefully.

salary sacrifice and income thresholds

Salary sacrifice can also help manage adjusted net income. That can be useful where income sits near a tax threshold or benefit withdrawal point.

the £100,000 personal allowance taper

The personal allowance is reduced by £1 for every £2 of adjusted net income above £100,000. It is lost completely once adjusted net income reaches £125,140.

For someone in that band, reducing adjusted net income through pension salary sacrifice can restore some or all of the personal allowance. The effective tax saving can be high because it includes the normal higher-rate tax saving (60)% and the value of the restored allowance.

the £60,000 to £80,000 high income child benefit charge band

From 2024/25 onwards, the High Income Child Benefit Charge starts where adjusted net income exceeds £60,000. The charge is 1% of Child Benefit for every £200 of income above £60,000. Once income reaches £80,000, the charge equals 100% of the Child Benefit received.

Salary sacrifice that reduces adjusted net income below £60,000 can reduce or remove the charge.

the £50,270 higher rate threshold

For an employee just above the higher-rate threshold, pension salary sacrifice can reduce the amount of income taxed at 40%. If the sacrificed salary is above the Upper Earnings Limit, the saving is usually 40% income tax plus 2% employee NI.

the £125,140 additional rate threshold

Salary sacrifice can also help someone stay below the additional-rate threshold. It may also restore some personal allowance where income falls back into the £100,000 to £125,140 taper band.

the limits and trade-offs

Salary sacrifice is not always the right answer. Before increasing or entering into an arrangement, check the wider effects.

statutory pay

Statutory maternity pay, statutory paternity pay, statutory adoption pay and statutory sick pay are usually based on earnings after salary sacrifice. Heavy sacrifice in the relevant calculation period can reduce statutory entitlements.

Some employers offer enhanced parental or sick pay, and their own policies may be more generous than the statutory minimum. The statutory calculation itself is based on the relevant earnings rules, so check the scheme before entering or adjusting a sacrifice arrangement ahead of planned leave.

mortgage applications

Salary sacrifice may affect mortgage affordability checks. Some lenders look at post-sacrifice pay, while others may consider the arrangement if it is clearly shown on payslips or can be changed. Anyone planning to buy, move or remortgage should check before entering or adjusting a sacrifice arrangement.

minimum wage rules

Salary sacrifice must not reduce cash pay below the National Minimum Wage or National Living Wage. Employers must check this before processing the reduction.

state pension entitlement

To build a qualifying year for the State Pension through earnings, post-sacrifice pay still needs to be at or above the National Insurance Lower Earnings Limit. For 2026/27, this is £129 per week, or £6,708 per year.

Most full-time employees will remain above this level, but heavy sacrifice on a part-time salary needs care.

changing the arrangement

Salary sacrifice changes your employment contract. Schemes usually restrict when you can opt in, opt out or change the amount. HMRC guidance also warns that if employees can swap between cash and benefits at will, the expected tax and NI advantages may not apply. Pick a level you can afford to maintain.

pension annual allowance

The standard pension annual allowance for 2026/27 is £ 60,000. It can taper down for people with a threshold income above £200,000 and adjusted income above £260,000, with a minimum tapered annual allowance of £10,000.

Salary sacrifice pension contributions count towards the annual allowance. Exceeding the annual allowance can result in an annual allowance charge.

electric car salary sacrifice

Electric car salary sacrifice remains attractive for many employees who want a new car.

The arrangement can reduce costs compared with funding a car personally because the lease cost is taken from gross pay, the car is excluded from OpRA if its emissions are within the 75g/km limit, and the benefit-in-kind rate for zero-emission cars remains low.

The saving depends on the car, lease terms, insurance, maintenance package, salary level, tax rate and how much of the employer’s NI saving is passed on. It is worth comparing the net salary sacrifice cost with a personal lease before signing.

The zero-emission car benefit-in-kind percentage is 4% in 2026/27. It rises to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30. The tax advantage will reduce as rates rise, but EV salary sacrifice should remain worth checking for employees who are already considering an electric car.

practical steps

These questions can help you decide whether salary sacrifice is worth using.

• What tax band are you in? The savings depend on where the sacrificed salary sits. Basic-rate, higher-rate and additional-rate taxpayers can see different results.
• Are you near a key threshold? Salary sacrifice can be especially useful around £60,000, £100,000 and £125,140, because those thresholds affect the High Income Child Benefit Charge, the personal allowance taper and the additional rate of income tax.
• Are you claiming Child Benefit? If your adjusted net income is between £60,000 and £80,000, pension salary sacrifice may reduce the High Income Child Benefit Charge.
• What does your employer offer? Schemes differ. Check what benefits are available, whether the employer shares its NI savings, how often you can change the arrangement and what happens if you leave employment.
• Are you planning parental leave, a mortgage application or a career break? Are you on sick leave? These are reasons to take extra care before entering or adjusting a sacrifice arrangement.
• Are you already sacrificing more than £2,000 into a pension? The April 2029 change means higher contributors should plan ahead. The current rules remain in place for 2026/27, 2027/28 and 2028/29, but the NI saving above £2,000 will reduce from April 2029.

wrapping up

Salary sacrifice remains a useful planning option in 2026/27, especially for pension contributions, electric cars and employees close to the £60,000 or £100,000 income thresholds.

The April 2029 pension change will reduce the National Insurance benefit for higher pension sacrifice contributions, but it does not remove salary sacrifice altogether. The next three tax years still offer a planning window under the current rules.

If you would like to review whether salary sacrifice would work for your circumstances, please get in touch.

associated company rules: protecting your corporation tax thresholds
July 2026

What every owner-managed group needs to know.

Running more than one limited company is common for many owner-managers. You might have a trading company alongside a property company, a separate company for a different service line, a holding company above the group, or an old company kept for a brand name.

Each company may have made sense when it was set up. The issue is what happens when the corporation tax rules look at those companies together.

Since 1 April 2023, the UK has used a tiered corporation tax system. The thresholds that decide whether a company pays the 19% small profits rate, the 25% main rate, or a rate (due to marginal relief) between the two can be divided between associated companies. The more associated companies there are, the lower each company’s thresholds become.

This guide explains how the rules apply to accounting periods falling within the corporation tax financial year starting 1 April 2026, who counts as an associated company, and the practical steps that can help protect your position.

the corporation tax rate structure

For the financial year starting 1 April 2026, the main corporation tax rates remain:

• 19% small profits rate for companies with profits up to £50,000
• 25% main rate for companies with profits over £250,000
• marginal relief for companies with profits between £50,000 and £250,000

The government’s Corporate Tax Roadmap also confirmed its intention to cap the headline corporation tax rate at 25% for this parliament and to keep the small profits rate and marginal relief at current rates and thresholds.

The marginal relief band is not always as simple as it looks. Companies in the band are first taxed at 25%, then marginal relief is deducted using the standard 3/200 fraction. In practice, this means profits within the marginal band can suffer an effective marginal rate of 26.5%.

That is why profit levels inside the marginal band need careful monitoring. The rate on the next pound of profit can be higher than many owners expect. The associated company rules can move a company into that band earlier than expected.

what is an associated company?

The starting point is control. A company is associated with another company if:

• One company controls the other, or
• Both companies are under the control of the same person or persons.

For accounting periods beginning on or after 1 April 2023, the main corporation tax thresholds are divided by the total number of associated companies, including the company itself.

An associated company can count even if it is associated for only part of the accounting period. That point is easy to miss when companies are set up, sold, struck off or reorganised partway through a year.

For a 12-month accounting period, the standard limits are divided like this:

• One company only: £50,000 lower limit and £250,000 upper limit
• Two associated companies in total: £25,000 lower limit and £125,000 upper limit each
• Three associated companies in total: £16,667 lower limit and £83,333 upper limit each
• Four associated companies in total: £12,500 lower limit and £62,500 upper limit each
• Five associated companies in total: £10,000 lower limit and £50,000 upper limit each

A standalone company with £40,000 of taxable profits may expect to pay corporation tax at 19%. If it has three other associated companies, its lower limit could fall to £12,500 and its upper limit to £62,500. That same £40,000 profit could then sit inside the marginal relief band.

control and associates

Control is wider than direct share ownership. It can include rights to voting power, income, assets on a winding up, and rights held indirectly.

The rules can also look at the rights of a person’s associates. For an individual, associates include:

• A spouse or civil partner
• Parents, grandparents and other lineal ancestors
• Children, grandchildren and other lineal descendants
• Siblings
• Partners in a partnership
• Certain trustees and personal representatives.

The rules do not automatically treat every family company as associated. Where companies are controlled by associates, HMRC assesses whether there is substantial commercial interdependence between them.

This distinction is important. A husband’s trading company and a wife’s separate trading company in an unrelated sector will not usually be associated just because they are married. The position changes if the companies share customers, premises, staff, funding, equipment or management.

substantial commercial interdependence

The substantial commercial interdependence test looks at three types of connection.

financial interdependence

This can apply when one company provides financial support to another, directly or indirectly, or when both have a financial interest in the same business. Examples could include inter-company loans, guarantees, shared funding arrangements or informal financial support.

economic interdependence

This can apply when companies work towards the same economic objective, when one company’s activities benefit the other, or when they have common customers. Shared sales channels, regular referrals, or a linked customer base can all point towards economic interdependence.

organisational interdependence

This can apply where companies share management, employees, premises or equipment. It may also include shared admin support, shared systems or shared operational resources.

None of the three connection types needs to exist. A strong link in one area may be enough, but the answer depends on the facts. The test is whether the interdependence is substantial, not whether the businesses are identical.

In practice, the situations most likely to create a problem include:

• Shared premises, especially where one company provides space free of charge or below market rent
• Inter-company loans without clear commercial terms
• Common employees, directors or management
• Shared customer bases or regular referrals between companies
• One company supplying goods or services to another on non-arm’s-length terms
• Shared vehicles, equipment, systems or admin support.

Good records help. If companies are genuinely separate, keep evidence of separate premises, separate customers, separate employees, separate management and properly priced transactions.

dormant and passive companies

Not every related company reduces the thresholds. A company can be disregarded if it has not carried on any trade or business at any time during the relevant accounting period. For corporation tax purposes, trading includes activities such as buying, selling, renting property, advertising, employing someone or receiving interest.

That means a company may fail the exclusion even if it looks inactive. A small bank interest receipt, a one-off invoice, rental income or investment activity can be enough to show that it is carrying on a business.

It is also important to separate Companies House dormancy from corporation tax dormancy. Filing dormant accounts does not automatically mean a company is ignored for associated company purposes.

There is also a separate exclusion for certain passive holding companies, but it is narrow. Broadly, the company must carry on no trade, hold only shares in 51% subsidiaries, receive only dividend income, meet redistribution conditions and avoid other activities such as chargeable gains or management expenses. A holding company should not be assumed to qualify without checking the details.

quarterly instalment payments

Associated companies can also affect when corporation tax is paid.

A company is usually treated as large for corporation tax payment purposes if its annual taxable profits exceed £1.5m but do not exceed £20m. For accounting periods beginning on or after 1 April 2023, that £1.5m threshold is divided by the number of associated companies, including the company itself.

For example, if a company has two associated companies, there are three companies in total. The £1.5m threshold is divided by three, giving an adjusted threshold of £500,000.

That can create a real cashflow issue. A company with annual taxable profits of £600,000 might not expect to pay corporation tax by quarterly instalments as a standalone company. If it has two associated companies, it could be brought into the large company payment regime.

Large companies with a 12-month accounting period normally pay corporation tax in four instalments:

• Six months and 13 days after the first day of the accounting period
• Three months after the first instalment
• Three months after the second instalment
• three months and 14 days after the end of the accounting period.

For a company with a 1 January to 31 December accounting period, those dates would usually be 14 July, 14 October, 14 January and 14 April.

The rules are different for very large companies. A company is usually very large if its annual profits exceed £20m, again with the threshold reduced for associated companies. Very large companies with a 12-month accounting period pay earlier, on the 14th day of months 3, 6, 9 and 12 of the accounting period.

There are exceptions. For example, a company may not need to pay by instalments where its total corporation tax liability is less than £10,000. There can also be a first-year exception for companies becoming large, provided profits do not exceed the relevant £10m threshold, adjusted for associated companies where necessary. These rules need checking before payment dates are assumed.

common situations that catch owners out

the forgotten company

An old company may have been kept for a brand name, project or trading style. If it has any activity, it may not qualify for ignoring.

the property company

A separate company may hold premises and rent them to the trading company. Common ownership, a rental relationship and shared premises can create financial, economic or organisational links.

the family group

A parent may help an adult child start a company by providing premises, a loan, equipment or referrals. That support can create substantial commercial interdependence even where day-to-day management is separate.

the spouse companies

Two spouses may run separate companies. The companies may look independent, but shared admin support, shared staff, shared vehicles, or shared customers can change the position.

the investment company

A personal investment company is not automatically dormant. If it holds investments, receives income or carries on business activity, it may need to be counted unless a specific exclusion applies.

practical steps to protect your thresholds

• Review all connected companies each year: List every company you and your associates control or have an interest in. Note whether each company is active, dormant, passive, trading, investment-based or potentially linked to another company.
• Check whether each company is still needed: Companies set up years ago for a specific project, contract or brand may no longer serve a purpose. Closing a company can remove it from future counts, but timing matters because a company can count if it was associated for part of the accounting period.
• Keep arrangements on commercial terms: Where companies share premises, lend money, provide services or recharge costs, put proper agreements in place. Use commercial rates, issue invoices, and keep records.
• Separate operations where possible: Separate premises, staff, bank accounts, systems, equipment and customer bases can all help show that companies operate independently.
• Plan profits across the group: Where companies are unavoidably associated, review projected profits early. Timing expenditure, pension contributions, capital allowances and other reliefs may help manage exposure to the marginal relief band.
• Document genuine independence: If two companies under family control are not substantially commercially interdependent, keep a short note explaining why. Cover the different activities, customers, premises, resources, management and financial arrangements.

final thoughts

The associated company rules can affect both the rate of corporation tax a company pays and the date the tax is due. A company with related entities should not assume that the full £50,000 and £250,000 thresholds are available without checking the position.

If you run more than one company, have family members or business partners with their own companies, or are considering setting up a new company for a project or property, it is worth reviewing the structure before next year-end.

A clear review can help identify which companies count, whether any exclusions apply, and whether the group has moved closer to the marginal relief band or quarterly instalment payment rules

If you would like a review of your associated company position before your next year-end, please get in touch.

late-payment rules and cashflow protection for SMEs
September 2026

Tips to help your business get paid on time.

Late payment can turn a profitable sale into a cashflow problem. A business may have completed the work, paid its employees and suppliers, and accounted for tax before the customer settles the invoice.

The scale of the problem remains significant. Research commissioned by the Department for Business and Trade and the Office of the Small Business Commissioner estimates that late payments cost the UK economy almost £11 billion a year. Around £26 billion is owed to businesses in late payments at any one time, affecting more than 1.5 million businesses, or 28% of the business population. Among businesses affected, the average amount outstanding is approximately £17,000.

The same research estimated that 14,000 businesses close each year because of late payments, while affected businesses spend an average of 86 staff hours a year chasing overdue invoices.

Payment performance has improved in some parts of the economy. The latest Department for Business and Trade statistics, published in July 2026, show that large businesses paid suppliers in an average of 32 days during 2025. They paid 15% of invoices late, compared with 25% when reporting began in 2018.

For SMEs, good cashflow management therefore starts before an invoice becomes overdue.

when does a business payment become late?

The rules on late commercial payments apply to qualifying transactions between businesses for goods and services.

Where businesses agree a payment date, payment terms for private-sector business transactions should usually be no longer than 60 days. Businesses can currently agree a longer period, but it must be fair to both parties.

Public authorities are generally expected to pay within 30 days.

Where no payment date has been agreed, a commercial payment normally becomes late 30 days after the later of the customer receiving the invoice or the goods or services being supplied.

These rules make written payment terms particularly important. An invoice that simply says “payment due” without matching clear contractual terms can create unnecessary uncertainty when payment is chased.

Terms should establish when an invoice falls due, which payment methods are accepted, what information the customer needs to approve it and what happens if payment is late.

For larger or longer projects, businesses may also want to consider deposits, staged invoicing or payments linked to agreed milestones rather than waiting until all work has been completed before raising a single invoice.

statutory interest on late commercial debts

Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses can have a statutory right to charge interest when another business pays late.

The statutory rate is 8% above the applicable Bank of England base rate.

For this purpose, the reference rate is fixed for six-month periods. The Bank of England rate in force on 30 June applies from 1 July to 31 December, while the rate on 31 December applies from 1 January to 30 June.

The Bank Rate was 3.75% on 30 June 2026, so the statutory late-payment interest rate for qualifying debts becoming late between 1 July and 31 December 2026 is 11.75% a year.

For example, suppose a business has a qualifying £5,000 invoice that becomes overdue during this period and remains unpaid for 45 days.

At 11.75%, the statutory interest for those 45 days would be approximately £72.43.

Interest normally runs from the date the payment becomes late until payment is made.

Businesses should check their contracts before applying statutory interest. If a contract already provides its own late-payment remedy or rate of interest, the statutory regime may not apply.

compensation for recovering late payments

Interest is not the only amount that may be recoverable. Businesses can also claim a fixed amount towards the cost of recovering a qualifying late commercial payment. The statutory compensation currently depends on the size of the debt:

Amount owed	Fixed compensation
Up to £999.99	£40
£1,000 to £9,999.99	£70
£10,000 or more	£100

The charge applies to each qualifying late payment. Reasonable additional recovery costs may also be recoverable in appropriate circumstances.

Using the previous £5,000 example, the business could potentially claim £72.43 of interest after 45 days plus the £70 fixed recovery amount – a total of £142.43, before considering any further qualifying recovery costs.

Charging interest and compensation is a commercial decision as well as a legal one. Some businesses include the possibility of statutory charges in their standard payment reminders before formally applying them.

preventing late payment before it starts

A large part of effective credit control happens before the due date. Businesses should build payment management into their sales process rather than treating debt collection as a separate task once something has gone wrong.

A practical system should cover the following:

1. Check new customers before extending credit. Review Companies House information where relevant, carry out proportionate credit checks and establish a sensible credit limit. For significant contracts, consider whether the level of exposure would create a problem if payment arrived one or two months late. It can also be a good idea to ask a customer for their full set of statutory accounts (rather than just the ones available on Companies House). 
2. Agree payment terms before starting work. State the payment deadline clearly in contracts, quotations or engagement documents. Make sure the customer has accepted the terms rather than introducing them for the first time on the invoice.
3. Understand the customer’s payment process. Larger organisations may require purchase-order numbers, supplier registration, specific invoice portals or departmental approval. Find out what is required before the first invoice is raised.
4. Invoice promptly and accurately. Delaying an invoice by ten days effectively gives the customer ten extra days of credit. Incorrect addresses, missing purchase-order numbers and unclear descriptions can also give customers legitimate reasons to delay approval.
5. Make payment straightforward. Provide clear bank details and appropriate payment options. For regular customers, automated payment methods such as Direct Debit can reduce administration and missed due dates.
6. Send reminders before and after the due date. Accounting software can automate reminders, but communication should become more personal as an invoice becomes increasingly overdue. A telephone call can often identify an approval problem or genuine dispute faster than repeated automated emails.
7. Escalate consistently. Set internal points at which an overdue account moves from a reminder to a call, formal demand, suspension of further credit or external recovery action. Avoid allowing a large balance to accumulate simply because the customer has historically paid eventually.
8. Monitor customer concentration. A business may have healthy overall sales while becoming too dependent on one or two slow-paying customers. Review how much of the trade debtor balance relates to individual customers and sectors.

use payment data before accepting large customers

Businesses selling to larger companies can access useful information before agreeing substantial credit terms.

Large companies and LLPs that fall within the reporting requirements must publish information on their payment practices at least twice a year. Current size tests include businesses meeting at least two of the following thresholds: £54 million turnover, £27 million balance-sheet total and 250 employees.

Published information can show how long a business typically takes to pay suppliers, the proportion of payments made within 30 days, between 31 and 60 days and after 60 days, and the proportion of payments that were late against agreed terms.

This can provide useful evidence when deciding whether to accept a customer’s requested payment terms or how much credit to offer.

what the fair payment code tells suppliers

The previous Prompt Payment Code has been replaced by the Fair Payment Code, administered by the Office of the Small Business Commissioner.

It operates through three award levels.

A Gold Award requires businesses to pay at least 95% of all invoices within 30 days. Silver requires at least 95% of all invoices to be paid within 60 days, including at least 95% of invoices to small businesses with fewer than 50 employees within 30 days. Bronze requires at least 95% of all invoices to be paid within 60 days.

Businesses dealing with a Fair Payment Code award holder can therefore use its award status as one indicator of payment performance, although normal credit checks should still form part of the decision.

what to do when an invoice becomes overdue

The first step should usually be to establish why the payment has not been made.

Confirm that the customer received the invoice and has all the supporting information required. Ask whether the invoice has been approved, whether there is a genuine dispute and when payment will be released.

Where the customer acknowledges the debt but has temporary financial difficulties, a written payment plan may sometimes provide a better outcome than immediate legal proceedings. Any arrangement should set out instalment dates and amounts clearly.

If normal reminders fail, a business can send a formal demand setting out the amount outstanding, the original payment date, any interest or recovery costs being claimed and the deadline for settlement.

Before commencing court proceedings, businesses should consider the likely recovery costs, the value of the debt and the financial position of the customer. Winning a claim does not guarantee recovery if the customer has no funds or is insolvent.

support from the small business commissioner

The Office of the Small Business Commissioner provides free support to small UK businesses facing payment problems with larger private-sector customers.

For its existing complaint service, it defines a small business as one with fewer than 50 employees. The office can provide guidance and, in qualifying cases, contact a larger customer and investigate an unresolved payment dispute.

Businesses considering this route should normally contact the Commissioner before starting court proceedings, as the office may no longer be able to assist once legal action has begun.

protecting cashflow from unpaid invoices

Credit control should sit alongside broader cashflow planning.

An aged-debtor report should be reviewed regularly rather than only at the financial year end. Tracking amounts that are current, 30 days overdue, 60 days overdue and older can highlight deteriorating payment behaviour early.

Cashflow forecasts should also use realistic collection dates. If a significant customer routinely pays 15 days after its contractual deadline, assuming that every invoice will arrive on the due date can overstate the cash available to the business.

Businesses should also distinguish between turnover and cash. Increasing sales on lengthy credit terms can increase reported revenue while placing additional pressure on working capital.

consider the VAT effect of late payment

VAT can add another cashflow pressure. Under standard VAT accounting, a business normally accounts for VAT based on its sales and purchase invoices even when the customer has not yet paid. This can mean paying VAT to HMRC before collecting the corresponding cash from the customer.

Eligible VAT-registered businesses can consider the VAT Cash Accounting Scheme, under which VAT on sales is generally paid when customers pay the business.

For 2026/27, businesses can generally join where estimated VAT-taxable turnover for the next 12 months is £1.35 million or less. A business normally has to leave if its VAT-taxable turnover rises above £1.6 million.

The scheme will not suit every business because input VAT is also normally reclaimed when suppliers are paid rather than when their invoices arrive.

Where VAT has already been accounted for under normal VAT accounting and a debt later proves irrecoverable, VAT bad debt relief may be available. Among the conditions, the debt must normally have remained unpaid for at least six months after the later of the payment due date and the date of supply, and the debt must have been written off in the business’s VAT records.

Claims generally need to be made within four years and six months of the later of those dates.

late-payment law is set to change

Businesses should also be aware that the Government is progressing significant changes to commercial payment law.

The Commercial Payments Bill was introduced in May 2026. As at 7 August 2026, it has completed committee stage in the House of Lords but has not yet become law. Its report stage is still to be scheduled.

The Government’s proposals include a firm maximum payment period of 60 days for many business-to-business contracts, subject to limited exemptions. Current proposals indicate that the new maximum would begin no earlier than 2027. The Government has identified possible exemptions where both parties are large businesses, where the purchaser is the smaller party and for certain imports and exports.

The Bill would also make statutory late-payment interest mandatory rather than leaving suppliers to decide whether to claim it, strengthen the Small Business Commissioner’s enforcement and dispute-resolution powers and introduce additional scrutiny of poor payment behaviour by large businesses.

These proposed measures should not yet be treated as part of the current late-payment regime. Businesses should review their contracts and credit-control procedures again once the legislation receives Royal Assent and commencement dates have been confirmed.

make payment management part of financial management

Late payment cannot always be prevented, but businesses can reduce their exposure.

Clear contracts, prompt invoicing, sensible credit limits, regular debtor reviews and consistent follow-up all improve the chances of getting cash into the business when expected.

Where payment is delayed, businesses should understand the legal rights available to them, including statutory interest and recovery compensation. They should also consider the tax and cashflow effects of carrying unpaid invoices for long periods.

Most importantly, debtor management should not begin when an invoice is already 60 or 90 days overdue. Treating payment terms, invoicing and credit control as part of the normal financial management cycle gives businesses much more opportunity to identify problems before an unpaid invoice starts affecting payroll, tax payments, supplier commitments or investment plans.

If you need help improving your cashflow, managing late payments or strengthening your credit-control processes, contact us to discuss how we can help. 

healey confirms october budget date
September 2026

Chancellor John Healey will deliver his first Budget on Wednesday 28 October 2026, just over three months after taking charge of the Treasury.

Healey confirmed the date in a video posted on Instagram, saying the Government was moving quickly to “restore hope and bring Britain’s communities back”. He succeeded Rachel Reeves as Chancellor on 20 July, following Andy Burnham’s appointment as Prime Minister.

The announcement gives Healey 89 days to prepare his first major fiscal statement. The relatively short run-up may help limit the prolonged speculation surrounding the 2025 Budget and the uncertainty it created for businesses and households.

Healey said the Budget would shift money and decision-making away from Westminster and into communities across the country. Devolution is expected to be a central theme as the new Government sets out its economic priorities.

However, the Chancellor also emphasised that the plans would be underpinned by fiscal discipline. He confirmed that the Government would continue to meet its existing fiscal rules, despite pressure on the public finances and calls for additional spending.

Healey said the Budget would aim to provide businesses and families with the stability needed to plan for the future. The statement is therefore expected to balance the Government’s regional investment ambitions with a commitment to responsible borrowing and spending.

The Budget will be Healey’s first test as Chancellor and an early indication of how Burnham’s Government intends to combine greater regional control with economic credibility.

Talk to us about your business.

mortgage rates rise amid global tensions
April 2026

Mortgage costs have increased sharply in recent weeks, with new data showing that a typical borrower is now paying around £788 more per year compared with before the recent escalation in tensions involving Iran.

The figures, compiled by Moneyfacts, are based on a £250,000 mortgage over 25 years with an average two-year fixed rate, which has risen to 5.28%.

This increase reflects a rapid shift in the mortgage market since late February. Lenders have responded to heightened economic uncertainty by raising rates and withdrawing some of their most competitive products. In particular, sub-4% fixed-rate deals, which were widely available only weeks ago, have largely disappeared.

Major lenders, including Barclays, HSBC, NatWest, Nationwide and Santander, have all withdrawn these lower-rate options.

Average rates have climbed quickly. Two-year fixed deals have risen from 4.83% at the start of March to 5.28%, while five-year fixes have increased from 4.95% to 5.32%. For borrowers considering a five-year deal, this equates to an additional £651 per year compared with just a fortnight ago.

At the same time, the choices have narrowed. There are now 689 fewer mortgage products available than earlier in the month, reducing options for buyers and those remortgaging.

Despite this, the situation remains less severe than the market disruption following the September 2022 UK mini-Budget, when around a quarter of mortgage deals were withdrawn.

Borrowers on fixed rates are protected until their current deal ends. However, those approaching renewal should plan early, particularly as rates may continue to fluctuate in line with the Bank of England’s decisions.

Talk to us about your finances.

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
April 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
January 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.