INCOME TAX
Income Tax Rates and Personal Allowances
- No increase in the rates of Income Tax on employment income/self employment or in the rates of National Insurance contributions for employment and self-employment.
- No increase in personal allowances, other than the new Pension Tax Allowance announced in the Budget (see below).
Tax on Savings Income
The Income Tax rates applicable to savings income will increase by 2% from 6 April 2027, following the 2% increase introduced in the current tax year.
The rates will be:
- Basic rate: 24%
- Higher rate: 44%
- Additional rate: 49%
Tax on Rental Income
The Income Tax rates applicable to rental income will also increase by 2% from 6 April 2027, following the recent two-percentage-point increase.
The rates will be:
- Basic rate: 24%
- Higher rate: 44%
- Additional rate: 49%
This represents a cumulative increase of 4% over two years.
Pension Tax Allowance
A new Pension Tax Allowance will be introduced to reduce the administrative burden on pensioners whose total income is no more than the full new State Pension. As the full new State Pension will exceed the personal allowance, some pensioners would otherwise need to pay small amounts of Income Tax through the Simple Assessment process.
The allowance is intended to address this issue and is currently expected to be available until the 2030 tax year. From 6 April 2027, the allowance will be calculated by applying the basic rate of Income Tax (20%) to the difference between the full new State Pension and the personal allowance.
For individuals whose total income exceeds the full new State Pension, the allowance will be withdrawn at a rate of £1 for every £3 of income above that level.
Trading Allowance
The trading allowance will increase from £1,000 to £3,000 from 6 April 2027.
The allowance provides relief on trading and miscellaneous income, such as income from selling items through platforms such as Vinted.
Image Rights
Following increased HMRC scrutiny and several high-profile cases, particularly in the sports sector, the tax treatment of image rights has received considerable attention.
It is now confirmed that payments relating to image rights connected with an employment will be treated as taxable employment income.
Reporting Tax Evasion
HMRC will deduct Income Tax at the additional rate of 45% from rewards paid to informants under the Strengthened Reward Scheme, which provides a route for reporting tax evasion.
EMPLOYEE TAXES AND BENEFITS
Changes to Employee Share Schemes
Following last year's changes to the Enterprise Management Incentives (EMI) scheme, which widened its scope, the Budget announced further measures to expand the tax-efficient Company Share Option Plan (CSOP). CSOP is an alternative for companies for which EMI is unsuitable or unavailable.
The following changes will take effect from 6 April 2027:
- The individual CSOP option limit will increase from £60,000 to £120,000.
- The interaction between the individual CSOP and EMI option limits will be removed.
- The CSOP exercise period will be extended to 15 years, bringing it into line with EMI.
- The exception for Employee Ownership Trusts (EOTs) in the EMI rules will be extended to companies arranging to become controlled by an EOT.
- The period for exercising EMI options following a disqualifying event will be extended to 180 days.
- The requirement to submit a separate notification to HMRC when an EMI option is granted will be removed. Instead, companies will notify HMRC of grants through them end-of-year return.
Reporting Benefits in Kind
As previously reported in our newsletter, employers will be required to report and payroll most benefits in kind and taxable expenses through payroll.
For company cars and vans, car and van fuel, and medical benefits, the changes will take effect from 6 April 2027.
All other benefits in kind will be brought within the requirements from 6 April 2028, except employment-related loans and employer-provided living accommodation.
For further details, see our article HERE.
Company Cars
The percentages used to calculate the taxable benefit for company cars have been announced for the 2030–31 tax year.
For zero-emission vehicles, the applicable rate will increase by 1% each year, reaching 10% in 2030–31. This rate will be used to calculate the taxable benefit for an electric company car.
The rates for all other vehicle bands will also increase by one percentage point per year, up to a maximum of 40%.
Van Benefit Charge
For the 2027–28 tax year, from 6 April 2027:
- The van benefit charge will be £4,310.
- The van fuel benefit charge will be £825.
Car Fuel Benefit Charge and Mileage Rates
- The car fuel benefit charge multiplier will be £30,200 for the 2028 tax year.
- The approved mileage allowance payment (AMAP) rate and the simplified mileage rate for self-employed individuals will increase from 25p to 35p per mile for business mileage above 10,000 miles, from 6 April 2027. (The 45p rate remains for less than 10,000 miles).
Benchmark and Overseas Scale Rates
Benchmark Scale Rates (BSRs) and Overseas Scale Rates (OSRs) are optional flat rates that employers can use to reimburse employees for qualifying business travel expenses without checking every receipt.
BSRs cover meals and travel within the UK, while OSRs cover accommodation and meals overseas.
The BSRs will be updated to better reflect current subsistence costs from 6 April 2028. The new rates will be:
- £20 for qualifying periods of travel lasting more than five hours.
- £60 for qualifying periods of travel lasting more than 10 hours.
- £75 for qualifying periods of travel lasting more than 24 hours.
Claiming Employment Expenses
The £2,500 threshold for Income Tax Self-Assessment employment expense claims will be abolished from April 2028.
This change will enable more taxpayers to claim tax relief on unreimbursed employment expenses through PAYE.
It is intended to simplify the process by removing the need to complete a Self-Assessment tax return solely to claim employment expenses. It will also help ensure that claims are supported by evidence before tax relief is granted.
National Living Wage and National Minimum Wage
From April 2027:
- The National Living Wage will increase to £13.21 per hour.
- The National Minimum Wage for 18–20-year-olds will increase to £11.27 per hour.
CORPORATE AND BUSINESS TAXES
Small Business Rates Relief
The business rates threshold for retail, hospitality and leisure businesses will increase from £12,000 to £18,000 from April 2027.
This is in addition to the 20% business rates reduction for pubs announced during the summer.
Corporation Tax Rates
The Budget confirmed that the main rate of Corporation Tax will remain at 25% and the small profits rate at 19% for the financial year beginning 1 April 2028.
Capital Allowances
The main rate of writing-down allowance for qualifying assets will decrease from 14% to 12%.
Many of our clients qualify for the Annual Investment Allowance (“AIA”), which provides 100% tax relief on qualifying capital expenditure. However, the reduction in the writing-down allowance may affect businesses purchasing cars, although many of our clients lease their vehicles.
The main rate of first-year allowance will increase from 40% to 50% from 1 January 2027 for qualifying expenditure incurred on or after 1 January 2027.
Research and Development
The requirement to submit a Claim Notification Form for Research and Development (R&D) tax relief claims will be abolished from 1 April 2027. This form is currently required in certain circumstances, including for some first-time claimants, within six months of the end of the relevant accounting period.
The Additional Information Form will also be simplified and streamlined.
CAPITAL GAINS TAX
Business Asset Disposal Relief (BADR)
Business Asset Disposal Relief, previously known as Entrepreneurs' Relief, has seen its rate increase from 10% to 18% over the past two years, while the lifetime limit has remained at £1 million.
From 6 April 2027, the lifetime limit will be reduced to £500,000.
Special provisions will apply to certain contracts entered before 6 April 2027 that have not been completed by that date. Similar provisions will apply to certain share reorganisations and exchanges of securities that remain incomplete.
New Relief for Founders
A new Capital Gains Tax (CGT) Founders' Relief is proposed for introduction from April 2027. The relief forms part of a consultation on tax support for entrepreneurs, which closes on 30 November.
The headline announcement in the Budget speech was a 10% CGT rate on qualifying disposals, subject to a lifetime limit.
The accompanying Budget documents set out the following proposed conditions.
Individual eligibility
The individual would need to:
- Have held 25% of the company's ordinary share capital when the trading activity for which the company was established, or preparations for that trade, commenced.
- Have held the shares or securities for at least five tax years before disposal.
- Have been UK-resident under the Statutory Residence Test for at least five consecutive tax years before disposal.
Company eligibility
For a subsequent disposal of shares to qualify, the company would need to:
- Be within the scope of UK Corporation Tax, meaning it is UK-resident for Corporation Tax purposes or carries on business in the UK through a permanent establishment.
- Have a substantial UK presence during the five accounting periods before disposal.
- Be a trading company, or the holding company of a trading group, without substantial non-trading activities or non-qualifying trading activities.
- Continue the trade for which it was established when the founder's shares were issued, without a major change in the nature of that trade.
- Have turnover of at least £10 million and at least 15 qualifying full-time equivalent employees in the accounting period ending in the year before disposal.
- Meet at least two of the following three conditions:
- Achieve average annual compound turnover growth of at least 25% across three consecutive accounting periods within the 10 years before disposal, with turnover of at least £10 million in the accounting period before the first of those three periods.
- Achieve average annual compound growth of at least 25% in qualifying full-time equivalent employees across three consecutive accounting periods within the 10 years before disposal, with at least 15 full-time equivalent employees in the accounting period before the first of those three periods.
- Incur at least £1.5 million in qualifying R&D expenditure for which the company meets the conditions for an R&D tax relief claim and claim R&D tax relief on that expenditure for an accounting period or periods ending within the three years before disposal.
Companies operating in certain sectors excluded from the Enterprise Investment Scheme (EIS) will not qualify. These include businesses dealing in land, financial services and property development.
Although the proposed relief may initially appear attractive, given the 10% rate, the qualifying conditions are potentially onerous. If implemented as proposed, they could significantly restrict the number of founders able to benefit.
The proposals remain subject to consultation, so the final rules may change.
TAX TREATMENT OF STABLECOINS
The tax treatment of stablecoins, a type of crypto asset, has not always been clear.
HMRC has determined that stablecoins should be treated more like money than capital for tax purposes, with the application of withholding tax also being extended.
These changes are expected to take effect from April 2027
VAT, INDIRECT TAXES AND OTHER MEASURES
Fuel Duty Rates
The temporary 5p-per-litre reduction in the main rates of fuel duty, originally introduced in the Spring Statement 2022, will remain in place until 30 June 2027.
Household Energy Costs
The following measures were announced:
- A £100 energy payment for households in Council Tax bands A to D.
- The removal of standing charges from gas bills, with these costs instead reflected in unit rates.
- A suspension of VAT on electricity bills until 31 July 2027.
Machine Games Duty
The rate of Machine Games Duty on high-stakes machines will increase from 20% to 25% from 1 April 2027.
VAT: Online Marketplace Liability
The existing VAT rules governing online marketplace liability will be extended to cover UK businesses. The changes will make online marketplaces responsible for collecting VAT on sales made through their platforms by UK VAT-registered businesses and other UK businesses with annual sales of at least £90,000 per platform.
The rules will not apply to private, non-business sales, second-hand goods or business-to-business transactions.
The changes will take effect from October 2027.
E-Invoicing Requirements
Regulations requiring VAT invoices to be issued and received in a prescribed electronic format will be introduced, as previously highlighted in our newsletter.
The Government has published an implementation roadmap setting out further details of the e-invoicing requirements and the proposed timetable.
The changes are expected to take effect from April 2029.
VAT: Reverse Charge for B2B Services Supplied from Overseas
The VAT reverse charge rules for services supplied from overseas will be restricted so that they apply only where the receiving UK business is VAT-registered.
Where a UK business is not VAT-registered, the overseas supplier will instead be required to charge and account for UK VAT.
Air Passenger Duty
Air Passenger Duty rates for the 2028–29 tax year will increase in line with the Retail Prices Index from 1 April 2028. The higher rate applicable to private jets will also increase.
Temporary Increase In The Banking Surcharge
The rate of the Corporation Tax surcharge on banking companies will increase to 6% for a temporary 15-month period, from 1 January 2027 to 31 March 2028.
SAVINGS AND PENSIONS
Cash ISA Limit Retained at £20,000
Reversing last year's announcement, the annual Cash ISA limit will remain at £20,000 for all savers aged 18 and over from April 2027, rather than being reduced to £12,000 for those under 65.
First-Time Buyer ISA and Lifetime ISA
A new First-Time Buyer ISA will replace the Lifetime ISA for new savers.
The new account will provide a 25% Government bonus on the final account balance, up to a maximum bonus of £20,000, payable on withdrawal towards the purchase of a first home worth up to £450,000.
Existing Lifetime ISA holders will be able to continue contributing to and using their accounts under the current rules.
The withdrawal charge for Lifetime ISA withdrawals used to purchase properties above the Lifetime ISA property price cap will be reduced from 25% to 20%. The 25% charge for other unauthorised withdrawals will remain unchanged.
This change is expected to take effect immediately.
Pension: Serious Ill-Health Lump Sum
Measures will be introduced to allow a serious ill-health lump sum to be paid where a pension scheme member can reasonably be expected to live for less than one year.
The change will apply to uncrystallised pension rights regardless of whether the member has reached age 75, with the tax treatment depending on the applicable rules.
The definition of a registered medical practitioner will also be amended. This will allow a medical practitioner based outside the UK to provide medical evidence of a terminal diagnosis where the pension scheme member lives in the country in which the practitioner practises.
TAX ADMINISTRATION
Timely Payments for Self-Assessment
From April 2029, the Government will require Income Tax Self-Assessment taxpayers who make Payments on Account to make more regular in-year payments towards their final tax liability.
Payments will be automated, and eligible taxpayers will be able to choose to pay through PAYE.
The proposals could mean that the two existing Payments on Account are replaced by monthly payments, although the details remain subject to consultation.
Direct Debit Arrangements for VAT and PAYE Liabilities
From April 2029, taxpayers will generally be required to set up a Direct Debit instruction for VAT and PAYE return liabilities, subject to specified exceptions.
Businesses will still be able to use other payment methods to pay their liabilities before the relevant cut-off date. The Direct Debit instruction will be used to collect any outstanding balances.
Modernising the Correction of Errors
HMRC will be given new powers to require taxpayers to correct inaccurate tax returns and other documents.
The measures will include:
- A general obligation on taxpayers to correct inaccuracies when they are identified.
- A new power allowing HMRC to issue a Customer Correction Notice where it has reason to suspect an inaccuracy.
A Customer Correction Notice will require taxpayers to review their tax affairs and either correct the inaccuracy or explain why no correction is necessary.
The changes will take effect from 1 April 2028.
This appears to formalise HMRC's existing practice of sending letters encouraging taxpayers to review and correct potential errors.
Deliberate Tax Defaulters
HMRC will be able to publish more information about the deliberate non-compliance that led to the publication of an individual’s or business’s details.
HMRC will also be able to publish details of Personal Liability Notices, which can transfer a company's liability for a penalty arising from deliberate non-compliance to a company officer.
Always take professional advice when deciding your tax planning or investment strategy. The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
