Category: Income Tax

Making Tax Digital (MTD) for Income Tax is now in force for many self-employed individuals and landlords. Since 6 April 2026, taxpayers with qualifying business or property income exceeding £50,000 are required to maintain digital records and submit quarterly updates to HMRC using compatible software.

The threshold is scheduled to reduce to £30,000 from April 2027 and to £20,000 from April 2028, bringing many more taxpayers within the scope of the rules. Although quarterly submissions are now required, taxpayers must still complete a final year-end declaration by the following 31 January.

Choosing which software to use for MTF is therefore an important decision. The software should be able to keep digital records, submit quarterly updates, support the final declaration process and link directly with HMRC systems. Some products are designed for more simple requirements, while others offer more advanced features such as invoicing, bank feeds, receipt capture and integration with existing accounting systems.

HMRC also recognises that some taxpayers may wish to continue using spreadsheets. This remains a possibility provided these are linked to HMRC through compatible ‘bridging’ software.

We would be happy to help recommend suitable software solutions that manage the MTD for Income Tax most appropriately for your circumstances.
 

Your UK residence status affects how much tax you pay in the UK and, in particular, whether your foreign income and gains are subject to UK tax.

In simple terms, UK residents are normally taxed on their worldwide income and gains, while non-residents are generally only taxed on UK-source income and certain UK assets.

Residence status is mainly determined under the Statutory Residence Test, which looks at the number of days spent in the UK together with other connections you may have here.

You may be resident under the automatic UK tests if:

• you spent 183 or more days in the UK in the tax year
• your only home was in the UK for 91 days or more in a row – and you visited or stayed in it for at least 30 days of the tax year
• you worked full-time in the UK for any period of 365 days and at least one day of that period was in the tax year you’re checking

You may also be resident under the sufficient ties test if you have spent time in the UK and have family, work or property ties to the UK.

On the other hand, individuals working full-time overseas and spending limited time in the UK may qualify as non-resident under what is known as the overseas tests.

Special split-year rules can sometimes apply when moving into or out of the UK, meaning the tax year is divided between resident and non-resident periods.

Depending on your income and circumstances, you may need to register for self-assessment. This may be the case even if most of your income is taxed through PAYE.

You will usually need to file a self-assessment tax return if you are self-employed as a sole trader and your gross income exceeds £1,000 before expenses. Partners in business partnerships must also submit a self-assessment tax return.

A self-assessment tax return may also be required if your total taxable income exceeds £150,000 in the 2026-27 tax year, although people with lower income levels can still fall within self-assessment depending on their circumstances. This often applies where there is other untaxed income, such as rental income, foreign income, savings or investment income, including dividends.

Other common reasons for filing include paying Capital Gains Tax after selling assets or being liable to the High Income Child Benefit Charge. Although some smaller amounts of income relating to online selling or property income may be covered by allowances, it is important to check the position carefully.

If you need to complete a tax return for the first time, HMRC must generally be notified by 5 October following the end of the relevant tax year. For the 2026-27 tax year ending on 5 April 2027, the registration deadline will usually be 5 October 2027. HMRC also provides an online checker to help determine whether you need to file a return that can be found at www.gov.uk/check-additional-income-tax.

Many taxpayers are surprised to learn that once their income exceeds £100,000, they can face an effective tax rate of 60%, although officially, no such rate appears to exist. This happens when the personal allowance (currently £12,570) is gradually withdrawn once adjusted net income goes above £100,000.

Under the tax rules, if a taxpayer earns over £100,000 in any tax year, their personal allowance is gradually reduced by £1 for every £2 of adjusted net income exceeding £100,000. This ceiling applies regardless of age, meaning that any taxable receipt that pushes their income above this threshold will lead to a reduction in their personal tax allowance.

This is best demonstrated by way of an example. If a taxpayer earns exactly £100,000 they would usually benefit from the full personal allowance. However, if their income increases by £1,000 to £101,000 then:

• £1,000 is taxed at 40% = £400
• Their personal allowance is reduced by £500
• That £500 is now also taxed at 40% = £200

Total tax on the extra £1,000 = £600, creating an effective tax rate of 60%.

This continues until adjusted net income reaches £125,140, at which point the personal allowance is fully withdrawn.

Adjusted net income refers broadly to a taxpayer’s total taxable income before personal allowances, minus certain tax reliefs such as trading losses, charitable donations, and pension contributions.

Affected taxpayers should consider financial planning strategies to avoid this personal allowance trap. Reducing income below £100,000 could be achieved through options such as increasing pension contributions, making charitable donations, or participating in certain investment schemes.

Dividends are taxed differently from other types of income, with separate allowances and tax rates that depend on your overall level of income. You do not pay tax on dividends that fall within your Personal Allowance (2026-27: £12,570), and there is also a separate tax-free dividend allowance of £500 each year. Any dividend income above these allowances is taxable.

The rate of tax you pay on dividends depends on your Income Tax band.

For the 2026–27 tax year, the rates are:

• Basic rate: 10.75%
• Higher rate: 35.75%
• Additional rate: 39.35%

To determine which rate applies, your dividend income is added to your other income. This means dividends can push you into a higher tax band and / or can be taxed across more than one rate.

If you receive up to £10,000 in dividends you can ask HMRC to change your tax code and the tax due will be taken from your wages or pension, or you can enter the dividends on your self-assessment tax return, if you already fill one in. You do not need to notify HMRC if the dividends you receive are within your dividend allowance for the tax year.

If you have received over £10,000 in dividends, you will need to complete a self-assessment tax return. If you do not usually send a tax return, you need to register by 5 October following the tax year in which you received the relevant dividend income.

The Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner. Your Personal Allowance is the amount you can earn before paying Income Tax (£12,570 for the 2026–27 tax year). This transfer can reduce your partner’s tax by up to £252 in the tax year subject to the conditions outlined below.

To benefit as a couple, the lower-earning partner must usually have an income below their Personal Allowance, and the higher-earning partner must be a basic rate taxpayer. In practice, this normally means their partner's income is between £12,571 and £50,270 in the current 2026–27 tax year. For those living in Scotland, the thresholds are slightly different.

When you transfer part of your Personal Allowance, your own tax position may change, and you might pay some tax yourself. However, as a couple you will usually pay less tax overall.

For example, if you earn £11,500 and your partner earns £20,000, transferring £1,260 reduces your partner’s taxable income and can lower your combined Income Tax bill. In this case, the couple saves £214 in tax overall.

You can backdate a claim for Marriage Allowance to 6 April 2022 if you are eligible. The transfer continues automatically each year unless you cancel it, for example if your circumstances or income change.

If your taxable income for the 2026–27 tax year is less than £17,570, you will not pay any tax on the interest you receive. This figure combines the £5,000 starting rate for savings (taxed at 0%) with the £12,570 personal allowance.

In addition, the Personal Savings Allowance (PSA) provides further tax-free savings interest: basic-rate taxpayers can earn up to £1,000 in interest tax-free, while higher-rate taxpayers can earn up to £500. Those who pay the additional rate of tax on income over £125,140 are not eligible for the PSA. This means that a basic-rate taxpayer with no other income could receive up to £18,570 in tax-free interest.

It is important to understand that if your total non-savings income exceeds £17,570, you are no longer eligible for the starting savings rate. However, if your non-savings income falls between £12,570 and £17,570, the starting rate is reduced by £1 for every £1 your income exceeds your personal allowance.

Interest earned from ISAs or premium bond winnings is not included in these thresholds and remains tax-free. Those with higher savings in tax-free accounts can continue to benefit from their applicable PSA.

Banks and building societies no longer deduct tax from interest payments automatically. If you do owe tax on savings income, you must declare it through a self-assessment tax return.

If you have overpaid tax on your savings interest, you can submit a claim for a refund. Claims can be backdated up to four years from the end of the current tax year. For the 2022–23 tax year, the deadline to make a claim is 5 April 2027.

If you are self-employed or a member of a partnership, you may be able to claim tax relief when your business makes a loss. There are several ways trading losses can be used, but each loss can only be used once and specific conditions apply.

For the 2025–26 tax year, losses can be set against your total income for the same year and/or the previous tax year (2024–25). You must use the loss as far as possible in one year before applying any remaining amount elsewhere. If losses are not fully relieved against income, any remaining balance may, in some cases, be set against chargeable gains.

A claim can also be made for losses made in the first 4 years of trade known as early trade losses relief. This allows losses to be carried back against income of the three earlier tax years (2022–23, 2023-24 and 2024–25), starting with the earliest year. Claims must generally be made by 31 January 2027.

Unused losses can be carried forward and set against future profits of the same trade. In certain cases, where a business is incorporated, losses may be set against income from the company (known as pre-incorporation relief).

If your business ceases, terminal loss relief may apply. Losses arising in the final 12 months can be carried back against profits of the same trade for up to three previous tax years, starting with the most recent.

Relief may be restricted if the trade is not commercial or is carried on without a view to profit. In addition, an overall cap applies to certain income tax reliefs, limiting claims to the higher of £50,000 or 25% of adjusted total income.

The 2025–26 tax year ended on 5 April 2026, and attention now turns to filing your self-assessment tax return. While many leave this until the last minute, there are advantages to filing early.

There are two ways to file your return. You can submit a paper return, which must be filed by 31 October 2026, or file online, with a deadline of 31 January 2027. The 31 January deadline is also when any tax due for 2025–26 must be paid, along with the first payment on account for 2026–27.

Although the deadline may seem distant, preparing your return early can make a significant difference. Filing early does not accelerate the payment date, but it does give you certainty over how much tax you owe. This allows time to budget and set funds aside, avoiding pressure in January.

There are other benefits too. If you are due a refund, submitting early means you receive it sooner. It also gives more time to gather missing information, resolve queries, and avoid the last-minute rush when systems are busy and deadlines are tight.

In short, early preparation puts you in more control, whether that means planning for a future tax bill or importantly securing a repayment without delay.

The rules as to who pays Income Tax in Scotland is determined by whether an individual is considered a Scottish taxpayer or not. For most people, determining Scottish taxpayer status is straightforward. Individuals who live in Scotland are considered Scottish taxpayers, while those who live elsewhere in the UK are not.

If a taxpayer has homes in both Scotland and elsewhere in the UK, HMRC guidance is used to determine their main home for Scottish Income Tax purposes. Those without a permanent home who regularly stay in Scotland, such as offshore workers or hotel residents, may also be liable for SRIT.

If a person moves to or from Scotland during a tax year, their tax liability is determined by where they spent the majority of that year. Scottish taxpayer status applies to the entire tax year and cannot be split.

Those defined as Scottish taxpayers are liable to pay the Scottish Rate of Income Tax (SRIT) on their non-savings and non-dividend income.

Your Personal Tax Account (PTA) is an easy and secure way to manage your tax online. You can use it to check your tax code, claim a refund and update your details, all in one place, without needing to contact HMRC by phone or post.

Every UK taxpayer has a PTA, but you will need to register through the Government Gateway or GOV.UK One Login to start using it. You may also be asked to confirm your identity during the setup process. This is to keep your details safe and normally involves using photo ID such as a passport or driving licence.

Currently, the following services are accessible through your PTA:

• check your Income Tax estimate and tax code
• fill in, send and view a personal tax return
• claim a tax refund
• check your Child Benefit
• check your income from work in the previous 5 years
• check how much Income Tax you paid in the previous 5 years
• check your State Pension
• check if you will benefit from paying voluntary National Insurance contributions and if you can pay online
• track tax forms that you’ve submitted online
• check or update your Marriage Allowance
• tell HMRC about a change of name or address
• check or update benefits you get from work, for example company car details and medical insurance
• find your National Insurance number
• find your Unique Taxpayer Reference (UTR) number
• check your Simple Assessment tax bill.

Making Tax Digital (MTD) for Income Tax began on 6 April 2026 for qualifying taxpayers. Those with qualifying income over £50,000 are now required to maintain digital records and submit updates of trading or property income and expenses using compatible software.

Under MTD for Income Tax, quarterly updates are required every three months for each self-employment and property business. These quarterly updates are simply summaries of income and expenses based on digital records. You do not need to make any accounting or tax adjustments before sending a quarterly update to HMRC. HMRC receives totals only, not individual digital records.

For those using standard tax year periods, the deadlines are:

• 7 August (covering the period 6 April to 5 July)
• 7 November (covering the period 6 April to 5 October)
• 7 February (covering the period 6 April to 5 January)
• 7 May (covering the period 6 April to 5 April)

Alternatively, calendar quarters can be used if they better match your accounting period, but the same deadline dates apply. This will make record keeping simpler if your accounting period ends on 31 March.

Even if there has been no activity, an update must still be submitted. Missing deadlines can lead to penalties, although HMRC has said they will not apply penalty points for late quarterly updates for the first 12 months. Penalty points will still apply for late tax returns.

If you have not yet checked whether you need to use Making Tax Digital (MTD) for Income Tax, now is the time to urgently see if you are affected. The Income Tax reporting requirements for some self-employed individuals and landlords will change significantly from 6 April 2026. MTD for Income Tax changes the traditional annual self-assessment process to a new digital record-keeping and quarterly updates process submitted through recognised software.

From April 2026, those with qualifying income over £50,000 will be required to maintain digital records and submit quarterly updates of trading or property income and expenses. From April 2027, the threshold will reduce to £30,000, and in April 2028 it will further reduce to £20,000. 

A full tax return will still be required by the following 31 January after the tax year i.e. the first MTD for Income Tax return, covering the 2026-27 tax year, will be due by 31 January 2028.

MTD aims to reduce errors, improve efficiency, and support business productivity. HMRC estimates that around 860,000 taxpayers will join in 2026, with more joining in 2027. 

The system also provides exemptions for those unable to go digital and offers accessible software solutions. Taxpayers joining MTD for Income Tax in April 2026 will not receive penalty points for late quarterly updates for the first 12 months. This will allow them time to adapt to the new system.

The Marriage Allowance applies to married couples and civil partners where one partner does not pay Income Tax, usually because their income is below the personal allowance. For the 2025–26 tax year, this means the lower-earning partner must earn less than £12,570. The figures remain the same for the upcoming 2026-27 tax year.

The allowance allows the lower-earning partner to transfer up to £1,260 of their unused personal allowance to their spouse or civil partner. This transfer is only permitted if the recipient is taxed at no more than the basic rate of Income Tax. This means the higher-earning partner must usually have an income between £12,571 and £50,270. For those living in Scotland, the figures are somewhat different. 

By using the allowance, up to £1,260 of unused personal allowance can be transferred, resulting in a tax saving of up to £252 per year for the higher-earning partner, calculated at 20% of the amount transferred.

If you meet the eligibility criteria and have not yet claimed the Marriage Allowance, you can backdate your claim for up to four previous tax years as well as the current tax year. This could result in a total tax saving of up to £1,260 across all eligible years. Claims, including backdated ones and those for the current year, can be submitted online via GOV.UK.

At present, claims can be backdated to the 2021–22 tax year, meaning you may be able to claim for 2021–22, 2022–23, 2023–24, 2024–25 and the current 2025–26 tax year. This could result in a tax saving of up to £252 a year for up to five years. Claims, including backdated claims and applications for the current year, can be made online via GOV.UK.

A dividend is a distribution of a company’s profits to its shareholders. Companies may pay dividends in cash or additional shares, giving investors a share of the business’s earnings. Dividends are a common way for shareholders to earn income from their investments.

Dividends received within tax-advantaged accounts are completely tax-free. This includes dividends held in Individual Savings Accounts (ISAs) and in pensions, such as Self-Invested Personal Pensions (SIPPs) or other registered pension schemes. For investments outside these wrappers, dividends are subject to Income Tax, although all taxpayers benefit from a small £500 annual dividend allowance. This is in addition to the standard Personal Allowance of £12,570.

From April 2026, dividend tax rates will increase by 2%. The ordinary dividend rate will rise to 10.75%, while the upper dividend rate will increase to 35.75%. The dividend additional rate and the dividend trust rate will remain at 39.35%, and the dividend allowance will remain at £500.

Careful planning around dividend income is important in order to manage your overall tax liability.