9 Jan 2026
As the end of the tax year approaches, it is always a good time to review personal and business tax planning. Following November’s Budget, we also have some indication of changes for future tax years as far ahead as April 2029...
Helen Thornley
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Image: elenabs / iStock
When coming up with a tax strategy, it makes sense to start with personal planning where pensions, savings and gift aid are the hardy perennials, which always need attending to before the end of the tax year.
Optimising pension planning (and/or gift aid contributions) is particularly critical for parents whose earnings are at or around two key thresholds: £60,000 (the point at which child benefit starts to be withdrawn) and £100,000 (at which tax-free childcare is withdrawn totally).
When testing if an individual’s income has gone over these limits, HMRC looks not at earnings, but adjusted net income – which is total taxable income (including salary, benefits, profits and investment income) less pension contributions and gift aid contributions.
For parents earning around those points, pension or gift aid contributions can be an effective way of keeping under thresholds and preserving entitlements to valuable benefits.
All but the highest earners can contribute up to the lower of £60,000 a year (the annual allowance) or their net relevant earnings into a pension. For self-employed individuals, it can be hard to know what their net relevant earnings (broadly taxable profits) might be in advance of the completion of accounts. For anyone self employed who is considering a large contribution, it may be worth drawing up a set of management accounts before 5 April to check there will be enough profits to cover the desired contribution.
Finally, the other aspect of investment planning tied to the tax year end involves ISAs. Individuals can contribute up to £20,000 a year to these tax-favoured investment wrappers, but the allowance is a strictly annual affair and it is use it or lose it, because any unused allowance cannot be carried forward to future years. From April 2027, the Government is proposing to cap the cash element of ISA savings for the under 65s. From that date, under 65s who want to use their full £20,000 allowance will need to put at least £8,000 into stocks and shares ISAs. Only the over 65s will be able to continue to put their full £20,000 allowance into cash ISAs.
For most practices, employment costs are a significant expense. From 1 April 2026, the National Living Wage (NLW) will increase by 4.1% to £12.71 per hour for eligible workers aged 21 and older. This represents an increase of around £900 to the salary of an individual working 35 hours a week on the NLW. Increases to the minimum salary threshold can also be expected to cascade up the chain, with employees earning more than the NLW looking to keep that margin between their pay and those on NLW.
Following big changes to employers’ National Insurance contributions (NICs) rates in April 2025, rates and thresholds for employers’ NIC are expected to be held until April 2028.
But in the longer term, employers who operate pension salary sacrifice schemes could see further increases to their employers’ NIC bills as the chancellor looks to limit the tax benefits available.
Under salary sacrifice, an employee gives up some of their salary in exchange for an increase in the amount that their employer puts into their pension. This is attractive to both parties – the employee saves NIC at 8% or 2% (depending on whether they are a basic or higher rate taxpayer), while the employer saves at a higher rate of 15%. The Government is planning to reduce the benefits of this scheme from April 2029. From that date, only the first £2,000 of sacrificed salary will benefit from any NIC savings. There is a long lead in to the measure – and, therefore, time for things to change – but employers should think about how many of their employees could be sacrificing more than the expected £2,000 upper limit and what the potential extra costs will be if it is imposed.
From April 2027, employers will be required to “payroll” any staff benefits. This means that the value of benefits such as private medical insurance or professional subscriptions must be added to staff salaries each month and subjected to tax.
From an employer’s perspective, there will be a cash flow impact, as it brings forward the cost of any employer’s NIC due on those benefits. It is also an administrative change, and employers will need systems in place to manage this new process.
There may be some benefits in starting this process voluntarily from April 2026, to give the practice time to adjust before it becomes compulsory.
The new tax year brings big changes to the inheritance tax (IHT) position of business owners. Currently, owners in most well-structured practices would expect to be able to pass business assets on without an IHT liability thanks to business property relief (BPR).
The maximum rate of BPR is currently 100% and there is no cap on the value of qualifying assets that can benefit. This rate applies to shares in a trading company or an interest in a partnership. A lower rate of 50% relief applies to premises from which the business trades if they are owned personally outside of the partnership or company.
From April 2026, the 100% relief will be capped to the first £1m of qualifying assets, with a lower 50% rate applying to the value of any assets over this allowance. This means an effective rate of 20% IHT for qualifying assets over £1 million, where previously there would have been no charge.
Each shareholder or partner in the practice will need to consider their position individually. Following changes at the Budget in November, owners who are married or in a civil partnership may be able to benefit from an additional £1 million allowance if their spouse or civil partner is not using theirs. The practice as a whole should also consider the potential costs and cash flow issues if a shareholder or partner dies unexpectedly, as their family may hope to be able to extract cash from the business to pay any IHT liability.
For incorporated practices, the tax on dividends is due to increase from 6 April 2026.
Basic rate taxpayers will pay tax at 10.75% (previously 8.75%) and higher rate taxpayers 35.75% (previously 33.75%). There is no change to the additional dividend rate which applies to very high earners.
There may be a modest benefit in accelerating some dividends into the 2025-26 tax year, depending on the shareholder’s individual position and benefit entitlement. The company will also need sufficient accumulated profits to allow for these additional dividends.
Tax relief for items of plant and machinery is given via a system of capital allowances. While some changes were made at Budget 2025, they will only affect practices spending more than £1 million in any given year.
Most practices spending less than that will find the existing annual investment allowance (AIA) is sufficient to give upfront relief on qualifying expenditure.
Cars are specifically excluded from the AIA and receive relief over a much longer period through a system of writing down allowances.
From April 2025, the main writing down allowance will be reduced from 18% to 14%. This will further slow tax relief for practices purchasing cars with CO2 emissions of less than 50g/km (cars with higher emissions already receive a lower 6% writing down allowance.)
To incentivise practices to acquire electric cars, these will continue to benefit from 100% first-year allowances until 31 March 2027 for corporation tax purposes, and 5 April 2027 for income tax purposes. A similar 100% allowance applies to the installation of electric car charging stations.
For anyone thinking of selling their practice next year, the benefit of business asset disposal relief (BADR) will be reduced again from April 2026.
The conditions for BADR are complex but, broadly, someone selling all or part of a business they have owned for at least two years – or selling assets which were used in a business that has ceased in the last three years – may be entitled to lower rates of capital gains tax (CGT) on the first £1m of gains. Since 6 April 2025, this rate has been 14%, but it is due to increase to 18% from 6 April 2026. Any gains above the limit will be taxable at 24%.
BADR is a lifetime allowance, so will be reduced if you have made previous qualifying gains in the past.
If a business fails to pay or file on time, it runs the risk of penalties for late filing, interest on late payments and penalty charges for late payment.
For incorporated businesses, the Chancellor announced increases in the fines for late filing. The majority of these are doubling with effect from 1 April 2026. A late corporation tax return will now attract a penalty of £200, rising to £400 if the return is more than three months late.
On the other hand, for sole traders, there is a welcome “soft landing” for those moving into Making Tax Digital (MTD) from April 2026. Under MTD, sole traders with a turnover of more than £50,000 will be required to use software to keep their records and file quarterly summaries of their income and expenses with HMRC. The Government has confirmed that there will be no late filing penalties for quarterly summaries for the 2026-27 year.
Interest on overdue tax increased significantly in April 2025, with interest now charged most overdue tax at 4% over base. Previously HMRC’s margin was only 2.5% over the base rate. This means that interest will accrue on late paid tax at the hefty rate of 8%. Managing cash flow to stay on top of tax bills has, therefore, never been so important.
If you or your business are struggling to meet any tax liabilities – including income tax, payroll taxes, VAT or corporation tax – then it is important to contact HMRC and set up a Time to Pay arrangement. While it will not stop interest accruing, it will prevent additional late payment penalties occurring on top.
Tax has never been so taxing. Consequently, planning ahead is essential, as is good professional advice.
Helen Thornley is a technical officer at The Association of Taxation Technicians.
