The Tax Noose is Tightening

A TAX POT POURRI

Is it just us, or is the tax take feeling more and more like the late 1970’s and early 1980’s?

There just seems to be a relentless drive to leave less money in the pockets of both individuals and businesses.

Below are a few changes heading our way in the very near future.

Particularly interesting is the increase in penalties for Late filing. If only such penalties existed the other way, in terms of HMRC responding to routine letters, enquiries and requests for repayments, we’d all be quids in!

Business Property in a Self-Invested Pension Scheme (SIPP)

• Some individuals with a trading business have been known to transfer their business premises into a pension (e.g. a SIPP or small self-administered scheme).
• The business may pay rent to the pension fund for its use. This can provide corporation tax advantages, and income and capital growth is tax free within the pension scheme.
• The proposed Inheritance tax (IHT) changes to pensions may create a significant exposure to IHT from April 2027 onwards for these business owners.
• The value of the business properties held within the pension may be taxed at 40% on death.
• No business or agricultural property relief is available for these assets held within a pension which may not be the case if they had remained in the business.
• Unless there are large cash reserves to pay the tax – it may be necessary to sell the properties, potentially placing the business at risk.
• In such cases, individuals may want to explore whether it is feasible/appropriate for the properties to be purchased back from the pension by the business.

Prepare for 2026/27 – Businesses

An estimated 864,000 sole traders and landlords will need to comply with MTD income tax from April 2026, with many more to follow in April 2027 and April 2028.

• From 1 April 2026 for companies and 6 April 2026 for unincorporated businesses, the main rate of writing down allowance (WDA) is cut from 18% to 14%.
• A hybrid rate will apply where the period straddles 1/6 April 2026, calculated by reference to the number of days in the period before and after the change in the rate.
• From 6 April 2026, where a business makes a CIS payment or receives a payment it treats as a sum deducted under the CIS, and it knew or should have known the payments were connected to fraud, HMRC will have the power to:

1. Immediately remove the business’ gross payment status (GPS).
2. Make it liable for the tax lost and
3. Apply penalties to the business. The penalties may also be recovered from officers of the business.

• In addition, the time limit for re-application of GPS where it was removed with immediate effect will be extended from one year to five years.
• Currently, donations of goods to charities can be zero rated, but only where the goods are to be resold by the charity.
• This creates a perverse incentive for unsold stock to be destroyed, in which case no VAT liability arises, rather than donate it to a charity for the charity to give away, or to use in providing its services, where a VAT charge is incurred.
• Finance Bill 2025/26 legislation ‘switches off’ the output VAT charge for qualifying donations made on or after 1 April 2026 where goods are donated for onward distribution to people in need or for use by the charity in its non-business activities.
• The new relief is subject to a value cap of £100 per item, increasing to £200 for a specified list of essential goods including white goods, furniture, computers, mobile phones and tablets.
• For businesses looking to incorporate on or after 6 April 2026, claims for incorporation relief must be made by the transferor in their SA/MTD tax return for the tax year in which it took place.

Prepare for 2026/27 – Companies

• Late filing penalties for corporation tax returns filed late will be doubled for those with a filing date of 1^st April 2026 or late:

1. If the return is late – £200
2. If more than 3 months late – £400
3. If the return is late on 3 successive occasions – £1,000
4. If more than 3 months late on 3 successive occasions – £2,000

• The enterprise investment scheme (EIS) and the venture capital trust (VCT) scheme help SME companies to attract investment by offering tax reliefs to investors.
• The government hopes to increase investment through the EIS and VCT scheme by increasing the following limits from 6 April 2026:

1. The annual investment limit on the amount that companies can raise from £5m to £10m. For knowledge intensive companies (KIC) it increases from £10m to £20m.
2. The overall investment limit from £12m (£20m for KIC) to £24m (£40m for KIC).
3. The gross asset test that determines if a company is a qualifying one, from £15m immediately before and £16m immediately after the share issue, to £30m and £35m respectively.

• The government will provide a “dedicated service for major investment projects” that will give “a clear position on how HMRC will apply tax legislation to a project”.
• The threshold for entry into the service is £1 billion of qualifying project expenditure in the UK over the lifetime of the project. Launch date July 2026.
• HMRC hopes to pilot a targeted research and development (R&D) advance assurance for SME companies in spring 2026.
• Although the main and small profits rates of corporation tax will remain at 25% and 19% respectively, there is one change to rates of tax for companies to be aware of.
• With effect for loans made to participators by close companies on or after 6 April 2026, the rate of tax will increase from 33.75% to 35.75%.