Archive: 26th February 2026

HMRC notices

Meaning of trade for tax purposes

Feb 26, 2026 by Terry Harris 0 Comments

The meaning of trade for tax purposes, often referred to as HMRC’s “badges of trade” test helps determine whether an activity is a genuine business or simply a personal hobby. While the test is not definitive, it provides important guidance on how HMRC views different activities. At some point, what starts as a hobby may evolve into a taxable trade. Understanding this distinction is important in order to assess whether an activity has become commercial in nature, meaning it could be subject to tax.

As part of their investigation into whether a hobby has evolved into a trade, HMRC typically examines the following badges of trade:

  • Profit-seeking motive
  • The number of transactions
  • The nature of the asset
  • The existence of similar trading transactions or interests
  • Changes made to the asset
  • The manner in which the sale was carried out
  • The source of finance used
  • The interval of time between purchase and sale
  • The method of acquisition

It is important to note that there is no statutory definition of the term ‘trade.’ The only statutory clarification available is that ‘trade’ includes a ‘venture in the nature of trade.’ As a result, it is the courts that have provided a definition of what constitutes a 'trade,' and these decisions serve as a framework for guiding HMRC's assessments when disputes arise.

The badges of trade have proven to be valuable indicators in numerous cases, providing practical guidance in distinguishing between a hobby and a taxable trade or business.

Source:HM Revenue & Customs | 23-02-2026
Value Added Tax

Which supplies are zero rated for VAT?

Feb 26, 2026 by Terry Harris 0 Comments

Understanding which supplies are zero rated for VAT is essential for any business. A zero-rated supply is still a taxable supply, but it is charged at a 0% VAT rate. This distinction is important because VAT incurred in making a taxable supply can still be recovered. Therefore, a business that only makes zero-rated supplies can register for VAT in the usual way, allowing it to reclaim VAT on costs associated with producing these supplies, many of which may have been charged at the standard 20% rate.

Businesses that sell zero-rated supplies are often in a repayment position with HMRC, meaning they can recover the VAT they have incurred on purchases without having to charge VAT on their sales. This can provide a cash flow advantage, especially for businesses with high input costs relative to their zero-rated sales.

Some common examples of zero-rated supplies include:

  • Books and newspapers (including electronic versions)
  • Women’s sanitary products
  • Children’s clothes and shoes
  • Motorcycle helmets
  • Most goods exported from England, Wales, and Scotland to countries outside the UK
  • Most goods exported from Northern Ireland to countries outside the EU and UK
  • Goods supplied from Northern Ireland to a VAT-registered EU business (VAT number must be valid)
Source:HM Revenue & Customs | 23-02-2026
Capital Gains Tax

Tax effects of letting out part of your home

Feb 26, 2026 by Terry Harris 0 Comments

If you have tenants living in your property, it is important to understand the Capital Gains Tax (CGT) implications. In most cases, there is no CGT to pay when you sell a property that has been your main residence, as the gain is covered by Private Residence Relief (PRR). However, if you have let out part of your home, your entitlement to full PRR may be restricted.

However, you may be entitled to letting relief, provided you lived in the property at the same time as your tenant. Letting relief is only available where there has been shared occupation between homeowner and tenant.

The maximum letting relief available is the lower of £40,000, the amount of PRR due, or the gain attributable to the part of the property that was let. For example, if you rented out a large bedroom representing 10% of your home and later sold the property at a gain of £75,000, you would qualify for PRR on 90% of the gain (£67,500). The remaining £7,500 would relate to the let portion. As this is lower than both £40,000 and the PRR due, the full £7,500 would qualify for letting relief. In this scenario, the entire £75,000 gain would be covered by PRR and letting relief, meaning no CGT would be payable.

You are not considered to be letting out your home if you have a lodger who shares living space with you. Also, if children or parents live with you and contribute towards household expenses, this is not normally treated as a formal letting for CGT purposes, and full PRR is likely to remain available.

Source:HM Revenue & Customs | 23-02-2026
Value Added Tax

When not to charge VAT

Feb 26, 2026 by Terry Harris 0 Comments

When issuing invoices, it is important to apply the correct VAT treatment. In some cases, that means not charging VAT at all. Although most UK businesses charge VAT at the standard rate of 20%, there are other rates and categories that may apply. Understanding these distinctions can help you avoid costly errors and penalties.

In addition to the 20% standard rate, there is also reduced VAT rate (5%) and a zero VAT rate (0%). Even though zero-rated supplies are charged at 0%, they are still within the VAT system and must be recorded correctly on your VAT return.

There are two main categories where VAT is not charged: exempt supplies and supplies that fall outside the scope of VAT. Although no VAT is charged in either case, the rules and reporting requirements are different.

Exempt supplies are goods or services on which no VAT is charged. Common examples include insurance, postage stamps and health services provided by doctors. If your business only makes exempt supplies, you cannot register for VAT and you are not able to reclaim VAT on your business costs.

Supplies that are outside the scope of VAT fall completely outside the UK VAT system. In these cases, VAT cannot be charged and VAT on related costs cannot usually be reclaimed. Examples of supplies outside the scope include goods or services bought and used outside the UK, statutory fees such as the London Congestion Charge and goods sold as part of a private hobby.

If VAT has been charged incorrectly, the error must be corrected. The process for doing so depends on the amount involved and when the mistake occurred. Acting promptly can minimise disruption and potential penalties.

If you are unsure whether VAT should be charged on a particular supply, we would be happy to help guide you on this issue.

Source:HM Revenue & Customs | 23-02-2026
National Insurance

Filling in NIC contribution gaps

Feb 26, 2026 by Terry Harris 0 Comments

National Insurance credits can help qualifying applicants to fill contribution gaps in their National Insurance record. This can help taxpayers increase their number of qualifying National Insurance years, which may increase the number of benefits they are entitled to, such as the State Pension.

This could happen if someone was:

  • employed but had low earnings
  • unemployed and were not claiming benefits
  • getting National Insurance credits for less than a full tax year
  • self-employed but did not pay contributions because of small profits
  • living or working outside the UK.

National Insurance credits are available in certain situations where people are not working and therefore, not paying National Insurance contributions. For example, credits may be available to those looking for work, who are ill, disabled or on sick pay, on maternity or paternity leave, caring for someone or on jury service.

Depending on the circumstances, National Insurance credits may be applied automatically or an application for credits may be required. There are two types of National Insurance credits available, either Class 1 or Class 3. Class 3 credits count towards the State Pension and certain bereavement benefits whilst Class 1 covers these as well as other benefits such as Jobseeker’s Allowance.

Taxpayers may also be able to pay voluntary Class 2 or Class 3 National Insurance contributions to protect their entitlement to the State Pension (and in some cases other benefits) if they meet the eligibility requirements. You can only pay voluntary National Insurance contributions to fill gaps for the previous six tax years. The deadline to make payment is 5 April each year. For example, you have until 5 April 2031 to pay voluntary contributions to make up a gap for the 2024-25 tax year.

Source:HM Revenue & Customs | 23-02-2026
Income Tax

How to claim child benefits

Feb 26, 2026 by Terry Harris 0 Comments

An application to claim child benefits can usually be made 48 hours after you have registered the birth of your child, or once a child comes to live with you. An application for child benefit can be backdated for up to 3 months. 

An application for child benefit is usually made online either using the government gateway. If you are unable to complete a claim online, it is also possible to claim child benefit by completing the Child Benefit form CH2 and sending it to the Child Benefit Office. The address is on the form. If a claim is being made for more than 2 children, complete the additional child CH2(CS) form and send it with your CH2. It is also possible to contact HMRC to make a claim by phone if the online or postal routes are not available. Making an application through the government gateway will usually be the fastest way to make a claim.

Child benefit is also usually payable for children who come to the UK. However, there are a number of rules which must be met in order to claim. HMRC must be notified without delay if a child receiving child benefit moves permanently abroad.

The child benefit rates for the only or eldest child in a family is currently £26.05 a week and the weekly rate for all other children is £17.25. These rates will increase to £27.05 and £17.90 respectively from April 2026.

Source:HM Revenue & Customs | 23-02-2026
Business Support

Creative businesses to benefit from government finance package

Feb 23, 2026 by Terry Harris 0 Comments

The government has announced a new package of measures designed to improve access to finance for creative businesses across the UK. The initiative aims to support firms operating in areas such as film, television, music, design, publishing, gaming and digital media, many of which face unique challenges when seeking external funding. The package forms part of the wider Creative Industries Sector Plan and is intended to help businesses grow, innovate and attract long term investment.

A central element of the announcement is an expanded role for the British Business Bank in supporting creative enterprises. This includes targeted investment activity under its Industrial Strategy commitments, with funding directed towards specialist investors that understand the commercial potential of creative ventures. The intention is to increase the availability of early stage and growth capital for businesses whose value is often tied to intellectual property rather than physical assets.

Alongside direct investment, the government is exploring ways to make better use of financial guarantees to encourage lenders to support creative businesses. This includes looking at how intellectual property can be more effectively recognised within lending decisions, which could help unlock finance for businesses that have strong ideas and brands but limited tangible security.

To make the funding landscape easier to navigate, a new single access point for creative businesses is being developed. This will provide clearer guidance on finance options, support services and growth opportunities, backed by practical resources and real world case studies.

The creative industries already make a substantial contribution to the UK economy and continue to grow faster than many other sectors. By improving access to finance and reducing barriers to investment, this package is intended to help creative businesses realise their full potential and strengthen the UK’s position as a global creative hub.

Source:Other | 22-02-2026
Pension

Why inflation matters when funding pension funds

Feb 23, 2026 by Terry Harris 0 Comments

When planning pension funding, inflation is often acknowledged but not always fully reflected in contribution decisions. Using an average inflation rate of around 5% over recent years helps to illustrate why this matters so much. Even when inflation appears to be easing in the short term, its long-term effect on retirement income can be significant.

Inflation erodes purchasing power. A pension pot that looks comfortable today may buy far less in real terms by the time retirement arrives. At an average inflation rate of 5%, prices double roughly every fourteen years. This means that someone planning to retire in twenty years’ time will need close to twice the income they might intuitively expect, just to maintain the same standard of living. Ignoring inflation risks building a pension fund that appears adequate on paper but falls short in practice.

Inflation also affects investment returns. Pension growth is often discussed in nominal terms, but what really matters is real growth, that is growth after inflation. A fund growing at 6% per year sounds healthy, but if inflation is averaging 5%, the real increase in value is modest. This has implications for asset allocation, contribution levels and the balance between growth and lower risk investments as retirement approaches.

For those making regular contributions, inflation should influence both the starting level and how contributions increase over time. Flat contributions that are not reviewed regularly lose real value year by year. Linking contribution increases to inflation or at least reviewing them periodically in light of inflation trends, can make a material difference to the eventual outcome.

Finally, inflation uncertainty reinforces the importance of flexibility. Retirement may last twenty or thirty years, during which inflation will vary. Building in a margin of safety, through higher contributions or diversified investments, can help protect against prolonged periods of higher inflation.

Taking inflation seriously is not about pessimism. It is about realism. Factoring an average inflation rate of 5% into pension planning leads to better informed decisions and a greater chance that retirement income will meet expectations when it is most needed.

Source:Other | 22-02-2026
Pension

Workplace pensions

Feb 19, 2026 by Terry Harris 0 Comments

Automatic enrolment for workplace pensions has helped many employees to start making provision for their retirement with employers and government also contributing to make a larger pension pot.

The law states that employers must automatically enrol workers into a workplace pension if they are aged between 22 and State Pension Age, earns more than minimum earning threshold. The minimum threshold is currently £10,000 and will remain the same in 2026-27. The employee must also work in the UK and not already be a member of a qualifying work pension scheme. Employees can opt-out of joining the pension scheme if they wish.

Under the rules, employers are also required to offer their workers access to a workplace pension when a change in their age or earnings makes them eligible. This must be done within 6 weeks of the day they meet the criteria.

Under the automatic enrolment rules the employer and the government also add money into the pension scheme. There are minimum contributions that must be made by employers and employees.

Both the employer and employee need to contribute. There is a minimum employer contribution of 3% and employee contribution of 4%. This means that contributions in total will be a minimum of 8%: 3% from the employer, 4% from the employee and an additional 1% tax relief. For example, if you pay £40, your employer adds £30, and you receive £10 in tax relief, a total of £80 goes into your pension.

In most automatic enrolment schemes, employees make contributions based on their total earnings between £6,240 (the lower qualifying earnings limit) and £50,270 (the upper qualifying earnings limit) a year before tax. This means that for many employees the 8% contribution rate will not be based on their full salary.

Source:Department for Work & Pensions | 15-02-2026
Business

Simplified expenses on motor vehicles

Feb 19, 2026 by Terry Harris 0 Comments

There are simplified expenses arrangements available for sole traders and business partnerships (with no corporate partner) that allow the use of fixed mileage rates instead of working out the actual costs of buying and running a vehicle (such as fuel, insurance, servicing and repairs). This simplified method is optional, but if you choose to use it for a specific vehicle, you must continue to use it for that vehicle for as long as it is used for business purposes. The simplified expenses regime is not available to limited companies or partnerships involving a corporate partner.

Under simplified expenses, the following flat rates per business mile are available for vehicle costs that are wholly and exclusively for business use:

Vehicle type

Flat rate per mile

Cars and goods vehicles – first 10,000 miles

45p

Cars and goods vehicles – after 10,000 miles

25p

Motorcycles

24p

The number of people in the vehicle does not affect the rates above. The rates are only available for journeys, or any identifiable part or proportion of a journey, that are wholly and exclusively for business purposes. For example, travel from home to work is not a qualifying journey.

The self-employed can continue to claim for other costs not covered by the flat rate for mileage such as parking, tolls, and congestion fees as well as other separate travel expenses such as train journeys.

Source:HM Revenue & Customs | 15-02-2026