Category: Income Tax

Making Tax Digital for Income Tax

Making Tax Digital for Income Tax (MTD for IT) will become mandatory in phases from April 2026. If you’re self-employed or a landlord earning over £50,000, get ready for quarterly updates, digital record keeping, and a new penalty system.

Initially, MTD for IT will apply to businesses, self-employed individuals, and landlords with an annual income exceeding £50,000. From 6 April 2027, the rules will extend to those with an income between £30,000 and £50,000. A new system of penalties for late filing and late payment of tax will also be introduced.

In the Spring Statement 2025, the government confirmed that MTD for IT will apply to sole traders and landlords with income over £20,000 starting in April 2028. The government will also explore how to treat those with income below the £20,000 threshold.

Starting in April 2025, HMRC will begin writing to taxpayers whose 2023-24 self-assessment returns show that their total income from self-employment and property is approaching or exceeds £50,000. These letters will notify them of their obligation to use MTD for IT starting in April 2026.

Although MTD for IT becomes mandatory in 2026, you can opt to sign up voluntarily before then. This allows you to help HMRC test and refine the system while also familiarising yourself with the new rules. While signing up is currently voluntary, there are specific eligibility requirements, and not all taxpayers will qualify. If you are eligible, you can sign up on GOV.UK.

If you volunteer to participate in testing the MTD for IT service, the new penalties for late submissions and late payments will apply. This will replace the existing penalties for the relevant tax years. No penalties will apply for the quarterly updates for volunteers in 2024-25 or 2025-26.

Requesting evidence of earnings

If you're self-employed, lenders may require an SA302 and tax year overview as proof of earnings for mortgages or loans. These documents verify income declared on your self-assessment tax return and are easily accessible via HMRC. Learn how to obtain them.

The use of these forms has become more widespread since mortgage regulations began requiring self-employed individuals to provide verifiable evidence of income. The SA302 serves as proof of income for the last four years of self-assessment tax returns.

The SA302 document provides a detailed breakdown of the income reported on the taxpayer’s self-assessment tax return, including commercial versions of the tax return. Meanwhile, the tax year overview confirms the tax due based on the return submitted to HMRC, showing any payments made, and cross-referencing the Tax Calculation with HMRC’s records.

Self-assessment taxpayers can request an SA302 tax calculation through HMRC’s online service. After submitting an online tax return, it typically takes around 72 hours for the documents to become available for printing.

Most lenders will accept an SA302 printed directly from online accounts or from the commercial software used to submit tax returns. HMRC has been actively working with the Council of Mortgage Lenders and its members to expand the number of lenders willing to accept self-serve copies of these documents as valid proof of income.

Rental business mortgage relief

Since April 2020, landlords can no longer deduct mortgage interest as an expense. Instead, tax relief is capped at 20%. This change affects UK and non-UK resident landlords, trustees, and partnerships but excludes companies. Learn how this impacts your tax bill.

In April 2017, new rules were introduced that limited the tax relief on mortgage costs for residential landlords to the basic rate of tax. This restriction on finance costs was phased in over several years and was fully implemented by 6 April 2020. As a result, all finance costs, including mortgage interest on rented properties, are no longer allowed as expenses. Any available tax relief is now capped at the basic tax rate of 20%.

Finance costs includes interest on mortgages, loans (including those for furnishings), overdrafts, alternative finance returns, mortgage fees, and other related costs, such as discounts, premiums, and disguised interest. However, no relief is granted for capital repayments of a mortgage or loan.

You will be affected by this restriction if you are:

• A UK resident individual letting residential properties in the UK or abroad.
• A non-UK resident individual letting residential properties in the UK.
• An individual letting residential properties in a partnership.
• A trustee or beneficiary of trusts liable for Income Tax on residential property profits.

The finance cost restriction does not apply if you are a:

• UK resident company
• Non-UK resident company

These entities will continue to receive relief for interest and other finance costs in the usual manner.

Claiming professional fees and subscriptions

Did you know you may be eligible for tax relief on professional fees and subscriptions? If your membership is required for your job and the organisation is HMRC-approved, you could claim back tax for up to four years. Find out if you qualify and how to apply.

You may be eligible to claim tax relief on certain professional fees and subscriptions, provided they meet specific criteria:

• Professional Membership Fees: Tax relief can be claimed on membership fees that you are required to pay in order to perform your job. These fees must be necessary for the fulfilment of your professional responsibilities.
• Annual Subscriptions: You can also claim tax relief on annual subscriptions to approved professional bodies or learned societies, provided that your membership with these organisations is relevant to your profession.

Tax relief cannot be claimed, in the following cases:

• Life Membership Subscriptions: Tax relief is not available for life membership fees, even if they are for professional bodies or societies.
• Fees Not Paid by You: You cannot claim tax relief on professional membership fees or annual subscriptions if they have been paid by someone else, such as your employer.
• Non-approved Organisations: Tax relief is not available on fees paid to professional bodies or organisations that are not officially recognised by HMRC.

You can claim tax relief for the current tax year as well as for the four preceding years, allowing you to potentially recover tax paid in previous years if you have not yet done so.

When making a claim, you must provide evidence of payment for each professional fee or subscription, such as receipts or other supporting documentation that clearly indicates the amounts paid. A claim can be made from the following link https://www.tax.service.gov.uk/claim-tax-relief-expenses/what-claiming-for

If you are registered for self-assessment you must submit your claim through your tax return rather than using the separate claims service.

Tax and Maintenance Payments

Maintenance Payments Relief reduces Income Tax for those making court-ordered payments to an ex-spouse or civil partner. To qualify, one party must have been born before 6 April 1935. The relief is 10% of payments, up to £428 per year.

To qualify for this relief, all of the following conditions must apply:

• Either you or your ex-spouse/civil partner must have been born before 6 April 1935.
• You must be paying maintenance under a court order after the relationship has ended.
• The payments must be for the maintenance of your ex-spouse or former civil partner, provided they are not remarried or in a new civil partnership, or for children under 21.
• This relief offers a 10% reduction in the maintenance you pay, up to a maximum of £428 per year (10% of £4,280).

To claim, you must contact HMRC. The process involves providing necessary documentation, such as proof of the court order and payment records.

This benefit is designed to reduce the overall tax burden, helping someone manage their financial responsibilities after a separation.

However, it's important to note that this tax relief is limited due to the age condition — it only applies if either party was born before 6 April 1935, which significantly restricts its usage.

UK residence and tax issues

The UK's shift to the Foreign Income and Gains (FIG) regime from April 2025 changes how foreign income is taxed. If you are a UK resident, get ready to possibly pay UK Income Tax on all foreign earnings—no more non-dom remittance basis.

UK Income Tax is generally payable on taxable income received by individuals including earnings from employment, earnings from self-employment, pensions income, interest on most savings, dividend income, rental income and trust income. The tax rules for foreign income can be very complex.

However, as a general rule if you are resident in the UK you need to pay UK Income Tax on your foreign income, such as:

• wages if you work abroad
• foreign investments and savings interest
• rental income on overseas property
• income from pensions held overseas

Foreign income is defined as any income from outside England, Scotland, Wales and Northern Ireland. The Channel Islands and the Isle of Man are classed as foreign.

If you are not UK resident, you do not generally have to pay UK tax on your foreign income. There are special rules if you work both in the UK and abroad.

The remittance basis rules which allowed non-UK domiciled individuals (often referred to as non-doms) to be taxed only on UK income and gains, is being abolished. From 6 April 2025, the concept of domicile as a relevant connecting factor in the UK tax system has been replaced by a new residence-based regime known as the Foreign Income and Gains (FIG) regime. 

Is your extra income taxable?

HMRC has launched a new "Help for Hustlers" campaign to help people who are earning extra income, figure out if they need to pay tax on the additional earnings. The campaign runs until the end of March and focuses on five key areas where tax might apply:

1. I’m buying or making things to sell.
2. I’ve got a side gig.
3. I work for myself with multiple jobs.
4. I’m a content creator or influencer.
5. I rent out my property.

The good news is there are two £1,000 tax allowances — one for property income and one for trading income. If you have both types of income, you can claim £1,000 for each.

• Trading Allowance: If you make up to £1,000 from self-employment, casual services (like babysitting or gardening), or renting out personal equipment (such as power tools), this income is tax-free and does not need to be declared.
• Property Allowance: If you earn £1,000 or less from property-related activities (like renting out a driveway), you do not need to report it to HMRC or include it in your tax return.

These allowances cover all relevant income before expenses. If your income is under £1,000, it’s tax-free. If you earn more than £1,000, you can choose to either deduct the £1,000 allowance from your income or list your actual expenses when calculating your taxable profit.

However, if your side hustle income goes over £1,000 in a tax year, you may need to complete a self-assessment tax return. Keep in mind this only applies if you are actively trading or selling services. If you are just clearing out some old stuff and selling it, there is usually no need to worry about tax.

Jointly owned property – no partnership

Tax on rental income from jointly owned property depends on ownership shares, unless part of a partnership. Married couples default to a 50/50 split unless they notify HMRC of a different income allocation based on actual ownership proportions.

When property is jointly owned with one or more individuals, the taxation of rental income depends on whether the rental activity is considered a partnership. Simply owning property together does not automatically qualify the arrangement as a partnership.

If the jointly owned property is not part of a partnership, the allocation of any profit or loss from the jointly owned property is typically based on each person's ownership share in the property. However, the co-owners can agree to divide the profits and losses differently than their ownership proportions, so it’s possible for one person to receive a larger or smaller share of the profits or losses than their share in the property itself. For tax purposes, the profit and loss share must reflect the actual agreement made by the owners.

In cases where the joint owners are married or in a civil partnership, the profits and losses are generally treated as being divided equally between them, unless:

• The entitlement to the income and the ownership of the property are split unequally between the spouses or civil partners, and
• Both parties must inform HMRC that they wish the division of profits and losses to align with their respective ownership shares in the property.

If these conditions are met, the profit and loss distribution will follow the agreed-upon ownership percentages, rather than the default equal split for married couples or civil partners.

31 January deadline met by more than 11.5 million people

Over 11.5 million people met the 31 January 2025 self-assessment deadline, but 1.1 million taxpayers missed it. If you're one of them, expect a £100 penalty. Learn about late fees and HMRC’s payment plan options to avoid further charges.

There are an estimated 1.1 million taxpayers that missed the deadline. Are you among those that missed the 31 January 2025 filing deadline for your 2023-24 self-assessment returns?

If you have missed the filing deadline then you will usually be charged a £100 fixed penalty if your return is up to 3 months late, regardless of whether you owed tax or not. If you do not file and pay before 1 May 2025 then you will face further penalties unless you have arranged to pay with HMRC.

If you are unable to pay your tax bill, there is an option to set up an online time to pay payment plan to spread the cost of tax due on 31 January 2025 for up to 12 months. This option is available for debts up to £30,000 and the payment plan needs to be set up no later than 60 days after the due date of a debt.

If you owe self-assessment tax payments of over £30,000 or need longer than 12 months to pay in full, you can still apply to set up a time to pay arrangement with HMRC, but this cannot be done using the online service.

How to check your tax code

Your tax code determines how much tax is deducted from your pay. While 1257L is the most common, different letters and numbers can affect how much you owe. From marriage allowance to emergency codes, here’s how to decode what HMRC assigns you.

Your tax code is basically a set of letters and numbers that show whether you are entitled to the annual tax-free personal allowance (the amount you can earn without paying tax). These codes are updated each year and help your employer figure out how much tax to take off your pay.

For the current and next tax years, the standard personal allowance is £12,570, and if you are entitled to this, your tax code will likely be 1257L. This is the most common code and applies to people with one job, no untaxed income, and no taxable benefits like a company car.

But tax codes are not always that straightforward. There are all sorts of other letters and numbers that might pop up. For example, if you are claiming the marriage allowance, your code might have an "M" in it. If you are paying tax at the Scottish rates, your code will start with an "S." And if your personal allowance gets reduced for some reason, like unpaid tax or income adjustments, your code will change accordingly.

Then there are the emergency tax codes—W1 or M1—which are used when someone starts a new job and does not have a P45 yet. These codes mean your tax will be calculated based on just that specific pay period, rather than your full income.

If you spot a 'K' at the start of your tax code, it means deductions (for things like company benefits, state pension, or previous tax owed) are greater than your personal allowance. Your tax deduction won’t be more than half of your pay or pension.