Category: Income Tax

Saving tax using the Marriage Allowance

If one partner earns under £12,570, you could transfer part of their unused personal allowance and cut your tax bill by up to £252 a year.

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 allowance means the lower-earning partner can 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, this generally applies where income does not exceed £43,662, which is the point at which the Scottish higher rate begins.

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. 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 total tax saving of up to £1,260 across those years. Claims, including backdated claims and applications for the current year, can be made online via GOV.UK.

MTD for Income Tax – what’s required from April 2026

From April 2026, Making Tax Digital for Income Tax (MTD for IT) will become mandatory for many self-employed persons and landlords, marking a significant change in how they manage their tax affairs. The new regime is designed to modernise the tax system by requiring taxpayers to interact with HMRC through an online tax account, rather than relying solely on an annual self-assessment return.

Initially, MTD for IT will apply to individuals with qualifying income of more than £50,000 a year from self-employment and/or property. From 6 April 2027, the scope will widen to include those with income between £30,000 and £50,000. Alongside this, a new points-based penalty system will be introduced for the late filing and late payment of MTD for IT liabilities.

Under MTD for IT, affected taxpayers will need to keep digital records of their income and expenses using compatible software. Instead of reporting everything once a year, they will be required to send quarterly updates to HMRC, providing a summary of their business or property income and costs. These updates are not tax bills, but they are intended to give HMRC a clearer picture of income throughout the year. A final declaration will still be required after the end of the tax year, with any tax due payable by 31 January following the year end.

Qualifying income is a key concept under MTD for IT. It is broadly the total income earned in a tax year from self-employment and property income, including income from multiple trades or rental properties. Other sources of income reported on a tax return, such as employment income under PAYE, dividends, pensions or partnership income, does not count towards this threshold.

If you are unsure how MTD for IT will affect you, or would like any support preparing for the change, we would be happy to help.

Did you file your tax return over the festive period?

HMRC’s figures show thousands of taxpayers are filing over the festive period, but leaving your return until late January risks penalties, stress and avoidable payment problems.

A new press release by HMRC has highlighted that 4,606 taxpayers took the time to file their tax return online on Christmas Day with a further 10,479 taxpayers completing their tax returns on Boxing Day. In total, 37,435 self-assessment returns were filed between 24 and 26 December and a further 54,053 returns between New Year’s Eve and New Year’s Day. HMRC even joked that festive filing has, for some, become as much a Christmas tradition as watching the King’s Speech or avoiding the washing up!

HMRC’s Chief Customer Officer, said:

‘Millions of customers have already completed their tax returns and can start 2026 with one less thing to worry about. For anyone yet to file, don’t leave it until the last minute. Filing now means you know exactly what you owe and have time to arrange payment. Search ‘Self-Assessment’ on GOV.UK to get started.’

If you are filing online for the first time you should ensure that you register to use HMRC’s self-assessment online service as soon as possible. Once registered an activation code will be sent by mail. This process can take up to 10 working days. 

We would encourage our readers to complete their tax return as early as possible to avoid the last-minute stress as the 31 January 2026 filing date looms. If you miss the filing deadline then you will be charged a £100 fixed penalty (unless you have a reasonable excuse) which applies even if there is no tax to pay, or if the tax due is paid on time. There are further penalties for late tax returns still outstanding 3 months, 6 months and 12 months after the deadline. There are also additional penalties for paying late of 5% of the tax unpaid at 30 days, 6 months and 12 months.

Are you ready for Making Tax Digital for Income Tax?

Are you ready for Making Tax Digital for Income Tax (MTD for IT)? This new way of reporting will become mandatory in phases from April 2026. If you are self-employed or a landlord earning over £50,000, now is the time to prepare for digital record keeping, quarterly updates and the new penalty system that will apply under MTD for IT.

The date from which you must start using MTD for IT depends on your level of qualifying income. If your qualifying income exceeded £50,000 in the 2024–25 tax year, you will need to use MTD for IT from 6 April 2026. If your qualifying income exceeded £30,000 in the 2025–26 tax year, you will need to use MTD for IT from 6 April 2027. Where qualifying income exceeds £20,000 in the 2026–27 tax year, the government has confirmed that MTD for IT will apply from April 2028. Qualifying income is defined as the total income you receive in a tax year from self-employment and property before expenses.

You are currently exempt from MTD for IT if you meet specific conditions that automatically exempt you from the service, such as reasons relating to age, disability, or location, if you have applied for and been granted an exemption by HMRC, or if your qualifying income is £20,000 or less in a tax year.

HMRC’s guidance on MTD for IT has been updated and now includes further information on both permanent and temporary exemptions. It explains which exemptions apply automatically and which require an application. Permanent exemptions are generally automatic and continue to apply unless your circumstances change. You will need to apply for an exemption if you believe you are digitally excluded from using MTD for IT. If you are not required to use MTD for IT, you must continue to report your income and gains through the self-assessment tax return where applicable.

HMRC’s Time to Pay service

With the 31 January deadline approaching, thousands of taxpayers are using HMRC’s Time to Pay service to spread the cost of their self-assessment tax bill rather than facing immediate payment pressure.

HMRC has reported that thousands of people have set up payment plans to help spread the cost of their self-assessment tax bill. Taxpayers with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s ‘Time to Pay’ service. Almost 18,000 self-assessment payment plans were set up between 06 April 2025 and 30 November 2025. The deadline to file and pay any tax owed for the 2024-25 tax year is 31 January 2026.

If you owe tax to HMRC, you may be able to set up an online ‘Time to Pay’ payment plan depending on the type of tax debt and your circumstances. For self-assessment, you can create a payment plan online if you’ve filed your latest tax return, owe £30,000 or less, are within 60 days of the deadline and have no other debts or payment plans with HMRC.

A Time to Pay arrangement cannot be set up until a self-assessment return has been filed. If the tax owed is more than £30,000, or a longer repayment period is needed, people can still apply but will need to contact HMRC directly. HMRC will typically ask for details about your income, expenses, other tax liabilities, and any savings or assets, which they may expect you to use toward your debt.

HMRC will usually only offer taxpayers the option of extra time to pay if they think they genuinely cannot pay in full now but will be able to pay in the future. If HMRC do not think that more time will help, then they can require immediate payment of a tax bill and start enforcement action if payment is not forthcoming.

Student jobs paying tax

Students that work may need to pay Income Tax and National Insurance. Employers are required to calculate the amount of tax they need to pay on the basis that the students would be working for the rest of the tax year.

This means that an overpayment of income tax can often occur when a student or temporary worker earns more than their monthly tax-free allowance of £1,048 but over the course of the tax year earn less than their annual allowance. For example, a student only working over the summer and / or Christmas period and earning more than £1,048 a month may not have exceeded the current £12,570 tax free personal allowance. Students (and other temporary workers) are not required to pay any Income Tax if their earnings are below the tax-free personal allowance, currently £12,570.

A refund of overpaid tax can be requested online or using form P50 entitled Claim for repayment of tax. You can check your eligibility to make a claim for current or past tax years at https://www.gov.uk/claim-tax-refund/y

A refund claim for the current tax year can only be made if you meet the necessary conditions. Any students that are continuing to work for the rest of the tax year in part-time jobs should consider waiting until the end of the tax year in order to make a claim.

Property and savings income subject to new tax rates

The government announced at Budget 2025 that dividend income, property and savings income, will be subject to new tax rates. These changes will be legislated for through the Finance Bill 2025–26 and will be phased in between April 2026 and April 2027.

Dividend income

From April 2026, most dividend income will be subject to higher rates of tax. The ordinary and upper dividend tax rates will each increase by two percentage points, rising to 10.75% and 35.75%, respectively. The additional rate will remain unchanged at 39.35%.

Property income

From 6 April 2027, new tax rates will apply to property income with an increase of two percentage points in each tax band. This will mean that property income will be taxed at 22% for basic rate taxpayers, 42% for higher rate taxpayers and 47% for additional rate taxpayers from 2027-28. These rates will apply in England, Wales and Northern Ireland.

The government has stated that it will work with the devolved administrations in Scotland and Wales to facilitate their ability to set their own property income tax rates.

Savings income

Savings income will also be subject to revised rates from 6 April 2027. In line with the changes to property income, the basic, higher and additional rates applicable to savings income will increase by two percentage points to 22%, 42% and 47%, respectively.

The government has confirmed that the existing allowances for savings income will remain unchanged. Basic rate taxpayers will continue to receive up to £1,000 of tax-free interest, while higher rate taxpayers will retain the £500 allowance. The Starting Rate for Savings, which provides up to £5,000 of savings income tax-free for lower earners, will also remain in place.

Winter Fuel Payment tax charge

The June 2025 reforms introduce a £35,000 income limit for keeping the Winter Fuel Payment, with HMRC recovering the payment from those above the threshold.

The WFP is a tax-free payment provided by the government to help older people keep warm during winter. The amount of the payment depends on individual circumstances but ranges from £100 to £300. The amount you receive depends on a number of factors including your age and the age of other people living with you.

Pensioners whose taxable income exceeds £35,000 will still receive payment but this will be recovered in full by HMRC using the new WFP tax charge. The recovery will be handled through PAYE tax‑code adjustments or the self-assessment return, depending on the taxpayer’s circumstances.

The threshold applies to individuals, not household income. This means that in some couples, one person may keep their payment while the other has theirs reclaimed, depending on individual incomes. Individuals in receipt of certain social security benefits in the qualifying week for winter payments will not be liable to the charge, regardless of income. 

Update from HMRC on MTD testing

HMRC has published a new Making Tax Digital newsletter. This newsletter is mainly intended for taxpayers and agents who are currently testing the Making Tax Digital for Income Tax (MTD for IT) system. MTD for IT will become mandatory in phases from April 2026.

For nearly two years, HMRC has been stress-testing its MTD for IT systems to ensure they can support increasing numbers of volunteer taxpayers. So far, HMRC has confirmed that testing has successfully deal with:

• The sign-up process works for individuals and agents, including those with non-standard accounting periods.
• Volunteers can make and edit quarterly submissions and add income sources.
• Volunteers can opt out of quarterly obligations.
• PAYE income pre-populates into estimated payments on account.
• Payments are correctly allocated within MTD for IT.

More recent testing in 2025 as HMRC scales up the rollout include:

April–June 2025

• Re-testing sign-up to confirm it can cope with larger volumes.
• Testing the ability for volunteers to appoint multiple agents (one for quarterly returns and one for end-of-year submissions).

July–September 2025

• Ensuring taxpayers and agents can make their first quarterly update via software completing the quarterly requirement.
• Checking the accuracy of estimated payments on account based on income to date.
• Testing key functions in the digital tax account, such as adding or stopping income sources and opting in or out of the service.

During the testing phase, there are no penalties for late submissions, but submitting on time is encouraged by HMRC as it helps those testing the system understand the requirements and allows for the service to be properly stress tested.

If your qualifying income is over £50,000 in the 2024–2025 tax year, you will be required to start using MTD for IT from 6 April 2026. There are some minimal exemptions in place.

Less than 1 month to self-assessment filing deadline

There is now less than 1 months to the self-assessment filing deadline for submissions of the 2024-25 tax returns. We urge our readers who have not yet completed and filed their 2024-25 tax return to file as soon as possible to avoid the stress of last-minute preparations as the 31 January 2026 deadline fast approaches.

You should also be aware that payment of any tax due should also be made by this date. This includes the remaining self-assessment balance for the 2024-25 tax year, and the first payment on account for the 2025-26 tax year.

Earlier this year, more than 11.5 million people submitted their 2023-24 self-assessment tax returns by the 31 January deadline. This included 732,498 taxpayers who left their filing until the final day and almost 31,442 that filed in the last hour (between 23:00 and 23:59) before the deadline!

There is a new digital PAYE service for the High Income Child Benefit Charge (HICBC). This allows Child Benefit claimants who previously used self-assessment solely to pay the charge to opt out and instead pay it through their tax code.

If you are filing online for the first time you should ensure that you register to use HMRC’s self-assessment online service as soon as possible. Once registered an activation code will be sent by mail. This process can take up to 10 working days. 

If you miss the filing deadline you will be charged a £100 fixed penalty (unless you have a reasonable excuse) which applies even if there is no tax to pay, or if the tax due is paid on time. There are further penalties for late tax returns still outstanding 3 months, 6 months and 12 months after the deadline. There are additional penalties for late payment of tax amounting to 5% of the tax unpaid at 30 days, 6 months and 12 months.