Category: Income Tax

Tax allowances frozen for 2026-27

It was confirmed as part of the Autumn Budget that the Income Tax thresholds will continue at their current levels for a further three years, extending the freeze until April 2031. This means that most tax allowances are to remain frozen for 2026-27 and beyond.

As a result, the personal allowance will stay at £12,570, while the higher rate threshold will remain at £50,270 for taxpayers across most of the UK (with different thresholds applying in Scotland). National Insurance thresholds will also remain fixed over the same period.

Keeping these thresholds unchanged means that many taxpayers will gradually pay more tax as their earnings increase over time. This effect, commonly known as fiscal drag, occurs when wages rise but tax bands do not. As incomes grow due to inflation or pay increases, a larger portion of earnings becomes taxable, and more people move into higher tax brackets.

In practical terms, the continued freeze is likely to push increasing numbers of taxpayers into the 40% higher rate band and, for some, the 45% additional rate band. Others who previously earned below the personal allowance may also begin paying Income Tax for the first time. Although tax rates themselves remain unchanged, the overall tax burden rises as more income becomes subject to tax.

Fiscal drag is influenced by several factors, including government policy on tax thresholds, inflation levels and wage growth. In periods of rising wages or high inflation, the impact of frozen thresholds becomes more pronounced. For taxpayers the impact of fiscal drag effectively operates as a stealth tax over time.

Changes to the calculation of Income Tax

A number of changes to the taxation of dividends, property income and savings income were announced in the Autumn Budget 2025. These measures will affect the rates at which different types of income are taxed and will be introduced in stages over the next few years.

From April 2026, the tax rates applying to dividend income will increase by 2%. The ordinary dividend rate will be 10.75%, while the upper dividend rate will increase to 35.75%. The dividend additional rate and the dividend trust rate will remain unchanged at 39.35% as will the dividend allowance at £500.

Further changes will apply from April 2027. Income Tax rates on both property income and savings income will increase by 2%. For the 2027–28 tax year, property income will be taxed at 22% (basic rate), 42% (higher rate) and 47% (additional rate). Savings income will also be taxed at the same rates.

Alongside these rate changes, the government is also reforming how Income Tax is calculated by altering the current ordering rules that determine the calculation of Income Tax. Under the current system, savings and dividend income are treated as the highest part of an individual’s income. Most other income, such as employment, pension or trading income, is grouped together as “non-savings, non-dividend income” and taxed first.

Under the new rules, the revised order of taxation will be:

1. Income that is not property, savings or dividend income
2. Property income
3. Savings income
4. Dividend income

These changes to the calculation of Income Tax are intended to better reflect the different nature of income sources and ensure the new tax rates for property, savings and dividends operate as intended.

Claiming a tax refund from HMRC

If you have paid too much tax to HMRC, you may be able to claim a tax refund. Overpayments can happen for several reasons, such as a change in employment, being placed on the wrong tax code or failing to claim certain allowances or expenses.

The way you claim depends on your circumstances such as whether or not you complete a self-assessment tax return and how long ago the overpayment occurred.

HMRC states that you may be eligible for a refund if you have overpaid tax on:

• Income from employment
• Job-related expenses (for example, working from home, fuel, uniforms or tools)
• A pension
• A self-assessment tax return
• A redundancy payment
• UK income while living abroad
• Interest from savings or Payment Protection Insurance (PPI) payouts
• Income from a life or pension annuity
• Foreign income
• UK income earned before leaving the UK

HMRC offers an online service at www.gov.uk/claim-tax-refund/y that allows you to check whether you are eligible and, in many cases, submit a claim.

In most situations, you can backdate a claim up to four years from the end of the relevant tax year. This means you can still claim a refund for the 2021–22 tax year (which ended on 5 April 2022) until 5 April 2026.

How to claim child benefits

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.

Who needs to file a self-assessment tax return

There are several reasons why you might need to file a self-assessment tax return. This could apply if you are self-employed, a company director, have an annual income over £150,000, or receive income from savings, investments or property.

You must file a self-assessment tax return if any of the following apply to you during the tax year:

• You were self-employed as a sole trader and earned more than £1,000 (before expenses).
• You were a partner in a business partnership.
• Your total taxable income exceeded £150,000 in the 2025–26 tax year. However, even if your income is below £150,000, other factors (such as rental income or capital gains) may still mean you need to file a self-assessment return.
• You had to pay Capital Gains Tax on the sale or disposal of assets.
• You were liable for the High Income Child Benefit Charge.
• You had other sources of untaxed income, such as:
  o Rental income from property
  o Tips or commission
  o Savings and investment income (including dividends)
  o Foreign income

If you are filing a self-assessment return for the first time, you must notify HMRC by 5 October following the end of the tax year. For the 2025–26 tax year (ending 5 April 2026), this means the registration deadline is 5 October 2026.

HMRC provides a helpful online tool to check whether you need to submit a self-assessment return: www.gov.uk/check-if-you-need-tax-return.

HMRC reminder for self-employed and landlords

If you have not yet checked whether you need to use Making Tax Digital (MTD) for Income Tax, you should do so urgently. HMRC has issued a timely reminder that for many self-employed and landlords the way to report tax to HMRC will change significantly from 6 April 2026.

MTD for Income Tax is a significant move away from the traditional annual self-assessment process towards a more digital and frequent approach, requiring taxpayers to manage records and submit updates through recognised software. The new system is being gradually rolled out over the coming years.

More than 860,000 sole traders and landlords earning over £50,000 from self-employment or property need to start using digital reporting from April 2026. MTD for Income Tax requires users to keep digital records and send quarterly updates of income and expenses. These updates are not additional tax returns and are created by recognised and approved software providers. A full tax return will still be required by the following 31 January after the tax year, i.e., the first MTD tax return, covering the 2026-27 tax year, will be due by 31 January 2028.

HMRC’s Director of Making Tax Digital, said:

‘With two months to go until MTD for Income Tax launches, now is the time to act. A range of software is available, and the system is straightforward and helps reduce errors. Thousands of volunteers have already used it successfully.

This will make it easier for sole traders and landlords to stay on top of their tax affairs and help ensure everyone pays the right amount of tax.

Spreading your tax admin throughout the year means avoiding that last minute scramble to complete a tax return every January. Go to GOV.UK and start preparing today.’

Taxpayers joining MTD for Income Tax in April 2026 will not receive penalty points for late quarterly updates for the first 12 months, giving time to adjust. There are also exemptions available for those who genuinely cannot use digital tools.

We would be happy to help if you need assistance getting started with MTD for Income Tax.

Check how to claim a tax refund

If you believe that you have overpaid tax to HMRC, you may be entitled to claim a tax refund. Overpayments can occur for a variety of reasons, including changes to employment, incorrect tax codes or unclaimed allowances. The process for making a claim will depend on whether you submit a self-assessment tax return and how long ago the tax was overpaid.

According to HMRC, you may be able to claim a refund if you have paid too much tax on:

• pay from a job
• job expenses such as working from home, fuel, work clothing or tools
• a pension
• a self-assessment tax return
• a redundancy payment
• UK income if you live abroad
• interest from savings or payment protection insurance (PPI)
• income from a life or pension annuity
• foreign income
• UK income earned before leaving the UK

HMRC provides an online tool to help individuals check their eligibility and make a claim for a tax refund. This can be accessed at https://www.gov.uk/claim-tax-refund/y.

Claims can usually be backdated for up to four years after the end of the tax year. This means that claims still be made for tax refunds dating back as far as the 2021-22 tax year which ended on 5 April 2022. The deadline for making claims for the 2021-22 tax year is 5 April 2026. It is important to ensure that all information provided is accurate and that claims are made within the required time limits.

31 January deadline met by more than 11.48 million people

HMRC has confirmed that more than 11.48 million people submitted their 2024-25 self-assessment tax returns by the 31 January deadline. This included 475,722 taxpayers who left their filing until the final day and almost 27,456 that filed in the last hour (between 23:00 and 23:59) before the deadline!

There are an estimated 1 million taxpayers that missed the deadline. Are you among those that missed the 31 January 2026 filing deadline for your 2024-25 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 2026 then you will face further penalties unless you have made an arrangement 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 2026 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.

MTD for Income Tax – check if and when you need to use it

If you have not yet checked if and when you need to use Making Tax Digital (MTD) for Income Tax, you should do so as a matter of urgency. This is because from April 2026 the way many individuals report their tax to HMRC will change significantly. MTD for Income Tax represents a move away from the traditional annual self-assessment process towards a more frequent, digital approach, with taxpayers required to manage their affairs through an online tax account using compatible software.

From 6 April 2026, MTD for Income Tax will apply to self-employed individuals and landlords with qualifying income of more than £50,000 a year. A year later, from April 2027, this will extend to those with qualifying income between £30,000 and £50,000. Qualifying income is broadly the total income received from self-employment and property in a tax year, including income from multiple trades or rental properties. Other sources of income, such as employment income taxed under PAYE, dividends, pensions or partnership income, are excluded from this calculation.

Those within the scope of MTD for Income Tax will be required to keep digital records of their income and expenses and submit quarterly updates to HMRC. These updates provide summaries of income and costs and are intended to give HMRC a clearer picture of taxable income throughout the year. A final declaration will still be required after the end of the tax year, with any tax due payable by the following 31 January. A new points-based penalty system will also apply for late submissions and payments.

If you are unsure whether or when MTD for Income Tax will apply to you, or you would like help preparing for the changes, we would be happy to help.

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.