Changes already in the system…

Self Employed Taxpayers class 2 and class 4 NI rates changes.

From 2024 25 if your taxable profit is above £6,725 then you do not need to pay class 2 NI (£ 179.40p) and will still get a year’s State Pension contribution. 

Also, from 2024 25 class 4 NI (paid on profits between £12,570 and £50,270) has been reduced from 9% to 6%.   Above £20,270 the rate remains at 2%.

Employed class 1 NI rates changes. 

From 2024 25 the employee Class 1 NI rate has been reduced to 8%.

From 2025 26 the employer NI rate has been increased from 13.8% to 15% and the threshold for paying this reduced for £9,100 to £5,000 annual salary.  This has been partially offset by increasing Employers Allowance.

These changes to class 1, class 2 and class 4 NI can affect a decision whether to keep as a self-employed or move to a limited company.

Foreign Income

It used to be the case that some foreign income was only taxed when money was brought into the UK (called the Remittance Basis). From 6 April 2025 this ceased to be the case and all foreign income has to be declared (the 2025 26 tax year). 

Response time from HMRC

Under previous governments the staff numbers at HMRC have been significantly reduced partly because of anticipated savings from Making Tax Digital (MTD), but while the MTD implementation has been delayed the manpower reduction hasn’t. In addition, there has been a series of “rolling strikes” at HMRC which has made matters worse. This has affected HMRC response times.

Current HMRC repose times are reflected by the following examples…

• A colleague who claimed a CIS refund on 20 September 2025 has been told by HMRC to expected this to be processed in January 2027;
• Another colleague who sent HMRC a letter regarding PAYE on 7^th April 2025 has been advised that a reply should be sent out by the 4^th April 2026;

Furnished Holiday Lettings (FHL)

For 2025 26 tax year Furnish Holiday Lettings rules cease to apply for both Income tax and Capital Gains Tax. Income and costs will be treated in the same way as all other property income.

Shareholders in Owner Managed Businesses

For 2025 26 tax year shareholders who receive dividends from close companies (this is a privately owned limited company controlled by five or fewer people) will now be required to provide the amount of Dividend income received for the close company in the Employment Section of the tax return.

Winter Fuel Payment Charge

For 2025 26 tax year Pensioners who received a Winter Fuel Payment and have income over £35,000 will have the payment reclaimed by HMRC normally through their tax return.

Making Tax Digital Self Assessment (MTD SA) – self-employed and rental income Self Assessment Tax Returns.

If your self-employment turnover (not profit but turnover/sales) and/or gross rental income is above £50,000 a year then for the 2026 27 tax year you will be expected to submit quarterly Self-Assessment Tax Returns, to be submitted in the month after the quarter end. The return for April, May, June 2026 should be submitted in July 2026.   In the last budget it was announced that the plan was to waive any late filing penalties for 2026 27.

For 2027 28 the threshold will reduce to £30,000 and for 2028 29 the threshold will reduce again to £20,000.

Once the system is imbedded in Quarterly Income Tax payments will be looked at rather than the current payments in January and July. Hidden in the November budget details it says that the quarterly payments is planned to start from April 2029.

These rules DO NOT apply to partnerships, so, for example, if a self-employed person formed a partnership with their spouse from say 1^st April 2026 then they would NOT be required to submit quarterly returns. On partnerships with family members HMRC normally accept that the split of profits can change each year to reflect the most favorable tax position – this means one of the partners with sizeable other income could be allocated a small or zero split of the profits.

Dividend Tax

For 2025 26 Dividend tax rates (for basic rate tax payers) was 8.75% (higher rate taxpayers 33.75% then 39.35%).  

For 2026 27 Dividend tax rates (for basic rate tax payers) will be 10.75% (higher rate taxpayers 35.75% but top rate remains at 39.35%).  The first £500 remains tax at 0%.

This means if you pay yourself a dividend on 5^th April 2026 you pay 8.75% or 33.75% tax on it but if you pay yourself a Dividend on 6^th April 2026 you pay 10.75% or 35.75%.  This one day on a £10,000 dividend can cost you £200 more tax.

Remember a company cannot pay dividends it cannot afford.

Ordering of income in tax calculations

Some clients have suggested to me that in future tax years they want their personal allowance to offset income taxed at a higher rate (for example rental profits). Sorry HMRC has given the following as the order income is taken for tax purposes:

• Employment, partnership, self-employment income 
• Property income 
• Savings income
• Dividend income

Employees home working 

In the recent budget one item announced was to remove tax relief on home working expenses for employees. The published policy paper refers to employees only (which includes Directors). This is effective for the 2026 27 tax year and affects both the simplified method (£312 per year) as well as any percentage use calculations.

Capital Allowances

This won’t affect many of you and I have included this just for completeness.  “Writing Down Allowances” for capital spend has gone from 18% to 14% effective from April 2026.

A Cancelled Change

It was planned that for future accounting periods small companies would have to start to submit “Profit and Loss” Accounts as well as their “Balance Sheet” to Companies House. This requirement has been indefinitely delayed.

Tax on Rental Profit

Currently Rental Profit has been taxed at the same rate as normal income tax (20%, 40%, 45%) but for the 2027 28 tax year the tax rates will increase by 2% (22%, 42%, 47%).

Interest Income

Currently taxable Interest Income has been taxed at the same rate as normal income tax (20%, 40%, 45%) but for the 2027 28 tax year the tax rates will increase by 2% (22%, 42%, 47%). 

Benefit in kind reporting 

This was timed to start from April 2026 but has been delayed to April 2027.

Currently if any employer gives someone a Benefit in Kind the employer reports it to HMRC at the end of the tax year and issues a P11D. From April 2027 all Benefits in Kind Reporting has to be done monthly through PAYE (and therefore taxed monthly) and P11D’s will cease to exist, the last P11D being issued for the 2026 27 tax year.