In personal and family companies, the lines between the company’s finances and the director’s finances may become blurred. A director may withdraw money from the company for personal use or may lend money to the company. The company may pay some of the director’s personal bills, and the director may personally meet some company expenses. The director’s loan account is simply an account for recording the transactions between the director and the company in much the same way as a bank account.

At the company’s year end, the director’s loan account may show a zero balance. Alternatively, the account may be in credit. This may be the case if the director has provided a loan to the company or personally met company expenses. The third scenario is that the director’s loan account is overdrawn. Where this is the case, the director owes money to the company.

Implications of an overdrawn director’s loan account

An overdrawn director’s loan account may have tax implications for both the director and the company. This will depend on the loan account balance and whether it is cleared by the corporation tax due date.

As far as the company is concerned, if the director’s loan account balance remains outstanding on the date on which corporation tax for the period is due (which is nine months and one day after the company’s year end), the company will need to pay tax on the balance at that date. The tax is paid at the same time as the corporation tax for the period, but crucially is not corporation tax. The charge is imposed by section 455 of the Corporation Tax Act 2010 and is generally referred to as ‘section 455 tax’.

The rate of section 455 tax is aligned with the dividend upper rate, currently 33.75%. Unlike most taxes, it is refundable once the loan has been cleared, with the tax becoming repayable nine months and one day from the end of the accounting period in which the loan is cleared (i.e. the corporation tax due date for that period).

The tax is to a certain extent voluntary as there will be no section 455 tax to pay if the director clears the overdrawn balance ahead of the corporation tax due date. There are various ways in which this can be done. For example, the director could introduce personal funds to the company, the company could declare a dividend to clear the loan balance or pay a bonus. However, there may be a tax cost of clearing the loan and, where this is higher than the section 455 tax, it may be preferable to pay the section 455 tax instead, reclaiming it when the loan balance can be cleared in a more tax-efficient manner.

If the outstanding loan balance tops £10,000 at any point in the tax year, the director will be liable to a benefit in kind charge on interest on the loan balance at the official rate (assuming the director pays no interest on the loan). The company will also pay Class 1A National Insurance at 13.8% on the taxable amount. However, there is no tax or Class 1A National Insurance to pay if the balance remains below £10,000, enabling a director to borrow up to £10,000 for up to 21 months (if the loan is taken out at the start of the accounting period) tax and interest-free. This can be worthwhile.

If you pay tax through PAYE, as will be the case if you are an employee or a pensioner, you may need to complete a Self Assessment tax return if you have other sources of income, such as income from property or investments or from self-employment. If at least 80% of the tax that you owe is collected through PAYE, you will not have to make payments on account, even if the tax that you owe under Self Assessment is more than £1,000.

The normal deadline for paying tax under Self Assessment is 31 January after the end of the tax year, so by 31 January 2025 for 2023/24 tax. However, if you file your return earlier, you may be able to pay the tax that you owe through PAYE via an adjustment to your tax code.

30 December deadline

To take advantage of the opportunity to pay the tax that you owe for 2023/24 through PAYE, you must file your tax return by 30 December 2024 if you file online. If you have already submitted a paper return by the 31 October paper filing deadline, you may also qualify.

You will not be able to pay your tax through your tax code if:

• you do not have sufficient PAYE income for HMRC to collect the tax that is due;
• paying tax in this way will mean that more than 50% of your PAYE income is deducted in tax; or
• you will pay more than twice as much tax as you do normally.

Further, you can only pay the tax that you owe under Self Assessment in this way if the amount that you owe is £3,000 or less. It is important to note that this limit applies to the total amount of tax that you owe under Self Assessment – if you owe more than £3,000, you cannot make a part-payment to reduce the bill to £3,000 and then pay this through your tax code.

Where the return is filed on time, the amount that you owe is £3,000 or less, you already pay tax under PAYE and you are not otherwise excluded from paying your tax through PAYE, HMRC will automatically adjust your tax code to collect the tax that you owe, unless you specify on your tax return that you do not want the tax collected in this way.

If you are not eligible to pay through PAYE despite your bill being £3,000 or less, you will need to pay what you owe by 31 January 2025, or set up a Time to Pay arrangement with HMRC.

Collection mechanism

To collect tax through PAYE, your tax code will be adjusted so that your tax-free allowances are reduced. The amount of the reduction will reflect both the tax that you owe and your marginal rate of tax. For example, if you are employed and owe tax under Self Assessment of £2,000 in respect of rental income and you are a higher rate taxpayer paying tax at 40%, your tax code will be adjusted by 500 (as 40% of £5,000 is £2,000). This will mean if you receive the basic personal allowance of £12,570, your tax-free allowance will be reduced by £5,000 and your tax code will be reduced to 757L.

To collect tax for 2023/24, the adjustment is made to the 2025/26 tax code, so that the tax is collected in 12 equal instalments throughout the 2025/26 tax year.

Advantages

Opting to pay tax through PAYE removes the need to pay the tax in a single payment by 31 January 2025. It also provides the option to pay in instalments without the need to set up a Time to Pay arrangement, with the added advantage that the instalments are interest-free. By contrast, interest is charged where tax is paid in instalments under a Time to Pay arrangement The first payment is not made until April 2025, providing a further cash flow benefit.

On the downside, your take home pay will be reduced as a result.

Employer National Insurance Contributions changes

There are a number of changes to Employer National Insurance Contributions (NICs), including:

• Reducing the Secondary Threshold (ST) from £9,100 annual equivalent to £5,000 annual equivalent, then increasing it in line with CPI from 2028-29.
• Increasing the Employer NICs (ER NICs) rate from 13.8% to 15% (over the ST).
• Increasing the Employment Allowance (EA) from £5,000 to £10,500.
• Removing the Employment Allowance cap, meaning employers with ER NIC liabilities over £100,000 in the previous tax year (but which are otherwise eligible) are able to claim the full £10,500 Employment Allowance.

These measures will be effective from 6th April 2025

Capital Gains Tax changes

There will be an increase to the Capital Gains Tax (CGT) main rates from 10% to 18% and from 20% to 24% for the lower and higher rate respectively, to be aligned with the existing rates on residential property.

This measure will be effective from budget day, 30 October 2024.

The Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) rate will increase from 10% to 14% from 6 April 2025 and to 18% from 6 April 2026.

Inheritance Tax changes

In addition to existing nil-rate bands and exemptions, the current 100% rates of Agricultural Property Relief (APR) and Business Property Relief (BPR) will continue for the first £1 million of combined agricultural and business property. The rate of relief will be 50% thereafter, and in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as the Alternative Investment Market (AIM).

This measure will be effective from 6 April 2026.

Unused pension funds and death benefits payable from a pension will be brought into a person’s estate for Inheritance Tax (IHT) purposes.

This measure will be effective from 6 April 2027.

The Nil-Rate Band and Residence Nil-Rate Band thresholds will be fixed at £325,000 and £175,000 respectively for tax years 2028-29 and 2029-30. The Residence Nil-Rate Band taper will also be fixed at the current level of £2 million.

Mandatory registration of tax practitioners interacting with HMRC

This measure will invest to modernise HMRC’s tax adviser registration services and will mandate registration of tax advisers who interact with HMRC on behalf of clients.

Registration will be mandatory from April 2026

Changes affecting private school education

The standard rate of VAT (20%) will apply to education and boarding services provided by private schools from 1 January 2025.

Eligibility of private schools for charitable business rate relief will be removed from 1 April 2025.

Changes affecting non-domiciled individuals

The remittance basis of taxation for non-UK domiciled individuals is being abolished and replaced with a simpler residence-based regime. Individuals opting into the regime will not pay UK tax on foreign income and gains (FIG) for the first four years of tax residence, provided they have been non-tax resident for the previous 10 years.

This measure introduces a residence-based system for Inheritance Tax and the planned 50% reduction in foreign income subject to tax in the first year will be scrapped. For Capital Gains Tax purposes, current and past remittance basis users will be able to rebase personally held foreign assets to 5 April 2017 on disposal where certain conditions are met.

Overseas Workday Relief will be extended to a four-year period and will be subject to an annual financial limit of the lower of £300,000 or 30% of net employment income. This measure also extends the previously announced Temporary Repatriation Facility to three years and expands the scope to trust structures.

This measure will be effective from 6 April 2025.

Stamp Duty Land Tax changes

There will be an increase to the Higher Rates for Additional Dwellings surcharge on Stamp Duty Land Tax (SDLT) from 3% to 5%. It will also increase the single rate of SDLT that is charged on the purchase of dwellings costing more than £500,000 by corporate bodies from 15% to 17%.

This measure will be effective from 31 October 2024.

Increasing the interest rate on unpaid tax

The government will increase the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5% to Bank Rate plus 4%.

This measure will be effective from 6 April 2025.

Tax on company cars

Fully electric and zero emission vehicle rates will increase by 2% per annum across 2028-29 and 2029-30. Rates for cars with emissions of 1-50g/km of CO2 will increase to 18% in 2028-29 and 19% in 2029-30. Rates for all other emission bands will increase by 1% per annum to maximum of 38% for 2028-29 and 39% for 2029-30.

Van Benefit Charge will increase in line with September 2024 CPI growth.

Amending anti-avoidance rules for close company shareholders

Section 455 ‘Loans to Participators’ legislation will be amended to prevent close companies recycling loans through two or more companies to avoid tax.

This measure will be effective from 30 October 2024.

Changes to tax rules on liquidations of Limited Liability Partnerships

Where a member of a Limited Liability Partnership (LLP) has contributed assets to an LLP, chargeable gains that accrue up to the contribution are taxed (either Capital Gains Tax or Corporation Tax) when the LLP is liquidated and the assets are disposed of to the member, or to a person connected to them. The LLP will be liable in the normal way for gains from the time of contribution on their actual disposal of the asset.

This measure will be effective from 30 October 2024.

Strengthen existing charity tax rules from April 2026

Several changes to legislation to aid compliance with charitable tax reliefs include:

• Tainted Donations: To strengthen HMRC compliance powers to take action when a donor gives to a charity with the intention of receiving an advantage back.
• Approved Investments: To make it explicit that all investments by charities that qualify for charitable tax reliefs must be for the benefit of the charity and not the avoidance of tax.
• Attributable Income: To extend the existing rule that charities’ tax relieved income must be spent on charitable activities to income received from legacies.

These measures will be effective from April 2026.

Business rates

40% business rates discount available to businesses occupying eligible retail, hospitality and leisure properties in England, up to a cash cap of £110,000 per business for one year.

The small business multiplier will be frozen at 49.9p for 12 months.

These measures will be effective from 1 April 2025.

Other announcements

Other key announcements that may be of relevance to your clients were as follows:

• Subscription limits for Adult ISAs, Junior ISAs and Child Trust Funds will be maintained
• 100% first-year allowances for zero-emission cars and electric vehicle charge-points extended to 31 March 2026 for Corporation Tax and 5 April 2026 for Income Tax
• Changes to tax rules on alternative finance arrangements from 30 October 2024
• Increase in the Carer’s Allowance earnings limit to the equivalent of 16 hours at the National Living Wage from April 2025
• Extension of employer NICs relief for hiring veterans for one year from 6 April 2025
• The Starting Rate for Savings (SRS) will be maintained at £5,000 for 2025-26
• Measures to make recruitment agencies responsible for accounting for PAYE on payments made to workers that are supplied via umbrella companies from April 2026
• Confirmation of the payrolling of employment benefits from April 2026
• HMRC to recruit 5,000 additional compliance staff by 2029-30
• HMRC to recruit 1,800 additional debt management staff

If you provide your services personally to an end client through your own limited company or other intermediary, you may fall within the scope of either the off-payroll working rules or the anti-avoidance rules known as ‘IR35’. Both aim to redress the tax and National Insurance balance where the worker would be an employee if they provided their services directly to the end client; however, the responsibility for applying the rules differs. Under the off-payroll working rules, it is the engager who must decide if they apply, whereas the responsibility for assessing whether the engagement falls within the IR35 regime, and applying the rules if it does, falls on the worker’s personal service company or other intermediary.

IR35 or off-payroll working?

The nature of the end client determines which set of rules must be considered. Where the end client is a large or medium-sized private sector organisation or one in the public sector and they engage workers who provide their services through an intermediary (such as a personal service company), they will need to determine whether the worker would be an employee if they provided their services directly. Where this is the case, the end client (or fee payer where different) must deduct tax and National Insurance from payments made to the worker’s intermediary, rather than making the payments gross. Here, it is the end client who is responsible for applying the rules, not the worker’s personal service company.

By contrast, small private sector organisations do not need to worry about whether an engagement falls within the scope of the off-payroll working rules. Instead, the onus falls on the worker’s personal service company to determine whether the engagement is within IR35.

Know your end client

In order to ascertain whether you need to consider the IR35 rules, you need to know whether the client to whom you provide your services via your personal service company or other intermediary is a small private sector organisation. This will be the case if the organisation does not meet two or more of the following:

• Annual turnover of more than £10.2 million
• Balance sheet total of more than £5.1 million
• More than 50 employees.

Often, particularly at the smaller end, it will be apparent. If not, you should check with the client.

Complying with IR35

If your end client is a small private sector organisation, you will need to determine whether the engagement falls within the scope of the IR35 rules. The first stage is to assess whether you would be an employee if you provided your services to the client directly. You can use HMRC’s Check Employment Status for Tax (CEST) tool to do this (see www.gov.uk/guidance/check-employment-status-for-tax). If the answer is yes, you will need to work out the deemed employment payment and calculate the tax and National Insurance due on this, and report it to HMRC by 5 April at the end of the tax year.

Scammers are becoming increasingly adept at fooling people and a favoured tactic is a letter, a text or an email purporting to be from HMRC, often promising a tax refund in exchange for personal and financial data.

During the summer, many taxpayers received a very convincing scam letter which appeared to be from HMRC, seemingly from the Individuals and Small Business Compliance scheme. The letter asked the recipient to provide business bank statements, the most recent set of accounts, VAT returns in PDF format for the last four quarters and a clear photo of either a passport or a driving licence for all the directors for ‘identification purposes’, and for them to email the information to companies-review@hmrc-taxchecks.org. The letter warned that if the information was not provided, they would ‘conduct an investigation and possibly freeze any business activity’ until the investigation is complete. The letter had the look and feel of a genuine HMRC letter, adopting a similar format and font.

It is easy to see why people would be duped, and the threat of having their business assets frozen is enough to panic many people into complying.

So, if you receive a letter which appears to be from HMRC, what can you do to check its authenticity?

The first point is to consider what is being asked and why. There are some red flags in the letter. Firstly, the unique taxpayer reference (UTR) quoted is only six digits, whereas a UTR is ten digits. It is always prudent to check that the UTR quoted on a letter is correct. Further, it is sensible to ask why HMRC would ask for copies of the last filed accounts and VAT returns, which are easily available to them. The request to send photos of a passport or driving licence should also be viewed with suspicion. Finally, the email address to which the documents are to be sent is not a genuine HMRC email address, which would end in ‘gov.uk’.

Genuine HMRC contact

HMRC produce regular updates to help taxpayers gauge whether a communication that appears to be from them is indeed genuine. The guidance can be found on the Gov.uk website. Typically it will list recent communications from HMRC, so the taxpayer can check whether the communication they have received is listed. HMRC will contact taxpayers by letter, text and email, and sometimes will use more than one communication channel.

Stay alert

It is important to be alert to the possibility that a communication which seems to be from HMRC may be a scam. Particular care should be taken as regards clicking on links included in a text or an email. While HMRC may include links to information on the Gov.uk website or to a webchat, other links should be viewed with suspicion – if in doubt, don’t click on the link. HMRC will never send links which offer a tax refund on the provision of personal or financial details, nor will they ask for personal or financial information by text.

Reporting scams

Scam texts can be forwarded to 60599. Suspicious emails, texts, letters and phone calls can also be reported to HMRC by emailing them at phishing@hmrc.gov.uk.

There are various reasons why a person may not have told HMRC about the tax that they owe, ranging from a simple oversight to the deliberate evasion of tax. Regardless of the reason, if you have failed to declare income and gains on which tax is due, it is always better to take action to correct the situation than to wait to be ‘found out’ by HMRC.

There are various different ways in which a disclosure can be made, and the option that is right for you will depend on your particular circumstances.

The digital disclosure service

Individuals and companies can use the digital disclosure service to tell HMRC about errors that relate to income tax, capital gains tax, inheritance tax, corporation tax, National Insurance or the Annual Tax on Enveloped Dwellings. It cannot be used to tell HMRC about errors relating to VAT. The service can be used regardless of whether the error arose despite taking reasonable care, as a result of carelessness or because of deliberate actions.

There are various steps to follow.

The first step is to notify HMRC that you wish to make a disclosure via the digital disclosure service (see www.gov.uk/guidance/tell-hmrc-about-underpaid-tax-from-previous-years). At this stage it is not necessary to provide details of the income or gain. After making your notification you will receive a unique disclosure reference number (DRN) and a payment reference number.

The next stage is to make the disclosure. This can be done once you have the DRN, and must be done within 90 days of the date on which HMRC acknowledged your notification.

You will also need to calculate what you owe, and it is advisable to take professional advice. You will also need to work out the interest and penalties that are due. HMRC have an online calculator which can be used for this purpose. Interest is charged from the date that the tax was due to the date that it was paid.

The number of years covered by the disclosure would depend on the reason for the error – if you took reasonable care, the maximum period HMRC can go back is four years, if you were careless, it is six years, but if you deliberately misled HMRC, they can go back 20 years.

As part of your disclosure you will need to make an offer to HMRC.

Payment should be made when you submit your disclosure using the payment reference issued by HMRC.

If HMRC are satisfied that you have made a full disclosure, they will accept it. They may undertake further checks before accepting the disclosure. Where a disclosure is accepted, HMRC will send a letter of acceptance, which together with your offer letter forms a binding contract. If the disclosure is found to be incorrect or incomplete, it will not be accepted, Disclosures are unlikely to be accepted if they are made after HMRC have opened an enquiry or a compliance check. HMRC will contact you if they cannot accept the disclosure. Where this is the case, they may seek higher penalties or, in cases of fraud, consider a criminal investigation.

The contractual disclosure facility

The contractual disclosure facility (CDF) should be used where a disclosure is being made because you deliberately failed to tell HMRC about tax that you owe. This facility should only be used to admit tax fraud – it should not be used if you made an error despite taking reasonable care or you were careless.

If HMRC suspect you of tax fraud, they may offer you a contract through the CDF.

Specific campaigns

From time to time, HMRC run specific campaigns related to the non-disclosure of a particular type of income. Details of specific campaigns can be found on the Gov.uk website.

For example, HMRC have a specific form for telling them about undeclared sales arising from misuse of your till system (see www.gov.uk/guidance/make-a-disclosure-about-misusing-your-till-system).

HMRC have a range of powers at their disposal to collect unpaid tax. If you are struggling to pay a tax bill, or know that you will not have the funds available to meet an upcoming bill, it is better to take action than to ignore the problem and hope it will go away – it won’t. Interest will be charged on tax paid late, and late payment penalties may also apply.

Set up a Time to Pay arrangement

Rather than paying your tax bill in one hit, you may be able to set up a Time to Pay arrangement and pay in instalments. Depending on your circumstances, you may be able to set this up online. If not, you can call HMRC to discuss your options. Although interest will be charged, setting up an instalment plan will save late payment penalties. Further details on setting up a Time to Pay arrangement can be found on the Gov.uk website at www.gov.uk/difficulties-paying-hmrc/pay-in-instalments.

HMRC visits

If you have unpaid tax and a Time to Pay arrangement is not in place, HMRC will try and contact you first to discuss options for settling the bill. However, if you do not respond and do not pay what you owe, an HMRC officer may visit you at your home or business premises. At the visit they will discuss the situation with you and try and agree a plan for settling the debt, either in full or in instalments. The HMRC officer will be able to take card payments during their visit.

Debt collection agencies

HMRC may also pass the debt to a debt collection agency to collect on their behalf. A debt collection agency may contact you by letter or text or by phone, but they will not visit you. You can pay the debt collector what you owe. You can also discuss using a Time to Pay arrangement to settle the debt.

Adjusting your tax code

If you pay tax under PAYE, HMRC may be able to adjust your tax code to collect the debt.

Taking possessions to cover the debt

If neither HMRC nor an appointed debt collection agency have been able to collect the debt, HMRC may look to take possession of your goods to cover the debt. They will warn you before they do this and offer you the opportunity to settle the debt first. A formal notice of enforcement will be issued, for which there is a charge. An HMRC officer will visit you and ask you to pay the debt. If this is not done, they will either take possessions there and then to cover the debt or ask you to sign an agreement, which will include a deadline by which the debt must be paid. If the tax debt is not paid by the deadline, the goods will be removed and sold to clear the debt. You will be charged for this. If the amount realised from the sale of the goods is less than the tax debt, you will be liable for the difference; if it is more, you will be paid the excess. HMRC will not take possessions that are essential for your security and wellbeing.

Court proceedings

HMRC may use court proceedings to recover the debt through charging orders, attachment of earnings orders, third party debt orders or from pension payments.

Insolvency

Where all other options have been exhausted, HMRC may apply to the courts to make a person or company insolvent.

Many parents who fell within the ambit of the High Income Child Benefit Charge (HICBC) opted not to receive child benefit, rather than to receive it and pay it back in full in the form of the charge. However, changes to the HICBC which came into effect from April this year mean that some parents who previously lost all their child benefit to the charge will now be able to retain some or all of it. Where this is the case, they will need to restart their child benefit payments so that they do not lose out.

Changes to the HICBC

Prior to 6 April 2024, the HICBC applied where a child benefit claimant and/or their partner had adjusted net income of more than £50,000 a year. The charge was equal to one per cent of the child benefit for the year for every £100 by which adjusted net income exceeds £50,000. Once adjusted net income reached £60,000, the charge was equal to the child benefit for the year.

From 6 April 2024, the HICBC applies where the claimant and/or their partner have adjusted net income of more than £60,000 a year. The charge is equal to one per cent of the child benefit for the year for every £200 by which adjusted net income exceeds £60,000. Once adjusted net income exceeds £80,000, the charge is equal to the child benefit for the year.

Where both the claimant and their partner have adjusted net income in excess of the trigger threshold, the charge is levied on the person with the higher adjusted net income.

Impact on child benefit

It is always important to claim child benefit to preserve the associated National Insurance credits, particularly where the claimant will not pay sufficient National Insurance contributions for the year to be a qualifying year.

However, where the charge is equal to the child benefit for the year, it may be preferable to opt not to receive the child benefit than to receive it only to repay it in the form of the HICBC.

For 2023/24 and previously, where the person liable for the charge had adjusted net income of £60,000 or above, the charge equalled the child benefit for the year. Consequently, a decision may have been made not to receive the benefit. However, as a result of the changes to the HICBC thresholds from April 2024, the charge will only be equal to the child benefit for the year once adjusted net income reaches £80,000.

As a result, where adjusted net income is £60,000, the HICBC would be 100% of the child benefit in 2023/24, but in 2024/25, there would be nothing to pay. Similarly, where adjusted net income is between £60,000 and £80,000, the charge would be equal to 100% of the child benefit in 2023/24 but less than 100% of the child benefit in 2024/25.

Claimants who had opted not to receive child benefit and either they or their higher earning partner has adjusted net income of at least £60,000 but less than £80,000 will now be able to retain some or all of their child benefit. Consequently, they should restart their payments so that they do not lose out. It is important to do this without delay as it can take up to 28 days before you will receive your first payment. The Child Benefit Office will let a claimant know in writing whether they will receive backdated payments and, if so, how much.

Payments can be restarted by using the online service or by completing the online form. Alternatively, HMRC can be contacted by phone on 0300 200 3100 or by post by writing to them at the following address:

HM Revenue and Customs – Child Benefit Office

PO Box 1

Newcastle upon Tyne

NE88 1AA.

The remittance basis of tax is an optional tax treatment that allows individuals who are resident but not domiciled in the UK to pay tax on foreign source income and gains only if they are remitted to the UK in exchange for paying a fee. The fee is set at £30,000 where the person has been resident for at least seven of the previous nine tax years and at £60,000 where the person has been resident in at least 12 of the previous 14 tax years. Where unremitted income and gains are less than £2,000 in the tax year, no fee applies.

For all UK tax purposes, an individual is deemed to be domiciled in the UK if they have been resident in the UK for at least 15 of the previous 20 tax years.

The remittance basis will cease to apply from 6 April 2025. Instead, it will be replaced with a new residence-based regime.

The new regime

At the Spring 2024 Budget, the then Government announced a serious of changes to the rules for non-doms, including the abolition of the remittance basis and, subject to some transitional rules, the introduction of a new residence-based regime. The proposals are being taken forward by the current Government, albeit with some changes, and will apply from 6 April 2025.

Under the new regime, all UK residents will be taxed on their worldwide income wherever arising, regardless of their domicile. This is subject to an exemption for new arrivals who will benefit from a 100% tax exemption for foreign source income and gains for their first four years of residence, provided that they have not been UK resident in the previous ten years.

A form of Overseas Workday Relief will continue to apply. This provides relief from UK tax for earnings from work performed abroad which are not remitted to the UK. The Government are to consult on what this will look like going forward.

The previous Government’s proposals included a 50% reduction in the foreign income subject to UK tax in 2025/26 (the first year of the new regime) for individuals who lose access to the remittance basis from 6 April 2025 and who are not eligible for the 100% exemption for new arrivals. The new Government are not going ahead with this.

UK residents who are not able to benefit from the four-year exemption for new arrivals will be liable to capital gains tax on foreign gains. However, where the remittance basis has been used, UK capital gains tax will only apply to gains arising after the ‘rebasing date’ which is to be announced at the October 2024 Budget.

Foreign income and gains that arose prior to 6 April 2025 while the individual was taxed under the remittance basis will continue to be taxed when remitted to the UK. This will apply to remittances of pre-6 April 2025 foreign income and gains of individuals eligible for the four-year exemption for new arrivals.

A temporary repatriation facility will be available to individuals who have been taxed on the remittance basis which will enable them to remit foreign income and gains arising before 6 April 2025 and pay tax at a reduced rate on the remittance for a limited period after the remittance basis has ended. The length of this period has yet to be announced.

Inheritance tax

The current inheritance tax rules are domicile based. This will cease to be the case from 6 April 2025 when inheritance tax will also become residence based. This change will affect the property within the charge to inheritance tax.

The proposal is that a basic test will apply to determine whether non-UK assets are liable to UK inheritance tax. This will depend on whether the person has been resident in the UK for ten years prior to death or another chargeable event and will be subject to a proviso that will keep the person within the scope of UK inheritance tax for ten years after they leave the UK.

The use of excluded property trusts to keep assets outside the scope of inheritance tax will also be brought to an end.

If it works correctly, the tax that is collected under PAYE will exactly match the tax that is due for the year. However, in practice, this balance may be disturbed, for example, because benefits included in a tax code change or a wrong tax code is used, and an employed taxpayer may pay too much or too little tax as a result. Where this is the case, HMRC will send out a letter. This may be a tax calculation letter (P800) or a Simple Assessment letter. The letter will explain how to pay any taxed that is owed or, where the taxpayer has overpaid tax, how to claim a refund. A letter will only be sent out where the taxpayer is employed or in receipt of a pension. Where the taxpayer is within Self Assessment, over and underpayments are dealt with through the Self Assessment system.

The letters are normally sent out between June and the end of November each year. A person may receive a tax calculation letter if the wrong tax code has been used, if they finished one job and started another in the same month and were paid for both jobs in that month, they started receiving a pension or received Employment and Support Allowance or Jobseeker’s Allowance.

A Simple Assessment letter will be sent where a person owes tax that cannot be collected via an adjustment to their tax code, they owe tax of more than £3,000 or have tax to pay on their state pension.

Claiming a refund

HMRC have changed the way in which they deal with refunds where tax has been overpaid under PAYE. Previously, where a refund had not been claimed, HMRC would send a cheque out automatically 21 days after the issue of the tax calculation letter. They no longer do this and, where tax has been overpaid under PAYE, the taxpayer will only receive a refund if they actually claim it. The tax calculation letter will explain how to do this.

Where the letter states that the refund can be claimed online, this can be done by visiting the Gov.uk website at www.gov.uk/tax-overpayments-and-underpayments/if-youre-due-a-refund. The refund can be made via bank transfer. Alternatively, a cheque can be requested.

Refunds can also be claimed through the taxpayer’s personal tax account or the HMRC app. A taxpayer can also contact HMRC on 0300 200 3300 and request a cheque.

Taxpayers who do not receive a tax calculation letter but who think that they have paid too much tax under PAYE should contact HMRC.