As the end of the 2025/26 tax year approaches, it is a good idea to undertake a financial review and assess whether there is any action you can take to cut your tax bill.

Tip 1 – Don’t waste your personal allowance

If you have not used your 2025/26 personal allowance, it will be lost – you cannot carry it forward to 2026/27. To prevent wasting it, consider whether you can advance income so that you receive it in 2025/26 rather than in 2026/27. If you are claiming capital allowances, consider tailoring your allowances so you do not waste your personal allowance. If you have a family company, consider paying a dividend to mop up your dividend allowance and any unused personal allowance.

If you cannot use your personal allowance and you are married or in a civil partnership and your spouse/civil partner pays tax at the basic rate, consider making a marriage allowance claim to transfer £1,260 of your allowance to them – this can cut your joint tax bill by £252.

Tip 2 – Reduce your income to protect your personal allowance

Once adjusted net income reaches £100,000, your personal allowance is reduced by £1 for every £2 by which your income exceeds this level. Once adjusted net income reaches £125,140, the personal allowance is lost. However, consideration could be given to making pension contributions or Gift Aid donations to charity to reduce your income and claw back some or all of your personal allowance.

Tip 3 – Invest in an ISA

If you have not already invested the full £20,000 in an ISA in 2025/26, consider using the full allowance before 6 April 2026. Interest and dividends within an ISA are tax-free.

From 6 April 2027, the tax rates on savings income will rise by two percentage points. From the same date, under 65s will only be able to invest £12,000 of their £20,000 ISA allowance in a cash ISA.

Tip 4 – Beat the dividend tax rise

From 6 April 2026, the dividend ordinary rate (which applies to dividends falling in the basic rate band) and the dividend upper rate (which applies to dividends falling in the higher rate band) increase by two percentage points. The dividend ordinary rate rises from 8.75% to 10.75% and the dividend upper rate rises from 33.75% to 35.75%. There is no change in the dividend additional rate which remains at 39.35%.

If you have a personal or family company which has retained profits, consider paying a dividend before 6 April 2026 to beat the dividend tax rises.

Tip 5 – Make pension contributions

Tax-relieved contributions can be made to a registered pension scheme up to 100% of earnings (or £3,600 if lower) subject to having sufficient available annual allowance. The annual allowance is set at £60,000 for 2025/26. However, where threshold income exceeds £200,000 and adjusted net income exceeds £260,000, it is reduced by £1 for every £2 by which adjusted net income is more than £260,000 until the allowance is reduced to £10,000. Unused allowances can be carried forward for up to three years. Any allowance from 2022/23 will be lost if not used by 5 April 2026; however, you must use up all your 2025/26 allowance before using allowances from earlier years.

Once a pension has been flexibly accessed, the annual allowance is reduced to £10,000.

Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will apply from 6 April 2026 to sole traders and unincorporated landlords with combined trading and property income in 2024/25 of at least £50,000.

Under MTD for ITSA, traders and landlords must keep digital records and make digital returns to HMRC using MTD-compatible software.

A digital record is a record of income and expenses that is created and stored in software that works with MTD for ITSA. Under MTD for ITSA, a trader must keep digital records of their trading income and expenses, and an unincorporated landlord must keep digital records of their property income and expenses. If a trader or landlord has other income, there is no need for them to keep records of that income digitally.

Software

Traders and landlords within MTD for ITSA will need to use software that either creates digital records and submits information to HMRC or software which connects to the trader or landlord’s own record-keeping software, such as a spreadsheet. This type of software is known as bridging software.

Taxpayers can choose a single product that meets all their needs or a number of products that work together. Where more than one product is used, they must link digitally. For example, it is acceptable to keep records in a spreadsheet which is linked digitally to software to submit information to HMRC. However, it is not acceptable to manually enter or cut and paste data from a spreadsheet into a software package.

Records that must be kept digitally

The following records must be kept digitally:

• self-employment income, such as sales, takings and fees;
• self-employment expenses, such as the cost of goods, travel costs, office costs, rent, etc.;
• property income, such as rent, lease premiums, reverse premiums and inducements; and
• property expenses, such as repairs, maintenance, travel, etc.

The amount, the date the income was received or payment made and the nature of the income or expense should be recorded. The income and expenditure categories for MTD for ITSA are the same as for the Self-Assessment tax return.

If a trader has more than one business, they will need to keep the details for each business separately and make separate quarterly returns for each business. Landlords should keep separate records for their UK and foreign property businesses.

Jointly let properties

Where a landlord has income from a jointly let property, they only need to keep digital records relating to their share of the income and expenses. Landlords with income from jointly let properties can opt to keep less detailed records or to exclude income from jointly let properties in their quarterly updates; the income is instead included when the position for the tax year is finalised.

Turnover below the VAT threshold

If a trader’s turnover from a single self-employment is £90,000 or less, they only need to record whether a transaction is income or an expense. More detail is not required.

Landlords with income from residential letting need to record whether a transaction is an income or an expense and, where it is an expense, whether it is a restricted finance cost.

Once income reaches £90,000, transactions must be fully categorised.

Retailers

Retailers can create a digital record of gross daily takings rather than having to record each individual sale.

Storing digital records

Digital records must be kept for at least five years from the 31 January submission date for the tax year in question, i.e. for 2026/27, until 31 January 2033.

Employees often incur expenses in doing their job and they may be able to claim these back from their employer through the expenses system. Where an employer reimburses expenses, there may be tax implications to consider.

Exemption for paid and reimbursed expenses

A tax exemption applies to certain paid and reimbursed expenses. It is available if the expenses which are paid or reimbursed by the employer would be fully deductible from an employee’s earnings had the employee met the cost themselves.

Employees are allowed a deduction for expenses which are incurred wholly, exclusively and necessarily in the performance of the duties of the employment. The tax legislation also allows a deduction for a number of specific expenses, such as certain travel expenses and fees and subscriptions paid to bodies approved by HMRC.

As long as this test is met, the exemption applies regardless of whether the employer meets the cost at the outset or the employee pays initially and is reimbursed by the employer. For example, if an employee is required to attend a meeting at a client’s office, the employee would be able to deduct the associated travelling costs if they met them themselves. As this test is met, if the employer pays the cost, for example by purchasing a train ticket for the employee, or reimburses the employee’s travel costs, the exemption would apply and there would be no tax consequences in either case.

However, if the test is not met, and the employer paid or reimbursed the employee’s expenses, the amount paid or reimbursed would be taxable. An example of this would be where an employer reimbursed the cost of the employee’s home to work travel (which is not tax deductible).

Forthcoming changes

There are some anomalies in the tax legislation that mean no tax charge arises where the employer provides an employee with a benefit, but a tax charge will arise if the employee provides the same thing and is reimbursed by their employer. For example, an employer can provide an employee with an eye test and corrective appliances without triggering a tax charge, but if an employee books and pays for an eye test and is reimbursed by their employer, the amount reimbursed is taxable as the employee is not entitled to a deduction for the cost of an eye test.

To counter this, new exemptions are to be introduced which will level the playing field in respect of certain benefits, meaning that the tax outcome is the same regardless of whether the employer provides the benefit or reimburses the employee for the costs.

From 6 April 2026 exemptions will be introduced to ensure that where an employer pays for or reimburses an employee for the cost of eye tests, flu vaccines or homeworking equipment no tax charge will arise. This will align the tax position with that where these benefits are provided directly by the employer.

It is reasonable to assume that if a person pays too much tax, HMRC will automatically send the overpayment back to them. Unfortunately, this is not the case, and where a taxpayer is due a tax refund, they may need to claim it.

Why an overpayment may arise

There are various reasons why a person may pay more tax than they need to. For example, where a taxpayer is in Self-Assessment and makes payments on account, if their circumstances change and their income falls, they may have paid more than they need to. An employee may pay too much tax if they have been given the wrong tax code, or if they have only worked for part of the tax year and not had the benefit of their full personal allowance.

Determining if you have overpaid tax

There are various routes by which a tax overpayment can come to light. For example, taxpayers who do not complete a Self-Assessment tax return and have paid too much tax will receive either a P800 calculation or a Simple Assessment letter. These are normally sent out between June and March following the end of the tax year. The letter will tell them that they have paid too much tax and how to claim a refund. If the taxpayer is within Self-Assessment, they will not receive a letter. However, they may find out that they have overpaid tax when they complete their Self-Assessment tax return. However, if HMRC’s return software is used to complete the return, remember the tax calculation does not take into account any payments that have already been made, and when these are deducted from the amount that the taxpayer owes, it may become clear that the taxpayer has paid too much.

A taxpayer can also check whether they have paid too much by looking at their personal tax account online or via the HMRC app.

Claiming the refund

Where a taxpayer needs to claim a tax refund, there are various ways in which this can be done. A claim can be made online using the tool on the Gov.uk website at www.gov.uk/claim-tax-refund. A tax refund can also be claimed through the taxpayer’s personal tax account or via the HMRC app. The refund will normally be made within five days of making the claim online.

If the tax calculation letter tells the taxpayer that they will receive a cheque, they do not need to claim a refund. The cheque will normally be sent within 14 days of the date on the letter.

Where the taxpayer is within Self-Assessment, HMRC may not issue a tax refund if a tax payment, for example, a payment on account, is due within 45 days. Instead, they will set the refund against the next tax bill.

Interest is paid on overpaid tax at a rate of 1% below the Bank of England base rate, subject to a minimum level of 0.5%.

The 2025/26 tax year comes to an end on 5 April 2026. If you are thinking of selling assets that may realise a gain and have yet to use your 2025/26 capital gains tax annual exempt amount, it may be worth making the disposal before the end of the current tax year.

All individuals have an annual exempt amount for capital gains tax purposes. Net gains for the year (after the deduction of allowable losses for the tax year) are free of capital gains tax where they are sheltered by the annual exempt amount. For 2025/26, it is set at £3,000 and is worth £540 to a basic rate taxpayer and £720 to a higher rate taxpayer.

If the annual exempt amount is not used in the tax year, it is lost.

Example

Ben is thinking of selling two lots of shares, one that will realise an expected gain of £4,000 and one that will realise an expected gain of £5,000. He is having a new kitchen in June 2026 and needs to sell the shares to finance the project.

Ben is a higher rate taxpayer. He has not used his annual exempt amount for 2025/26.

If Ben waits until May to sell the shares, he will realise a gain of £9,000 in the 2026/27 tax year. Setting his 2026/27 annual exempt amount of £3,000 against the gain reduces the chargeable gain to £6,000 on which he will pay capital gains tax at 24%, giving rise to a tax bill of £1,440.

However, if Ben sells one lot of shares before 6 April 2026 realising a gain of £4,000 against which he can set his annual exempt amount for 2025/26 of £3,000, this will reduce the chargeable gain to £1,000 on which he will pay capital gains tax of £240.

If he sells the remaining shares after 5 April 2026, he will be able to set his 2026/27 annual exempt amount of £3,000 against the gain of £5,000, reducing his chargeable gain to £2,000 on which he pays tax of £480.

By selling some of the shares in 2025/26 rather than in 2026/27 and using his annual exempt amount for 2025/26 which would otherwise have been wasted, Ben is able to reduce the capital gains tax payable on the disposal of his shares by £720 from £1,440 to £720.

Spouses and civil partners

Spouses and civil partners can take advantage of the special rules that allow them to transfer assets or a share in an asset between them at a value that gives rise to neither a gain nor a loss. This can prevent wasting one spouse or civil partner’s annual exempt amount.

Example

Julie is planning on selling some shares in March 2026 which would give rise to a gain of £7,000. She has not used her annual exempt amount for 2025/26, nor has her wife Jane. Jane is not planning on making any disposals in 2025/26.

If Julie simply sells her shares, she will realise a gain of £7,000, of which £3,000 will be sheltered by her annual exempt amount. If Julie is a basic rate taxpayer, she will pay tax of £720 on the chargeable gain of £4,000 (£4,000 @ 18%).

However, if she transfers 3/7^th of her shares to Jane which Jane then sells in March 2026 the resulting gain of £3,000 will be covered by her annual exempt amount and no capital gains tax will be payable. Following the transfer, Julie will realise a gain of £4,000 of which £3,000 is covered by her annual exempt amount, reducing her chargeable gain to £180. By making use of Jane’s annual exempt amount, the couple save tax of £540.

All things being equal, receiving a pay rise which takes your income over £100,000 would be seen as a cause for celebration. However, all things are not equal, and as press reports attest, some people would rather turn down a promotion or cut their hours than take their earnings over £100,000.

We explain why this is.

Reason 1 – loss of the personal allowance

Individuals have a personal allowance of £12,570, allowing them to earn £12,570 before they pay tax. However, once their income exceeds the personal allowance income limit, their personal allowance starts to reduce. The personal allowance income limit is £100,000, unchanged since its introduction.

Where adjusted net income exceeds £100,000, the personal allowance is reduced by £1 for every £2 by which adjusted net income exceeds £100,000. A person with adjusted net income of £110,000 will only receive a personal allowance of £7,570 (£12,570 – ((£110,000 – £100,000)/2)).

Once a person’s adjusted net income reaches £125,140, their personal allowance is lost entirely so that they pay tax from the first pound that they earn.

The combined effect of the loss of the personal allowance and paying tax at the higher rate of 40% means that the marginal rate of tax between £100,000 and £125,140 is 60%. Add to that National Insurance of 2% and possibly student loan deductions of 9% or 15% and maybe pension contributions, the taxpayer does not actually keep much of the money that they earn between £100,000 and £125,140. Easy to see why some may deem the extra hours or workload as not being worthwhile.

Once income reaches £125,140, the marginal tax rate drops to 45% (the additional rate).

Reason 2 – loss of free childcare and tax-free top-up

Working parents may be able to receive free childcare for children from the age of nine months to four years for 30 hours a week for 38 weeks of the year. This is valuable. However, it is only available as long as neither partner has adjusted net income of more than t£100,000. Thus, once income reaches £100,000, free childcare is lost.

Working parents may also be able to benefit from the Government’s tax-free childcare scheme which provides up to £2,000 a year towards childcare costs (and up to £4,000 a year if the child is disabled). Under the scheme, the Government provides a £2 tax-free top-up for every £8 that the parents deposit in a dedicated account, up to the £2,000/£4,000 maximum top-up. However, as with free childcare, tax-free childcare is not available where either partner earns £100,000 or more.

For parents with young children, earning £100,000 or more will significantly increase their childcare costs.

Beating the system

There is a way to have the benefit of earning more than £100,000 a year and keeping your personal allowance, free childcare and the tax-free top-up. This is by making personal pension contributions to reduce your adjusted net income to below £100,000. You will still get the benefit of the money eventually, while retaining the personal allowance and childcare benefits.

The more altruistic can make charitable donations to reduce adjusted net income to below £100,000, which works in the same way.

As far as benefits in kind are concerned, there were both winners and losers in the Budget.

Winner – easement for plug-in hybrid electric vehicles

Under the company car tax rules, the taxable amount depends predominantly on the list price of a car and its CO2 emissions.

From 1 January 2025, new European Union and United Nations emissions standards were introduced which found the CO2 emissions for plug-in hybrid electric vehicles (PHEVs) to be higher than previously thought. Normally, an increase in the CO2 emissions figure would mean an increase in the taxable amount.

However, an easement will mean that, for a limited period, the amount charged to tax under the benefit in kind rules will be determined by reference to a nominal CO2 emission figure of 1g/km. Where a car’s CO2 emissions are between 1 and 50g/km, the appropriate percentage depends on the car’s electric range.

To be eligible for the easement the following conditions must be met:

• the vehicle was first registered on or after 1 January 2025;
• its CO2 emissions figure is 51g/km or above;
• it was registered under an emissions standard other than Euro 6d-ISC-FCM or Euro 6e; and
• the car’s electric range is at least one mile.

The easement will apply retrospectively from 1 January 2025.

Anyone accessing an eligible PHEV company car before 6 April 2028 will be able to benefit from the easement until the arrangements are varied or renewed or, if earlier, 5 April 2031.

Winner 2 – expansion of workplace benefits relief

Currently, reimbursed expenses are only tax-free if the employee would be entitled to a tax deduction had they met the cost themselves.

However, from 6 April 2026, employers who reimburse the costs of eye tests, flu vaccines and home working equipment will be able to do so tax-free.

Winner 3 – delayed start to ECOS changes

Legislation to bring certain cars made available to employees under an employee car ownership scheme (ECOS) within the tax charge for company cars had been due to come into effect on 6 April 2026. The changes will not be introduced until 6 April 2030.

Losers – removal of relief for homeworking expenses

An administrative easement that allowed employees to claim a flat rate deduction of £6 per week for the additional costs of working from home is being removed from 6 April 2026. This is worth £124.80 to a higher rate taxpayer and £62.40 to a basic rate taxpayer.

Employers will still be able to make a tax-free payment of £6 per week for additional homeworking costs, and employees will still be able to claim a deduction for the actual extra cost (although this will involve more work).

During the Chancellor’s Budget speech, savers received the unwelcome news that the rate of tax on savings income is to increase and the cash ISA limit to fall. Both changes will take effect from 6 April 2027.

Taxation of savings income

The taxation of savings income is quite complex as a number of factors come into play.

The first complication is the personal savings allowance, which is available to some taxpayers but not all. Basic rate taxpayers have a personal savings allowance of £1,000, whereas for higher rate taxpayers, the allowance is only £500. Additional rate taxpayers do not receive a personal savings allowance. Where available, the personal savings allowance is in addition to the personal allowance.

The second complication is the savings starting rate band. The savings starting rate of tax of 0% applies to savings income within the savings starting rate band. This is set at £5,000. However, if the taxpayer has non-savings income in excess of their personal allowance, the savings starting rate band is reduced pound for pound. Individuals with taxable non-savings income of £5,000 and above do not benefit from the savings starting rate band.

Where an individual has savings income that is not sheltered by the personal allowance or the personal savings allowance and which does not benefit from the savings starting rate, it is currently taxed at the normal income tax rates, i.e. 20% where it falls in the basic rate band, 40% where it falls within the higher rate band and at 45% where it falls in the additional rate band.

However, this is to change. From 6 April 2027, savings income will be taxed at the relevant savings tax rate. The rates will be two percentage points higher than the standard income tax rates. Consequently, for 2027/28, savings income will be taxed at 22% where it falls in the basic rate band, at 42% where it falls in the higher rate band and at 47% where it falls in the additional rate band.

In a further twist, the income tax ordering rules are also changed from 6 April 2027, moving away from the principle that reliefs and allowances are allocated so as to give the lowest tax bill. From that date, the personal allowance will be allocated first against employment income, trading and pension income, rather than against savings and property income which are taxable at a higher rate.

Cash ISAs

Savers are advised to make use of their cash ISA allowance to keep interest on savings tax-free. With the rise in the savings tax rates from 6 April 2027, using the cash ISA allowance will generate greater tax savings.

However, for those who prefer to keep their savings in cash rather than investing in stocks and shares, there is more bad news. From 6 April 2027, savers under 65 will only be able to invest £12,000 a year in a cash ISA; the ISA limit is to remain at £20,000, but for under 65s using their full allowance, at least £8,000 of that must be invested in a stocks and shares ISA. However, savers aged 65 and over can invest the full £20,000 in a cash ISA.

Existing ISAs are unaffected by the change.

In her tax-raising Budget on 26 November 2025, the Chancellor announced that the dividend ordinary rate and the dividend upper rate are to rise by two percentage points from 6 April 2026. This will affect director/shareholders in personal and family companies who extract profits in the form of dividends.

How dividends are taxed

Dividends have their own tax rates, which are lower than the standard income tax rates. Dividend income which is not sheltered by the personal allowance or the dividend allowance is treated as the top slice of income. It is taxed at the dividend ordinary rate where it falls in the basic rate band, at the dividend upper rate where it falls in the higher rate band and at the dividend additional rate where it falls in the additional rate band.

For 2025/26, the dividend ordinary rate is 8.75%, the dividend upper rate is 33.75% and the dividend additional rate is 39.35%.

From 6 April 2026, the dividend ordinary rate rises to 10.75% and the dividend upper rate rises to 35.75%. There is no change in the dividend additional rate which remains at 39.35%.

All individuals are entitled to a dividend allowance, which is £500 for 2025/26 and remains at this level for 2026/27. The dividend allowance acts as a nil rate band; dividends sheltered by the allowance are tax-free. However, it uses up part of the band in which it falls.

Impact of the rise

Where profits are extracted as dividends and the shareholder is a basic or higher rate taxpayer, they will pay an additional £20 in tax on every £1,000 of dividends paid in 2026/27 as compared to 2025/26. A shareholder taking £50,000 of dividends a year will pay an additional £1,000 in tax.

Additional rate taxpayers are unaffected by the change.

Beating the rise

Where a personal or family company has retained profits, consideration should be given to paying dividends before 6 April 2026 if the tax hit will be lower than if the dividend is paid on or after that date. However, if dividends have already been paid to use up the basic rate band, there is no point paying a dividend if it would be taxed at the dividend upper rate if paid before 6 April 2026 and at the dividend ordinary rate if paid on or after that date; 10.75% is lower than 33.75%.

In a family company scenario with an alphabet share structure, to minimise the total tax paid on profits extracted as dividends, make sure shareholders’ dividend allowances and basic rate bands are used up before paying dividends taxable at the higher rates.

Consideration could also be given to extracting profits in other ways, such as employer pension contributions or tax-free benefits in kind.

A director’s loan account is simply a means of keeping track of transactions between the director and the company of which they are a director. Where the company is a personal or family company, the director may borrow from the company or lend money to the company. Similarly, the director may meet expenses of the company, or the company may pay the director’s personal bills. These transactions are recorded in the director’s loan account. Dividend or salary payments may also be credited to the account.

If the director’s account is overdrawn at the end of the company’s accounting period or at any point during the tax year, there may be tax implications to address.

Close companies

If the company is close, as personal companies and most family companies are, there will be tax consequences for the company if the director’s account is overdrawn at the company’s year end. Broadly, a close company is one that is under the control of five or fewer participators or any number of participators if those participators are directors. A participator is someone who has an interest in the capital or income of the company.

The action that the company needs to take in respect of an overdrawn director’s loan account depends on whether the account is still overdrawn at the corporation tax due date, which is nine months and one day after the end of the accounting period.

If the loan has been repaid within this time frame, the company must disclose the loan on form CT600A when they prepare their corporation tax return, notifying HMRC of the amount that was outstanding at the end of the accounting period and the date(s) on which the repayments were made.

If the account remains overdrawn at the corporation tax due date, the company must pay section 455 tax on the outstanding loan balance along with their corporation tax. Anti-avoidance provisions exist to prevent the loan being repaid and then reborrowed in a bid to avoid the section 455 charge.

Section 455 tax

The company must pay section 455 tax on the amount by which the director’s account remains overdrawn nine months and one day after the company year end. The rate of section 455 tax is aligned with the upper dividend rate (currently 33.75%). The tax is paid with the corporation tax but crucially is not corporation tax.

Section 455 tax is a temporary tax in that it is repayable nine months and one day after the end of the accounting period in which the loan is repaid.

Clearing the loan, whether by an injection of cash, declaring a dividend or by paying a bonus, will prevent a section 455 liability from arising. However, this will not always be the best option. If the loan is cleared by a dividend or a bonus, this will trigger tax and (in the case of a bonus) National Insurance liabilities which may be greater than the section 455 tax. It may be cheaper to pay the section 455 tax and to clear the loan at a later date when it can be done more tax efficiently.

Benefit in kind charge If the loan balance exceeds £10,000 at any time in the tax year, a tax charge will arise under the benefit in kind provisions by reference to the difference between interest on the loan at the official rate and that paid by the director (if any). The employer will also pay Class 1A National Insurance on the taxable amount.