Individual Savings Accounts (ISAs) are tax-free savings accounts.

There are four different types of ISAs:

• cash ISAs;
• stocks and shares ISAs;
• innovative finance ISAs; and
• lifetime ISAs.

Individuals must be at least 18 to invest in an ISA.

Cash ISAs may be with a bank or building society or with National Savings and Investments. Stocks and shares ISAs can include shares in companies, unit trusts and investment funds, corporate bonds, government bonds and long-term asset funds.

Lifetime ISAs can include cash and stocks and shares. They can only be used to save for a deposit for a first home or for retirement.

Innovative finance ISAs can hold peer-to-peer loans, crowdfunding debentures, funds where the notice or redemption period means that they cannot be held in a stocks and shares ISA or crypto-asset exchange traded notes.

A separate ISA, the junior ISA, allows a parent or a guardian with parental responsibility to save for a child who is under the age of 18 and living in the UK.

There is no tax to pay on interest on a cash ISA or on income and capital gains from investments in a stocks and shares ISA.

ISA allowance

For adults, the ISA allowance is £20,000 for 2026/27. This is the total amount that can be invested in ISAs of any type. However, the maximum that can be deposited in a lifetime ISA is capped at £4,000 a year and an individual can only have one lifetime ISA.

Example

John wishes to invest £20,000 in ISAs in 2026/27. He is using a lifetime ISA to save for retirement and can invest £4,000 of his allowance in his lifetime ISA. He also invests £10,000 in a cash ISA and £6,000 in a stocks and shares ISA.

The savings limit for Junior ISAs is set at £9,000 for 2026/27.

Changes ahead

Although the ISA limit will remain at £20,000 for 2027/28, individuals under the age of 65 will only be able to invest a maximum of £12,000 in a cash ISA. To use their full allowance, individuals under 65 will need to make non-cash investments of at least £8,000 in other types of ISA (stocks and shares, lifetime or innovative finance). The £12,000 cap will not apply to individuals aged 65 and over who will continue to be able to invest their full allowance in a cash ISA if they so wish.

Individuals under the age of 65 who wish to make the most of the opportunity to invest in cash ISAs may wish to consider investing the full £20,000 limit in a cash ISA in 2026/27 while they still can.

The Employment Allowance is a very valuable allowance which allows eligible employers to reduce their secondary Class 1 National Insurance bill by up to £10,500 in 2026/27. The allowance is not given automatically and must be claimed.

Who can claim

Employers can claim the allowance if they are a business or a public body and they do less than half their work in the public sector. However, the allowance is not available to companies which only have one employee liable for secondary contributions who is also a director. This means that most personal companies where the same person is the director and the only employee do not benefit.

The Employment Allowance can also be claimed by charities and those who employ a care or support worker.

The Employment Allowance is no longer restricted to employers whose Class 1 National Insurance liability in the previous year was £100,000 or less.

How it works

The allowance is set against the employer’s secondary Class 1 National Insurance liability each month until it is used up. If the employer’s secondary Class 1 National Insurance liability is less than £10,500 in 2026/27, their allowance is capped at their secondary Class 1 National Insurance liability for the year.

Example

A Ltd is a family company. Its secondary Class 1 National Insurance liability is £3,000 a month. It claims the Employment Allowance for 2026/27.

The allowance shelters their secondary Class 1 liability in months one, two and three, leaving £1,500 available to set against their secondary Class 1 liability for month four, reducing it to £1,500. As the allowance has now been used up, the company must pay their secondary Class 1 liability in full for months five to 12.

Claiming the allowance

A claim can be made at any time in the tax year. However, the earlier the claim is made, the sooner the employer can start to benefit from it.

The claim is made through the employer’s payroll software (or by using HMRC’s Basic PAYE Tools package if the software does not facilitate a claim) by clicking ‘yes’ in the Employment Allowance indicator box in the Employer Payment Summary (EPS).

A claim can also be made for any of the previous four tax years in which the employer was eligible but did not claim.

Where an employer has more than one PAYE scheme, they are only entitled to one Employment Allowance rather than one per PAYE scheme.

If a claim is made late and the Employment Allowance is not used against the employer’s secondary Class 1 National Insurance liability for the year, the employer can ask HMRC to set any unclaimed allowance against any tax or National Insurance that they owe, including VAT and corporation tax. If they do not owe anything, they can ask HMRC for a refund.

Where an employee is provided with a company van that is available for private use, a tax charge may arise under the benefit in kind legislation. However, this will not always be the case. Unlike company cars, where a van benefit charge does arise, it does not depend on CO2 emissions. Instead, it is a set amount.

If fuel is provided for private use in the van, a fuel benefit charge may also arise.

Electric vans

The van benefit for a zero-emission van is nil, regardless of the level of private use. Consequently, allowing an employee to use an electric van for private use is a valuable tax-free benefit.

Restricted private use

Where an employee is provided with a van other than one with zero emissions, it is still possible to avoid a benefit in kind charge if private use is restricted. The restricted private use condition comprises two tests, both of which must be met:

• the commuter use requirement; and
• the business travel requirement.

Both must be satisfied throughout the tax year (or part of the tax year for which the van is provided).

The commuter use requirement is met if:

• the terms on which the van is made available to the employee prohibit private use other than for the purposes of home to work travel (known as ‘ordinary commuting’) or travel between two places which for practical purposes is substantially home to work travel; and
• neither the employee nor a member of their family or household makes private use of the van other than for these purposes.

However, as long as any other private use is insignificant, the commuter use requirement is treated as met. HMRC cite the following as examples of insignificant private use:

• taking an old mattress or other rubbish to the tip once or twice a year;
• making a slight detour on the way to work to drop a child at school or to stop at a newsagent; or
• calling at the dentist on the way home from work.

By contrast, the use of the van to do a weekly supermarket shop, on a holiday or outside work for social activities is not regarded as insignificant and if the van is used in this way, the restricted private use exemption will not apply.

The second limb of the restricted private use condition is the business travel requirement, which is that the main reason that the van is made available to the employee is because they need to undertake business travel in the van as part of their job.

Where the restricted private use condition is met, the benefit in kind charge is nil.

Unrestricted private use

If the employee is able to use the van other than for ordinary commuting and the van is not an electric van, a tax charge arises under the benefit in kind legislation. For 2026/27, the taxable amount is £4,170 (up from £4,020 for 2025/26). Unrestricted private use of a company van (other than an electric van) will cost a basic rate taxpayer £834 in tax and a higher rate taxpayer £1,668 in tax in 2026/27.

Pooled vans

No tax charge arises on a pooled van. This is a van that is available and actually used by more than one employee, no one employee uses the van to the exclusion of the others and any private use of the van is merely incidental. In addition, the van must not normally be kept overnight at or near an employee’s home.

Additional fuel charge

Where fuel is provided for unrestricted private travel in a van which is not an electric van, a separate fuel benefit charge arises. This is set at £798 for 2026/27 (up from £769 in 2025/26). A basic rate taxpayer will pay £159.60 in tax in 2026/27, and a higher rate taxpayer will pay £319.20 – this is likely to be less than cost of the fuel used for private use and can be a worthwhile benefit.

The tax code is fundamental to the operation of PAYE. It is made up of letters and numbers which take account of the allowances that you receive and also any deductions from those allowances, for example, to collect underpaid tax. If you have received a tax code for the 2026/27 tax year, it is important that you understand what it means and check that it is correct.

The number in the tax code tells the employer or pension provider how much tax-free pay you are entitled to for the tax year. The number is found by taking the personal allowances that the individual is entitled to for the tax year (if any). Deductions are made to collect unpaid tax, tax on untaxed income, such as interest received gross, tax on company benefits which have not been payrolled and the High Income Child Benefit Charge.

The final digit is removed to arrive at the number in the tax code. Where the code is a suffix code, a letter is added at the end. This may be L, M, T, M1, W1 or X.

L indicates that the person is in receipt of the standard personal allowance. For 2026/27, where a person is entitled to the standard personal allowance of £12,570 and has no deductions in their code, their tax code will be 1257L.

Code M indicates that a person has received the marriage allowance from their spouse or civil partner, while code N indicates that a person has transferred 10% of their personal allowance to their spouse or civil partner.

A T in the tax code indicates that the tax code includes other calculations to work out the personal allowances, for example, where adjusted net income exceeds £100,000 and the personal allowance is abated.

Codes that contain M1 and W1 indicate that the individual is on an emergency code operated on a non-cumulative basis. X also indicates an emergency code. NONCUM also indicates that tax is be calculated on a non-cumulative basis.

Where deductions exceed allowances, the number is preceded by a K (a K code).

There are also a number of special codes:

• 0T – the personal allowance has been used up elsewhere or a person has started a new job, and the employer does not have the details needed to give the employee a correct tax code;
• BR – all income from the job is to be taxed at the basic rate;
• D0 – all income from the job is to be taxed at the higher rate; and
• D1 – all income from the job is to be taxed at the additional rate.

Where the taxpayer is a Welsh taxpayer, their code is preceded by a C. Scottish taxpayers have an S prefix, so that CD0 would be a Welsh taxpayer where all income from the job is taxed at 0the higher rate. As there are more Scottish rates of tax, there are more codes – SD0), SD1, SD2 and SD3, indicating that all income is taxed, respectively, at the Scottish intermediate rate, the Scottish higher rate, the Scottish advanced rate and the Scottish top rate.

Updating your code

If you think that your tax code is wrong, it may be because HMRC have missing or incorrect information. Taxpayers can update their details using the ‘Check your income tax online’ service on the Gov.uk website. If HMRC need to amend the code, they should do this within 15 days.

Taxpayers can also write to their tax office if they think that their code is wrong.

As announced at the time of the 2025 Autumn Budget, the ordinary and upper dividend tax rates are increased by two percentage points from 6 April 2026. The additional dividend rate remains unchanged. The increase will affect those with investments in shares who receive dividend income and also shareholders in personal and family companies who extract profits by way of dividends.

All taxpayers, regardless of the rate at which they pay tax, receive a dividend allowance. This is set at £500 for 2026/27, unchanged from the previous year. The dividend allowance acts as a nil rate band, and dividends sheltered by the allowance are received free of tax. However, the allowance uses up part of the tax band in which it falls.

Where dividends are not sheltered by the dividend allowance, they are treated as the top slice of income and taxed at the dividend tax rates. The dividend ordinary rate applies to dividends falling within the basic rate band and is set at 10.75% for 2026/27 (up from 8.75% for 2025/26). Dividends falling in the higher rate band are taxed at the dividend upper rate which is set at 35.75% for 2026/27 (up from 33.75% for 2025/26). Where dividends fall in the additional rate band, they are taxed at the dividend additional rate, which remains at 39.35% for 2026/27.

The tax rises mean that taxpayers paying tax on their dividends at the ordinary or upper dividend rates will pay an additional £20 in tax for every £1,000 of dividend income in 2026/27.

Example

John is retired. He receives a pension of £20,000 each year. He has invested in shares over the years and receives dividends of £30,000 a year which boost his retirement income.

For 2026/27, he will pay tax of £3,171.25 on his dividend income. The first £500 of dividends is tax free, being sheltered by the dividend allowance of £500. The remaining £29,500 is taxed at the dividend ordinary rate of 10.75%. After tax, John retains £26,828.75.

In 2025/26, he also received dividend income of £30,000. However, his tax bill for that year was £2,581.25, leaving John with £27,418.75 after tax.

As a result of the rise in the dividend ordinary rate, John is £590 worse off in 2026/27 (£29,500 @ 2%).

Impact on profit extraction

For directors of personal and family companies, a popular profit extraction strategy is to take a salary equal to the personal allowance and to extract further profits as dividends. Where the dividends are taxed at the ordinary or upper dividend rates, the director/shareholder will pay more tax on those dividends than in 2025/26.

Example

Julia runs a personal company. She prepares accounts to 31 March each year. In the year to 31 March 2027, she expects to make a profit of £80,000 after tax, having taken a salary of £12,570 from the company. She extracts the profits as dividends. Apart from the salary from the company, she has no other income.

The first £500 of the dividends are sheltered by her dividend allowance. The dividend allowance uses up £500 of the basic rate band, leaving £37,200 available.

The first £37,200 of the remaining dividend falls in the basic rate band and is taxed at the dividend ordinary rate of 10.75% – a tax hit of £3,999.

The remaining £42,300 of the dividend falls in the higher rate band and is taxed at the dividend upper rate of 35.75% – a tax hit of £15,122.25.

Consequently, Julia pays tax of £19,121.25 on her dividend of £80,000, leaving her with £60,878.75.

Assuming she also took a dividend of £80,000 in 2025/26, she would have paid tax of £17,531.25, leaving her with £62,468.75. As a result of the increase in the ordinary and upper dividend tax rates, she is £1,590 worse off in 2026/27 (£79,500 @ 2%).

Taxpayers whose dividends are taxed at the dividend additional rate are unaffected by these changes.

When an employee works from home, they may incur additional costs as a result, such as higher gas and electricity bills. The tax system offers some help where the employer meets some or all of these additional costs. However, the relief that was previously available where employees met these costs themselves is withdrawn from 6 April 2026.

Expenses reimbursed by the employer

No tax liability arises where an employer makes a payment to an employee in respect of reasonable household expenses which the employee incurs while carrying out the duties of the employment at home under homeworking arrangements. These are arrangements between the employer and the employee under which the employee regularly performs some or all of the duties of the employment from home. For these purposes, household expenses are defined as expenses connected with the day-to-day running of the employee’s home. This includes the cost of heating and lighting the work area and the metered cost of extra water, additional insurance costs and the cost of business telephone calls. However, costs that are the same regardless of whether the employee works at home or not, such as rent, mortgage costs and council tax, do not count.

Although homeworking arrangements must be in place for the exemption to apply, there is no requirement for them to be in writing. Under those arrangements, the employee must work at home rather than at the employer’s premises. The exemption will also apply to hybrid arrangements where the employee works at home on certain days and at the employer’s premises on the remaining days.

However, the exemption does not apply where the employee works at home informally, for example, to accept a delivery, or where the employee takes work home in an evening or on a weekend.

To remove the administrative burden of working out the actual extra costs, employers can instead pay employees £6 per week tax free to cover their additional household expenses. The amount is the same regardless of whether an employee works at home one day a week or five days a week.

Employers can reimburse the actual additional household costs instead where these are higher as long as evidence can be provided to justify the amount paid.

Employee meets cost

Prior to 6 April 2026, where employees incurred additional household costs as a result of working from home and these were not reimbursed by the employer, they could claim tax relief for these additional costs. An administrative easement allowed them to claim a fixed deduction of £6 per week (an annual deduction of £312). Where the easement was used, it was not necessary to provide evidence in support of the deduction.

However, as announced at the time of the 2025 Autumn Budget, this relief is withdrawn from 6 April 2026. New legislation will prevent a deduction for work expenses where those expenses relate to the additional household costs incurred as a result of working from home.

The removal of the relief will increase the tax paid by affected employees by £62.40 for basic rate taxpayers, by £124.80 for higher rate taxpayers and by £140.40 for additional rate taxpayers.

Employees who are eligible for relief for 2025/26 can make a claim online or, where they complete a Self-Assessment tax return, in their return.

In personal and family companies, director shareholders often borrow money from the company. Where a company is close, as most personal and family companies are, if a loan to a director or other participator remains outstanding on the corporation tax due date for the period in which the loan was taken out, the company must pay tax on the outstanding amount of the loan. Corporation tax is due nine months and one day from the end of the accounting period.

The tax that is due on the outstanding loan balance is known as section 455 tax. While it is payable with the corporation tax for the period, it is not corporation tax. Unlike most taxes, it is a temporary tax as it is repayable nine months and one day after the end of the period in which the loan is repaid.

The rate of section 455 tax is linked to the dividend upper rate. This is set at 33.75% for 2025/26 and will rise to 35.75% for 2026/27.

Where a director is thinking of taking a loan from a company and is unlikely to repay it within nine months of the company year end, taking the loan in 2025/26 rather than in 2026/27 will reduce the section 455 tax paid by the company on the outstanding loan by 2%.

As the rate of section 455 tax paid on a loan depends on the dividend upper rate at the time the loan is made, when clearing loans, it makes sense to clear those that will generate the highest repayment first (i.e. those on which the rate of section 455 tax is the highest).

Example

A Ltd is Andrew’s personal company. The company prepares accounts to 30 June each year.

Andrew, the sole director shareholder is planning on taking a £30,000 loan from the company in April 2026. He is planning on repaying it in 2028 when a savings policy matures. The loan will remain outstanding on 1 April 2027 when the corporation tax for the period is due.

If Andrew takes the loan on 30 April 2026 as planned, the company will need to pay section 455 tax of £10,725 (£30,000 @ 35.75%) on 1 April 2027. However, if instead Andrew takes the loan a month earlier on 31 March 2026, the company’s section 455 tax bill will be £10,125 (£30,000 @ 33.75%). Taking the loan before 6 April 2026 saves the company £600. in tax.

As the tax year draws to a close, directors of personal and family companies should consider whether it is worthwhile paying a dividend before 6 April 2026. However, it is only possible to pay a dividend where the company has sufficient retained profits from which to pay it. Also, where a class of share has more than one shareholder, dividends must be paid in proportion to shareholdings.

Unused allowances

Where a shareholder has not used their dividend allowance (set at £500 for 2025/26) or their personal allowance in full, consideration should be given to paying a dividend before the end of the tax year to mop up unused dividend and personal allowances. This allows profits to be extracted from the company without an additional tax liability. Where the company has an alphabet share structure, dividends can be tailored to the shareholder’s circumstances.

Beat the dividend tax rise

Once the dividend and personal allowances have been used up, dividends are currently taxed at 8.75% where they fall in the basic rate band, at 33.75% where they fall in the higher rate band and at 39.35% where they fall in the additional rate band. From 6 April 2026, the dividend ordinary rate is increased from 8.75% to 10.75% and the dividend upper rate is increased from 33.75% to 35.75%. There is no change in the dividend additional rate which remains at 39.35%.

Where dividends fall in the basic or higher rate band, an additional 2% will be payable in tax if the dividend is paid on or after 6 April 2026 compared to a dividend paid before that date. Where retained profits allow, consideration could be given to accelerating a dividend payment so that it is made before 6 April 2026 rather than on or after that date. This will save £20 in tax for every £1,000 paid as a dividend. However, if a dividend will be taxed at the ordinary dividend rate if paid in 2026/27 and at the upper dividend rate if paid in 2025/26, there is no point accelerating the dividend – 10.75% is a lot less than 33.75%.

State pension entitlement depends on a person having sufficient qualifying years, which in turn depends on them having paid or been treated as having paid sufficient National Insurance contributions. A person will receive the full single tier state pension (also known as the new state pension) if they have at least 35 qualifying years. Where a person has less than 35 qualifying years but at least ten, they will receive a reduced state pension. A person with less than ten qualifying years does not receive a state pension. Only the individual’s own qualifying years count – a person cannot qualify for the new state pension by virtue of contributions paid by their spouse or civil partner.

Employed earners

It is the payment of primary Class 1 National Insurance contributions which provides a qualifying year for employees. An employee will secure a qualifying year for state pension purposes if their earnings for that year are at least equal to the lower earnings limit for Class 1 National Insurance purposes. For 2025/26, this is £6,500. For 2026/27, it will rise to £6,708.

However, a person’s liability to pay Class 1 National Insurance only starts once their earnings exceed the primary threshold, which for 2025/26 and 2026/27 is £242 per week (£1,048 per month; £12,570 per year). Where an employee’s earnings are between the lower earnings limit and the primary threshold, they do not actually pay Class 1 contributions but are treated as if they have paid notional primary Class 1 contributions at a zero rate. This provides them with a qualifying year for zero contribution cost.

Self-employed earners

For 2024/25 and later tax years, self-employed earners secure a qualifying year through the payment of Class 4 National Insurance contributions. A self-employed earner is liable to pay Class 4 contributions for a year in which their profits exceed the lower profits limit, which for both 2025/26 and 2026/27 is set at £12,570. However, where a self-employed earner’s profits are between the small profits threshold (set at £6,845 for 2025/26 and £7,105 for 2026/27) and the lower profits limit, the self-employed earner receives a National Insurance credit which provides them with a qualifying year. Self-employed earners whose profits are below the small profits threshold can opt to pay voluntary Class 2 contributions, at a rate of £3.50 per week for 2025/26 and £3.65 per week for 2026/27.

For 2023/24 and earlier tax years, it was the payment of Class 2 National Insurance contributions which provided the self-employed earner with a qualifying year. Class 4 National Insurance had no associated benefit entitlement prior to 6 April 2024. A self-employed earner needed to pay 52 weeks of Class 2 contributions to earn a qualifying year. For 2022/23 and 2023/24, the liability arose where profits exceeded the lower profits threshold. However, where profits were between the small profits threshold and the lower profits threshold, the self-employed earner received a credit, providing them with a qualifying year. For 2021/22 and earlier years, self-employed earners whose profits exceeded the small profits threshold were liable for Class 2 contributions. Self-employed earners with profits below the small profits threshold could pay Class 2 contributions voluntarily to secure a qualifying year.

National Insurance credits

There are a number of circumstances in which an individual may receive a National Insurance credit which will provide them with a qualifying year. This is the case where a person receives or is entitled to receive child benefit or is in receipt of certain state benefits.

Voluntary contributions

A person can pay voluntary Class 3 or, if eligible, voluntary Class 2 National Insurance contributions to plug gaps in their contribution record. Where a person is eligible to pay voluntary Class 2 contributions, this is a much cheaper option.

Check your state pension forecast

A person should check their state pension forecast online to see how many qualifying years they have and whether they will have 35 qualifying years by the time they reach state pension age. Where a person will not qualify for a state pension, they can consider paying voluntary contributions to make up a shortfall. This will only be worthwhile if, after making the contributions, the individual will have at least ten qualifying years when they reach state pension age.

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.