In a personal or family company, there are often transactions between the company and the director(s). For example, the company may meet personal expenses on the director’s behalf, or the director may loan money to the company to help cash flow.

It is important to keep track of transactions between the director and the company. This is done by means of a director’s loan account.  Where the director’s loan account is overdrawn there may be tax consequences for the director and the company.

If the outstanding loan balance exceeds £10,000 at any point in the tax year, the director may face a tax charge under the benefit in kind provisions. The company must also pay Class 1A National Insurance contributions at 15% on the taxable amount.

If the account is overdrawn at the year end and remains so at the corporation tax due date nine months and one day after the year end, the company must pay section 455 tax on the outstanding loan balance. The rate of section 455 tax is aligned with the dividend upper rate – 35.75% for 2026/27.

Writing off the loan

At first sight, writing off the loan may seem a simple solution to avoiding the section 455 tax. However, this too has tax consequences.

Where a director’s loan is waived, released or written off, the director is treated as if they have received a distribution equal to the amount written off. The director is taxed at the dividend tax rates. Where the write-off takes place on or after 6 April 2026, the deemed distribution will be taxed at 10.75% where it falls within the basic rate band, at 35.75% where it falls within the higher rate band and at 39.35% where it falls in the additional rate band. The director must declare the loan write-off on their Self-Assessment tax return.

Where the director is also an employee, a tax charge could also arise in respect of the written off loan under the employment income rules. However, the distribution rules take precedence, so the director does not suffer a double tax charge.

From the company’s perspective, as the write-off is treated as a distribution, the amount written off is not deductible in computing the company’s profits chargeable to corporation tax. If the loan was one in respect of which the company had previously paid section 455 tax, that tax would become repayable nine months and one day after the end of the tax period in which the loan was written off. The repayment must be claimed.

National Insurance

There is also a National Insurance cost for both the director and the company in writing off a director’s loan. Although for income tax purposes, the loan write-off is treated as a distribution, for National Insurance purposes, it is treated as a payment of earnings on which Class 1 National Insurance contributions are payable by both the director and the company (as the employer).

It may be possible to argue that the write-off is shareholders’ funds rather than earnings and is not related to the director’s work for the company. If HMRC accept this to be the case, there will be no National Insurance to pay.

A better solution

If the director is taxed at the dividend upper or additional rates on the deemed distribution, it may be preferable to leave the loan outstanding and pay the section 455 tax. Unlike a loan write-off, there will be no National Insurance to pay. If the director is able to pay off the loan at a later date, the section 455 tax will be repaid.

HMRC publish mileage rates for petrol, LPG and diesel and electric cars. The rates are known as the advisory fuel rates and are updated quarterly with effect from 1 March, 1 June, 1 September and 1 December. The rates are fuel-only rates, which can be used either to reimburse employees for fuel used for business travel in a company car or where an employee needs to repay the cost of fuel used for private journeys in a company car. For petrol, LPG and diesel cars, the rate depends on the engine size, whereas for electric cars the rate depends on whether the car was charged at a home charger or a public charger.

The rates applying from 1 June 2026 are as follows:

Engine size	Petrol (rate per mile)	LPG (rate per mile)
1,400cc or less	14 pence	11 pence
1,401 cc to 2,000cc	17 pence	13 pence
Over 2,000cc	26 pence	21 pence

Engine size	Diesel (rate per mile)
1,600cc or less	15 pence
1,601cc to 2,000cc	17 pence
Over 2,000cc	23 pence

Charging location	Electric (rate per mile)
Home charger	7 pence
Public charger	15 pence

Reimbursing business travel

The rates can be used to reimburse an employee for business travel in a company car without a tax charge arising on the reimbursement. There will be no Class 1A National Insurance for the employer to pay either.

The employer does not have to use the advisory rates and can set their own rates instead. However, if the amount paid exceeds the advisory rates and the employer cannot show that the actual costs are higher than the advisory rates (and equal to the amount paid), the excess over the amount due at the advisory rates is taxable and must be included in earnings for Class 1 National Insurance purposes.

The rates should not be used to reimburse business travel in an employee’s own car. Instead, Approved Mileage Allowance Payments rates should be used. These are higher as they include an element for the costs of wear and tear, servicing and insurance.

Repaying private travel

If an employee has a company car other than an electric car, a fuel benefit tax charge will arise if the employer meets the cost of private travel. This is an all or nothing charge – the charge will apply if the employer meets the cost of any private mileage in the year. The charge can be significant as the amount charged to tax is found by applying the appropriate percentage used to work out the company car benefit by the multiplier for the year, which for 2026/27 is set at £29,200.

To avoid the charge, the employee must make good the cost of all fuel for private journeys. The amount which the employee will need to reimburse can be calculated using the advisory fuel rates. To eliminate the charge, the cost of private fuel must be repaid no later than 31 May after the end of the tax year if the benefit is payrolled and no later than 6 July after the end of the tax year if it is returned on the P11D.

The advisory rates do not need to be used if it can be shown that the employee has met the full cost of fuel for private travel by reimbursing at a lower rate.

There is no fuel benefit charge if the employer meets the cost of electricity for private journeys in an electric car, so reimbursement is not needed here.

The High Income Child Benefit Charge (HICBC) is a tax which claws back child benefit where the recipient or their partner has adjusted net income of £60,000 or more in the tax year. The charge is equal to 1% of the child benefit for the year for every £200 by which adjusted net income exceeds £60,000. Once adjusted net income reaches £80,000, the charge is equal to the child benefit for the year. Where this is the case, rather than receiving the child benefit only to pay it back later, the recipient may elect to not receive the child benefit. However, it is important to register for child benefit to secure the National Insurance credit it provides, particularly if the individual will not otherwise secure a qualifying year for state pension purposes.

Where both partners have adjusted net income in excess of £60,000, the charge is levied on the one with the highest income. It does not matter who receives the child benefit – a person may be liable for the charge when the benefit is paid to their partner.

For 2026/27, child benefit is set at £27.05 per week for the first child and at £17.90 per week for each additional child.

Example

Jade and Liam have two children. For 2026/27, they receive child benefit of £44.95 per week (£2,337.40 a year). Jade is a stay-at-home parent. Liam has adjusted net income of £70,000 for 2026/27. Jade claims child benefit.

As Liam’s income exceeds the £60,000 threshold, he is liable for the HICBC. His income exceeds the threshold by £10,000. The charge is 50% of the child benefit paid to Jade (1% x (£10,000/£200)), i.e. £1,168.70.

Adjusted net income

The measure of income used to determine whether the HICBC applies is adjusted net income. This is taxable income before personal allowances, less trading losses, pension contributions and Gift Aid donations.

The charge only applies if the recipient or their partner has adjusted net income of £60,000 or more.

Keeping the child benefit

There are various steps that can be taken to eliminate or reduce the charge.

Option 1: equalise income

The charge is triggered by an individual’s income, rather than household income. A household where both parents have adjusted net income of £60,000 – household income of £120,000 – will be able to keep their child benefit in full. By contrast, a household where one parent earns £80,000 and the other does not work will pay back all their child benefit in the form of the HICBC. Consideration could be given to reducing hours or to both parents working part-time in order to prevent the HICBC applying.

Option 2: make pension contributions

Pension contributions are deducted in working out adjusted net income. Therefore, an individual can consider making pension contributions in order to reduce or eliminate the HICBC. The individual will benefit later from the pension contributions.

Example

Lucy and Olly have four children. They receive £4,199 in child benefit in 2026/27. Lucy has adjusted net income of £50,000 and Olly has adjusted net income of £75,000. The HICBC would claw back £3,149.25 of their child benefit. Olly decides to make a pension contribution of £15,000. This reduces his income to £60,000 and removes him from the scope of the HICBC.

Option 3: make Gift Aid contributions

Charitable donations made under Gift Aid are deducted in calculating adjusted net income. Consequently, it is possible to reduce or eliminate the HICBC by making Gift Aid donations to reduce adjusted net income.

Where an employee works at home, they may incur additional household expenses as a result, such as additional heating and lighting costs, the cost of business phone calls on a home phone, additional insurance costs and additional cleaning costs.

Reimbursed by the employer

The tax legislation contains a dedicated exemption which allows the employer to reimburse these costs without the employee being taxed on the amount reimbursed.

For the exemption to apply, the employee must be working at home under homeworking arrangements with the employer, rather than out of choice. Further, the costs must be reasonable and must be incurred in carrying out the duties of the employment; the exemption does not apply if the employer meets costs which would be the same regardless of whether the employee worked at home or not, such as mortgage interest or rent.

To make life easier, rather than reimbursing actual costs, which can be tricky and time-consuming to work out, the employer can make a tax-free payment of £6 per week (£26 per month) to cover the additional costs of working from home. The amount is the same whether the employee works at home one day a week or five days a week.

Costs met by the employee

Prior to 6 April 2026, the employee was able to claim a fixed deduction of £6 per week (£26 per month) to cover the additional costs of working at home under a homeworking arrangement. Employees could also claim a deduction based on the actual additional costs of working from home.

However, from 6 April 2026, this all changed. From that date, a deduction for additional household expenses is expressly prohibited regardless of whether they are wholly, exclusively and necessarily incurred in the performance of the duties.

Where a business is operated through a limited company, profits need to be extracted if they are to be used personally. Where the personal allowance remains available, it is generally beneficial to pay a salary equal to the personal allowance and to extract any further profits needed outside the company in the form of dividends.

In a family company, there may be a number of shareholders.

Paying dividends is not as straightforward as paying a salary or a bonus as there are company law rules which must be adhered to. The first point to note is that dividends are paid from retained profits. These are profits on which corporation tax has already been paid, and which have yet to be distributed. A company can only pay a dividend if it has sufficient retained profits from which to pay it.

The second point to note is that where there is more than one shareholder for a class of share, dividends must be paid in proportion to the shareholdings, which can be very limiting and may not give a tax-efficient result. This is where an alphabet share structure comes in.

Under an alphabet share structure, each shareholder has their own class of share, for example, A ordinary shares, B ordinary shares, etc. This allows different dividends to be paid for each class of share, making it possible to tailor the dividends to the shareholder’s personal circumstances. For example, a company may tailor dividends to mop up any unused dividend allowances and basic rate bands.

Example

Albert and Anna are shareholders in A Ltd. They each own 50% of the ordinary share capital.

The company has profits of £50,000 it wishes to distribute. Neither Anna nor Albert have used their dividend allowance. Albert has no other income in 2026/27, whereas Anna has income of £200,000 from her property portfolio.

As Anna and Albert each own 50% of the shares, each will receive a dividend of £25,000. Albert can set his dividend allowance and personal allowance against his dividend so £13,070 is tax-free. The remaining £11,930 is a taxed at 10.75% – a tax bill of £1,282.47. Anna will also receive a dividend of £25,000, of which £500 is sheltered by her dividend allowance. The remaining £24,500 is taxed at 39.35% – a tax bill of £9,640.75. Their combined tax bill is £10,923.22.

If instead they had adopted an alphabet share structure whereby Albert owned one ordinary A share and Anna owned one ordinary B share, they could have tailored the dividends to their personal circumstances. Instead of each receiving a dividend of £25,000, a dividend of £49,500 could be declared for the A share and a dividend of £500 for the B share. Albert would receive a dividend of £49,500 on which tax of £3,916.25 would be payable, while Anna would receive a dividend of £500 which would be sheltered by her dividend allowance. Their combined tax bill is over £7,000 lower where an alphabet share structure is used.

The 2025/26 Self-Assessment tax return must be filed online by midnight on 31 January 2027. However, you do not have to wait until the deadline is approaching to file your return and there can be advantages in filing early.

Before filing your return, it is important to check that you have all the information you need. If you have employment or pension income to include on your return, you may need to wait until you have your P60. You should have that by 31 May 2026. Likewise, you may also need details of payrolled benefits and those reported on your P11D.

Here are seven reasons why filing your tax return early may be a good idea:

1. You will get it out of the way and avoid the stress of having to file it at the last minute.
2. If you have trading and/or property income, you will know whether you will need to start complying with MTD for ITSA from 6 April 2027 if you are not already in it. This will be the case if your combined trading and property income before deduction of expenses is £30,000 or more in 2025/26 The earlier you know, the longer you have to prepare.
3. You will know what tax you have to pay in advance and can ensure that you have the funds available to meet the tax bills, rather than being caught out at the last minute.
4. If you are owed a tax refund, you can claim the money back sooner.
5. If you make payments on account, once you know your 2025/26 tax liability you can check whether you need to reduce them.
6. If you file your return before 30 December 2026 and owe £3,000 or less, you can opt to have the tax that you owe collected through your 2027/28 tax code. This is equivalent to an interest-free instalment option.
7. If you are looking to get a mortgage and need proof of your income, filing your tax return will provide this.

Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is now a reality for individuals who had combined trading and property income of at least £50,000 in 2024/25. They will now need to keep their records digitally and file their first quarterly return by 7 August 2026.

The quarterly updates are sent to HMRC digitally using software that is compatible with MTD for ITSA. Quarterly updates must be submitted for each source of self-employment income and each source of property income.

The quarterly updates will contain:

• the digital records for self-employment and property income and expenses for the previous three months; and
• the digital records which have already been created since 6 April 2026 and any corrections to those records.

After sending each update, the individual will be able to see an estimate of their tax bill.

Details of the categories under which the information provided in the quarterly update should be recorded can be found online at: www.gov.uk/government/publications/update-notice-for-making-tax-digital-for-income-tax/making-tax-digital-for-income-tax-update-notice.

If the individual has other income, such as income from employment or a pension or investment income, they do not need to report this in the quarterly update. Instead, other income is reported in the final declaration. This is the point at which reliefs are claimed too.

Update periods

Individuals have a choice whether to prepare quarterly updates using the standard periods, which correspond with tax months, or the calendar update periods.

The following table shows the periods and quarterly update deadlines.

Standard update periods		Calendar update periods
Period	Quarterly update deadline	Period	Quarterly update deadline
6 April to 5 July	7 August	1 April to 30 June	7 August
6 Pril to 5 October	7 November	1 April to 30 September	7 November
6 April to 5 January	7 February	1 April to 31 December	7 February
6 April to 5 April	7 May	1 April to 31 March	7 May

Taxpayers can choose to send updates more frequently if they wish, such as monthly.

Missed deadlines

Under the penalty regime that applies under MTD, where a deadline is missed, a penalty point is issued. Once the penalties reach the penalty threshold, which for quarterly return is four points, a £200 penalty is levied.

However, HMRC have stated that for taxpayers who are mandated for MTD for ITSA from 6 April 2026, they will not issue penalty points for late quarterly updates for the first 12 months.

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.