Under Making Tax Digital for Income Tax Self Assessment (MTD for ITSA), sole traders and unincorporated landlords within its scope will be required to keep digital records of their trading and/or property income and provide quarterly updates to HMRC using MTD-compatible software. Its introduction is being phased in.

Phase 1 – April 2026 start date

From 6 April 2026, MTD for ITSA will apply to sole traders and unincorporated landlords whose combined taxable business and property income exceeds £50,000 a year. It is important to note that the trigger is the total from both sources. For example, a sole trader with business income of £40,000 who also has property income of £12,000 will need to comply with MTD for ITSA from 6 April 2026 regardless of the fact that separately neither business nor property income exceed £50,000.

Phase 2 – April 2027 start date

The MTD for ITSA mandation threshold is lowered to £30,000 from 6 April 2027. From that date, sole traders and unincorporated landlords with business and/or property income of more than £30,000 must comply with the requirements of MTD for ITSA.

Phase 3 – by the end of the current Parliament

At the time of the 2024 Autumn Budget, the Government announced that sole traders and unincorporated landlords with business and/or property income of more than £20,000 will be brought within the scope of MTD for ITSA by the end of the current Parliament. The precise date has yet to be announced – this will be done at a future fiscal event.

Plan ahead

It is important that sole traders and unincorporated landlords know their MTD start date and that they are ready to comply with the requirements of MTD for ITSA from that date. To do so, they will need to use MTD-compatible software. Details of software that ticks this box can be found on the Gov.uk website.

Business Asset Disposal Relief (BADR) is a valuable relief which reduces the rate of capital gains tax payable on gains made on the disposal of all or part of a business or the sale of shares in a personal trading company. The relief was previously known as Entrepreneurs’ Relief.

A sole trader selling all or part of their business must have owned the business for at least two years prior to the date of sale. The same test must be met where the business is being closed and the assets are being sold. Here the assets must be disposed of within three years after the date of cessation to qualify.

The relief is also available in respect of the disposal of shares or securities in a personal company that is either a trading company or the holding company of a trading group. A personal company is one in which the shareholder holds at least 5% of the ordinary share capital and that holding gives the shareholder at least 5% of the voting rights, and entitlement to at least 5% of the profits available for distribution and 5% of the distributable assets on a winding up, or 5% of the proceeds in the event that the company is sold.

Lifetime limit

The favourable capital gains tax rates only apply on gains up to the lifetime limit of £1 million. Spouses and civil partners have their own lifetime limit.

Rate

For 2024/25, gains eligible for BADR are taxed at 10%.

Prior to 30 October 2024, the BADR rate was the same as the capital gains tax rate for gains other than residential property gains and carried interest applying where  income and gains fall within the basic rate band. However, the latter was increased to 18% from that date (Budget Day), while the rate of capital gains tax once the basic rate band has been used up was increased from 20% to 24%. This increased the value of BADR – meaning for the remainder of the 2024/25 tax year it is worth 14% where gains would otherwise be taxable at the higher capital gains tax rate – a potential saving of up to £140,000.

However, this is a limited time offer and the disposal must take place before 6 April 2025 to access the 10% rate. From 6 April 2025, gains benefitting from BADR will be taxed at 14% – a saving of up to 10%. From 6 April 2026, the rate rises to 18%, bringing it back into line with the capital gains tax rate applying where income and gains fall within the basic rate band.

Timing

The date of disposal is key to accessing the best rates. Selling a business or shares in a personal trading company on or before 6 April 2025 will access the best rate of 10%. Where a disposal is on the cards, as long as the qualifying conditions have been met for the requisite two-year period, consideration could be given to bringing forward the disposal date to before 6 April 2025. If the business has already ceased, disposing of the business assets before 6 April 2025 will minimise the capital gains tax payable.

If a disposal before 6 April 2025 is not feasible, consider whether the business, business assets or shares can be disposed of before 6 April 2026 so that gains up to the available lifetime limit are taxed at 14% rather than at 18%. Unincorporated landlords thinking of exiting the furnished holiday lettings business when the favourable relief comes to an end may also wish to bring forward the cessation and the disposal of their properties to access the 10% rate.

Under payrolling, employers deal with taxable benefits provided to employees through the payroll, treating the taxable amount of the benefit like additional salary and deducting the associated tax from the employee’s cash pay. Where a benefit is payrolled, the employer does not need to report it to HMRC via the P11D process after the end of the year. However, the benefit must still be taken into account in calculating the employer’s Class 1A National Insurance liability on their P11D(b).

Currently, payrolling is voluntary and employers who wish to payroll must register to do so before the start of the tax year from which they wish to commence payrolling – it is not possible to join in-year. However, this is to change as from 6 April 2026 payrolling will become mandatory for all but a couple of taxable benefits. At the time of the Autumn 2024 Budget, the Government confirmed that mandatory payrolling will go ahead as planned, and provided more details as to what it will look like.

Excluded benefits

Mandatory payrolling will apply to all taxable benefits in kind with the exception of employment-related loans and employer-provided living accommodation. Currently, it is not possible to payroll these benefits, but voluntarily payrolling will be introduced for both of them from April 2026, meaning that employers providing these benefits can choose either to payroll them voluntarily or report them to HMRC after the end of the tax year via the P11D process. For 2026/27 and later tax years, it will no longer be possible to report other benefits on a P11D. Employment-related loans and living accommodation will be brought within mandatory payrolling from a later date.

Taxable amount

To find out the amount to include in the payroll in respect of the payrolled benefit, employers will need to calculate the cash equivalent of the benefit and divide it by the number of pay periods in the tax year. Where an employee is paid monthly, 1/12^th of the cash equivalent of the benefit will be taxed through the payroll each month.

If the cash equivalent value changes during the year, as would be the case, for example, if an employee changed their company car, the employer would need to recalculate the cash equivalent value and revise the payrolled amount accordingly for the remainder of the tax year.

End of year process

Employers will be expected to ensure that the amounts that are reported for taxable benefits in kind are as accurate as possible. Corrections should be made as soon as possible if the value changes in-year. However, an end of year process is to be introduced to provide for amendments to the taxable value of benefits that cannot be determined in-year. Details of this are not yet available and will be provided in due course.

Reporting requirements

Following the move to mandatory payrolling, employers will need to provide more information than they currently need to do so under the voluntary system. From April 2026, Class 1A National Insurance contributions on benefits in kind will also be collected through the payroll, rather than after the end of the year as now, and the reporting requirements will be increased to facilitate this and also to provide a more granular breakdown of payrolled benefits in kind.

Employers looking to spread some seasonal cheer can do so in a tax-efficient manner by taking advantage of the exemptions for annual parties and functions and trivial benefits.

Christmas parties

The tax exemption for annual parties and functions will only apply to a Christmas party if the following conditions are met.

1. The event is an annual event – one-off events do not qualify.
2. The event is open to all employees or to all those at a particular location.
3. The cost per head (inclusive of VAT) is not more than £150.

Some points are worthy of note.

While it is permissible to provide an event for employees at a particular location or working within a particular department, all employees at that location or within that department must be invited. Events for staff of a particular grade only, for example, managers, fall outside the terms of the exemption, and as such their provision constitutes a taxable benefit.

The cost per head is the total cost of providing the function, including extras such as transport and accommodation, divided by the number of attendees (employees and guests). The total cost includes VAT, even if this is later recovered.

If the cost per head is more than £150, the whole amount is taxable, not just the excess over £150. Where a tax charge arises and the employee brings a guest, the taxable amount is the cost per head for both the employee and their guest (so £350 for an event where the cost per head is £175).

Where more than one annual event is held in the tax year, all will be tax-free if the total cost per head does not exceed £150. Where the total cost per head is more than this, the exemption can be used to best effect.

Gifts

The trivial benefits exemption allows employers to provide employees with low-cost gifts without triggering a tax charge under the benefits in kind legislation. The exemption will only apply if the following conditions are met.

1. The gift is not cash or a cash voucher.
2. The gift does not cost more than £50.
3. The employee is not contractually entitled to the gift.
4. The gift is not provided under a salary sacrifice arrangement.
5. The gift is not provided in recognition for services performed or to be performed.

The cost of the gift is the cost to the employer of providing it. Where a gift is made available to a number of employees and it is not practicable to determine the cost of each individual’s gift, the average cost can be used instead. Directors and office holders of close companies and members of their family or household can only receive £300 of tax-free trivial benefits a year; for other employees there is no limit.

Care must be taken where the gift comprises a season ticket, voucher or a benefit accessed using an app. Here the cost is the annual cost, rather than the cost each time the season ticket, voucher or app is used. This may bring the gift outside the scope of the trivial benefits exemption, even if the cost of each individual item or use is less than £50.

Consider a PSA

If a taxable benefit does arise in respect of the Christmas party or a gift, consider meeting the liability on behalf of your employees by means of a PAYE Settlement Agreement (PSA). It is the season of goodwill after all.

One of the key announcements in the Autumn 2024 Budget was the rise in employer’s National Insurance contributions from 6 April 2025. From that date, the rate of secondary Class 1 National Insurance contributions is increased by 1.2 percentage points, from 13.8% to 15%. In a further blow, the secondary threshold – the point above which employer contributions become payable – will fall from £9,100 to £5,000.

On the plus side, the Employment Allowance is to rise from the same date, from its current level of £5,000 to £10,500. This will protect the smallest employers from the impact of the hike. From 6 April 2025, larger employers will once again be able to benefit from the Employment Allowance as the current restriction which limits availability of the allowance to employers whose secondary Class 1 National Insurance bill in the previous tax year was less than £100,000 is lifted. However, personal service companies where the sole employee is also a director remain unable to claim the allowance.

The upper secondary thresholds that apply where the employee is under the age of 21, an apprentice under the age of 25, an armed forces veteran in the first year of their first civilian job since leaving the armed forces or a new employee in the first three years of their employment at a special tax site are unchanged. However, the 15% rate will apply to any earnings in excess of the relevant upper secondary threshold.

The rate increase also extends to Class 1A National Insurance contributions (payable by employers on taxable benefits in kind, taxable termination payments and taxable sporting testimonials) and to Class 1B National Insurance contributions (payable by employers on items within a PAYE Settlement Agreement and on the tax due under the agreement), both of which rise to 15% from 6 April 2025.

Impact

The impact of the changes will depend on the number of employees that an employer has and the amount that they are paid. For example, for an employee on £20,000, before taking account of the Employment Allowance, employer’s National Insurance will increase from £1,504.20 for 2024/25 to £2,250 for 2025/26 – an increase of £745.80. However, for an employee on £100,000, the bill will rise from £12,544.20 for 2024/25 to £14,250 for 2025/26 – an increase of £1,705.80.

Very small employers with only a handful of employees who are not highly paid may find that their bills fall as the increase in the Employment Allowance outweighs the rise in secondary contributions. For example, an employer with three employees paid £30,000 will pay £3,652.60 for 2024/25 after deducting the Employment Allowance but will only pay £750 in 2025/26 after deducting the Employment Allowance. At the other end of the scale, as press reports attest, the additional cost can be significant. Employers with a workforce comprised predominantly of lower paid part-time workers, as is often the case in the hospitality industry, will be hard hit by the fall in the secondary threshold. Currently, no contributions are payable on earnings below £9,100; from April 2025, employer contributions are due on earnings over £5,000.

Mitigation

Eligible employers should ensure that they claim the Employment Allowance as this is not given automatically. Consideration can also be given to the make-up of their workforce. For example, savings can be made by employing workers under the age of 21 or armed forces veterans looking for their first civilian job, as contributions are only payable where earnings exceed £50,270 rather than £5,000 – potential savings of up to £6,790.50 per employee. Taking on two part-time workers rather than one full-time worker will also cut the bill by accessing a further £5,000 NIC-free band (saving £750).

Employers should also review the taxable benefits that they provide, and consider instead a switch to exempt benefits to save the associated Class 1A National Insurance. Employers should also review existing PAYE Settlement Agreements to check whether they remain affordable.

When starting a business, there are a number of ways in which this can be done. Options include operating as a sole trader, forming a partnership or setting up a limited company. Of these, operating as a sole trader is the simplest.

Taxes you must pay

If you run an unincorporated business as a sole trader, you are self-employed for tax purposes. If you make a profit, you will need to pay income tax on that profit if your total taxable income for the year is more than your tax-free allowances. Unlike a company, the tax bill for your business is not worked out separately; rather, it is taken into account in working out your overall personal tax liability for the tax year. Depending on your profit level, you may also need to pay Class 4 National Insurance.

Registering as a sole trader

You only need to tell HMRC about income from self-employment if you earn more than £1,000 in the tax year before deducting expenses. The £1,000 limit applies across all your self-employments, rather than per business. This £1,000 limit is known as the trading allowance.

Where your income exceeds the trading allowance, you will need to register for Self Assessment if you are not already registered. You can do this online (see www.gov.uk/register-for-self-assessment). This must be done by 5 October following the end of the tax year in which a liability first arose.

National Insurance

If your profits from self-employment are more than £12,570 for 2024/25, you will need to pay Class 4 National Insurance. For 2024/25, this is at the rate of 6% on profits between £12,570 and £50,270 and at the rate of 2% on profits in excess of £50,270. The payment of Class 4 National Insurance will earn you a qualifying year for state pension purposes.

If your profits are between £6,725 and £12,570, you will not have to pay any Class 4 National Insurance, but you will be awarded a National Insurance credit which will give you a qualifying year for state pension purposes for free. If your profits are less than £6,725 for the tax year, you will not receive the National Insurance credit. However, you can pay Class 2 contributions voluntarily at the rate of £3.45 per week to help build up your state pension entitlement.

Keeping records

You will need to keep records of your income and business expenses so that you can work out your profit. The default basis of accounts preparation is now the cash basis, under which you only take account of cash in and cash out. When working out your profit, you can deduct the £1,000 trading allowance rather than actual expenses if this is more beneficial (which will be the case if your actual expenses are less than £1,000).

Paying tax and National Insurance

Under Self Assessment, your tax and Class 4 National Insurance bill must be paid by 31 January after the end of the tax year to which it relates (so by 31 January 2026 for your 2024/25 profit).

If your tax and Class 4 National Insurance bill for the previous tax year is £1,000 or more, you will need to make payments on account. This means that you will have to pay 50% of the previous year’s liability on 31 January in the tax year and 31 July after the end of the tax year. Any balance due must be paid by 31 January after the end of the tax year.

It is prudent to put away money each month so that you have it available to pay your tax bill. Alternatively, you can set up a budget plan with HMRC.

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.