HMRC is under scrutiny for taking over four months to process tax refunds, a process that previously took just a few weeks. The delays are particularly affecting employers' PAYE refunds and the Construction Industry Scheme (CIS). It has faced criticism from MPs regarding long call-waiting times, increasing complexity in the tax system, and declining public trust.

Some HMRC staff working on PAYE and CIS refunds have been involved in industrial action, contributing to processing delays. Businesses and individuals are facing significant cash flow challenges as a result.

To make matters worse, HMRC is set to shut down its free online tax filing service by March 2026. Small businesses that relied on this tool will have to pay for third-party software, with costs ranging from monthly subscriptions to one-off purchases exceeding £100.

The tax office claims to be addressing response times by allocating more staff, citing an 80% customer satisfaction rate. It also defends the closure of the filing service by arguing that newer commercial software offers a better user experience.

Rumours have swirled since before the last Autumn Statement about a possible cut to the annual cash ISA allowance. It is now known that the Chancellor has been evaluating cutting this allowance. It is not yet known what, if anything, has been decided but there is talk of it being reduced from £20,000 to £4,000.

A cash ISA is simply a savings account where you never pay tax on the interest earned. For as long as the cash sits in there, it stays tax-free year after year. This can be useful for people with large sums of cash to save, as lower rate taxpayers can only earn £1,000 in interest tax-free a year; for higher rate taxpayers it is £500.

This move is being considered as the Chancellor believes it will encourage people to switch from cash ISAs to stocks and shares ISAs (also a tax-free investment) which would help stimulate the economy. However, stocks and shares ISAs carry risks as well as potentially better returns than cash ISAs so it remains to be seen if people will switch. The Government has stated that 'it is working closely with the Financial Conduct Authority to deliver a system of targeted support to give people the confidence to invest'.

If you were planning to invest in a cash ISA this tax year anyway, it may be prudent to do so now, before any potential changes come into force.

The previous non-domicile rules regarding operating PAYE on a reduced percentage of an employee's income (known as Section 690) ended, replaced by a system based on tax residence. Any HMRC directions issued before 6 April 2025 are no longer valid - employers must submit a new notification to operate PAYE on a reduced amount for the 2025-2026 tax year.

Employers can now notify HMRC of a specified proportion of income that will not be treated as PAYE income for globally mobile or non-resident employees. Payments made after 6 April 2025 for earlier tax years will be assessed as PAYE income based on the best estimate of tax status.

Overseas Workday Relief Eligibility criteria have changed, so employers must assess employees' qualifications under the new rules.

Employees no longer need to pay foreign employment income into a designated overseas account to benefit-except for income from tax years ending before 6 April 2025.

Overseas Workday Relief now has an annual financial limit, applied when the employee files a Self Assessment tax return. It is now available for the first four years of UK residence. New residents can claim deductions for travel expenses for four years (previously five years). Non-residents remain eligible for five years from arrival.

Employees must keep records of their work performed outside the UK to ensure correct tax reporting.

This is a recent initiative by HMRC. The campaign is designed to assist individuals who earn extra income outside their main job, ensuring they understand their tax obligations. HMRC set up this initiative as more people have taken on 'side hustles' to help them through the cost-of-living crisis but may not be aware of the tax implications.

If someone earns more than £1,000 annually from their side hustle, HMRC may classify it as 'trading,' meaning they might need to pay tax. This would also mean the individual would need to set themselves up as a sole trader.

The campaign provides straightforward guidance to help people check if they need to report their earnings and avoid unexpected tax bills and late payment penalties. A side hustle is considered by HMRC to be a method of making extra income outside of someone's regular day job. It can mean anything like dog walking, digital content creation or selling handmade goods.

Q: I've reached that stage in my life where I need to think about my estate and the amount of inheritance tax that may be paid on it. I've heard that gifting money before I die is free of IHT. Can you please explain how this works?

A:Certainly. You can use the “gifts out of surplus income” rule to help reduce your IHT bill. Less than two percent of estates that have paid IHT have used this rule in the past three years, but this is likely to increase when pensions become subject to IHT from April 2027.

As you are probably aware, IHT is paid on your estate when you die, with some exceptions. For example, no tax is due if your estate is worth under £2 million and is left to your spouse or civil partner and if you leave your primary property to your children or grandchildren, no tax is paid on the first £500,000 worth. For every £2 your estate exceeds £2 million, the residence nil-rate band decreases by £1.

Another exception is that of gifting. Any gifts you make over seven years (a maximum of £3,000 per year) prior to your death incur no tax (unless it is part of a trust). Anything gifted less than seven years before you die may be subject to IHT on a sliding scale. However, these gifts must be proven to be part of the transferor’s normal expenditure (in other words, regular rather than one-off payments), paid out of their income (not capital like savings) and leave them with enough income to maintain their normal standard of living.

If you’d like to discuss the matter further, please get in touch with our team.

Q: I have a main job with a company (tax paid through PAYE) and a secondary 'side hustle'. How does this affect my tax status and how do I pay any extra tax owed?

A: Firstly, it is good that you understand any tax due from your side hustle will not be accounted for through your main job. Your main employer isn't necessarily going to know about it, and any income certainly won't be included on your payslip.

You should check if you need to tell HMRC about this additional income. A 'side hustle' could include things like selling items at car boot sales or auctions, doing 'odd jobs' for neighbours, or creating content for social media. You do not have to pay tax on earnings below £1,000 a year.

If you earn more than this, you will need to register for Self Assessment through HMRC's website. You should also maintain records of all sales, purchases, income and expenses to help you complete your tax returns.

You can, of course, engage with us to deal with HMRC on your behalf.

Q:I claimed the home working entitlement during the Covid 19 pandemic. I still work from home now - should I still be claiming this tax relief?

A: It depends on why you are still working from home. When we went into lockdown during the pandemic, those who were forced to work from home could claim tax relief for increased costs incurred whilst working from their homes. About 800,000 employees made this claim at the height of the pandemic.

Since 5 April 2022, you can only claim if you must work from home because your employer does not have an office or if you have to live a great distance from your office as part of your work. If you are simply working from home because your employer allows the hybrid working model, you should not be claiming this relief and HMRC is due to crack down on those incorrectly doing so.

1^st

• Corporation Tax payments are due for companies with a year-end of 30th September.

19^th

• For employers operating PAYE, this is the deadline to send an Employer Payment Summary (EPS) to claim any reduction on what you'll owe HMRC.
• It is also the deadline for employers operating PAYE to pay HMRC by post, for May.

22^nd

• Deadline for employers operating PAYE to pay HMRC electronically, for May.

30^th

• Corporation Tax Returns (CT600 form) are due for companies with a year-end of 30th June.

Please contact us if we can help you with these or any other tax or accounts matters.
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Andrews & Brown Accountants is one of the UK low-cost, fixed fee accounting and tax consultancy firms based in Heathrow Approach, London serving clients from all over the UK. We offer our clients friendly, reliable, stress-free professional accounting and taxation services by equipping the best possible solutions & techniques, resulting in more profits with less tax bill.

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