Unless opted out, pensioners will have received the winter fuel payment for 2025/26; however, HMRC can recover this payment if their income exceeds £35,000. Recently, HMRC has updated its guidance regarding the recovery process.

The threshold

The winter fuel payment, known as the pension age winter heating payment in Scotland, must be repaid if a pensioner’s income surpasses £35,000. If the income is £35,000 or lower, the payment is retained in full.

In cases where multiple individuals in the same household receive a payment, HMRC assesses each person’s income independently. For instance, if one partner earns £36,000 and the other earns £34,000, only the partner with the £36,000 income will be required to repay their winter fuel payment.

The income

For the winter fuel payment disbursed in November or December 2025, the relevant income pertains to the 2025/26 tax year:

All forms of taxable income are considered before any deductions are applied. The figures for savings and dividend income are calculated before accounting for the personal savings allowance or dividend allowance. Income from individual savings accounts (ISAs) and other tax-exempt savings is not included.

Your portion of the income is only counted when it originates from a joint source, such as a joint savings account.

The recovery

Pensioners who file a self-assessment tax return must report the winter fuel payment on their return, and if it is subject to repayment, this amount will typically be included in the self-assessment tax bill automatically.

For others, HMRC usually recovers the payment through an adjustment to their tax code. The payment received in November or December 2025 will be reclaimed by modifying the tax code for the 2026/27 tax year, resulting in a higher tax rate than what was previously paid each month. For example, with a winter fuel payment of £200, a tax code adjustment would lead to an additional tax payment of approximately £17 each month.

HMRC are having to remind taxpayers that there is no deadline extension if a VAT return submission date falls on a weekend or a bank holiday.

Due Date Reminder

The deadline for submitting quarterly VAT returns is set for one month plus seven days following the end of the quarter. For instance, for the quarter that concludes on 30 June, the due date is 7 August:

• This deadline also applies to payments made to HMRC, but it is important to account for the time required for the payment to clear HMRC’s account.
• If you are utilizing the annual accounting scheme, the VAT return is typically due two months after the conclusion of the accounting period.

In response to the increasing number of late VAT return submissions and payments resulting from inaccurate information provided by artificial intelligence (AI) and third-party websites, HMRC has taken action. VAT returns can be submitted during weekends or on bank holidays; if that is not feasible, the return should be filed on the last working day before the due date.

Penalty Notification

Despite HMRC’s advisories, taxpayers who are occasionally late should be cautious to avoid penalties, except for late payment interest:

• Late payment penalty: HMRC imposes a penalty only if a VAT payment is made more than 15 days after the due date, so this should not be a concern if a taxpayer waits until the first working day following the payment deadline.
• Late submission penalty: A delay of just one day will incur a penalty point, but a £200 penalty is only applied once a threshold of four points is reached (or two points for annual submissions), and points will expire after 24 months, provided the taxpayer stays below the threshold.
• Late payment interest: This interest is currently charged at a rate of 7.75% from the due date until the payment is made. For example, being ten days late on a VAT payment of £40,000 would result in an interest charge of just under £85.

Submitting one late quarterly VAT return each year should not result in a late submission penalty being applied.

The Chancellor has declared a 10p per mile rise in the tax-free mileage rates that can be reimbursed to employees who use their personal vehicles for business activities, effective retroactively from 6 April 2026.

Mileage rates

The 10p per mile increase is applicable solely to the initial 10,000 business miles driven within each tax year. Consequently, the reimbursement rates for employers compensating employees for business mileage in their own cars are now:

• Cars and vans: You can claim 55p per mile for the first 10,000 business miles you travel in a tax year. Any additional business miles over 10,000 can be claimed at 25p per mile.
• Motorcycles: You can claim 24p per mile for all business miles, regardless of how many miles you travel.
• Bicycles: You can claim 20p per mile for all business miles, with no reduced rate after a certain mileage threshold.

For trips involving cars and vans, employees can receive an extra reimbursement of 5p per mile for each passenger, totaling 70p per mile if three passengers are present.

E-bike users should receive the bicycle reimbursement rate for electrically assisted pedal cycles, while the motorcycle rate applies to other types of electric bikes.

If an employee utilizes multiple cars for business mileage within the tax year, the 10,000-mile limit is applicable across all vehicles, not individually. For instance, if 4,000 business miles are recorded in one car during the first quarter of 2026/27 and 9,000 miles in another car over the remaining nine months, the maximum tax-free reimbursement would be 10,000 miles at 55p, plus 3,000 miles at 25p, totaling £6,250.

Any reimbursement that exceeds the approved rates for the tax year is classified as earnings and is subject to taxation.

Regarding National Insurance contributions (NIC), the NIC-free rates are comparable, with 55p per mile available for every business mile driven in a car or van, without a 10,000-mile limit.

Additional Information

Employees who do not receive the maximum mileage reimbursement can claim tax relief on the difference between the reimbursement rate and what they actually received. Thus, if an employer provides no reimbursement, an employee can claim the full 55p/25p per mile car rates.

Sole traders and partnerships may apply the mileage rates for cars, vans, and motorcycles when calculating vehicle expenses to be deducted from trading profits. This also applies to unincorporated landlords when determining property income. However, in both scenarios, there is no extra allowance for passengers carried.

HMRC guidance on business travel mileage for employees’ own vehicles can be found here.

Anyone confused or anxious about the inheritance tax (IHT) changes being introduced for pensions needs to be aware that scammers might try to target their savings.

Changes to pensions

From 6 April 2027, inherited pension funds will be subject to IHT unless inherited by a spouse or civil partner. Not surprisingly, scammers are using the change as an opportunity to target your pension savings. The scam works by offering a ‘safe haven’ overseas for your pension savings. Two problems here: one is quite important, but the second is more serious:

• First problem: For anyone who is a long-term resident in the UK, moving a pension fund overseas will not affect the IHT position because worldwide assets – including overseas pension funds – are included as chargeable assets for UK IHT purposes.
• Major problem: Whether the tax planning works or not is irrelevant as the fraudster will simply plunder your pension fund.

The scams you need to know

Pension scams are becoming increasingly sophisticated, with scammers using artificial intelligence (AI) and deepfake technology to make the scam appear more convincing. There are several red flags to watch out for:

• The first warning should be if the initial email, call or message comes unexpectedly. Cold calling about pensions is illegal, so you should treat any unsolicited approach with suspicion.
• Along with the ‘IHT saving’, the scammer will tempt you with the higher returns available if funds are moved.
• The scammer will want to apply pressure by saying you only have a limited amount of time to accept their offer.

A scammer wants their victim to act impulsively and alone; they definitely don’t want them to obtain professional advice. Should you agree to transfer your funds, the scammer will often provide coaching on how to circumvent your pension provider’s safety rules: for example, by providing an answer as to why funds are being moved.

The old adage of ‘it sounds too good to be true’ is invariably true in these cases, so any approach should be treated with extra caution.

The Financial Conduct Authority’s online tool to check whether a company is authorised or not is available here. For tax information and advice contact our team.

New data from HMRC shows how much the government relies on just four taxes.

The Labour Party went into the 2024 general election with pledges on four major taxes in its manifesto:

• “Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.”
• “Labour will cap corporation tax at the current level of 25 per cent, the lowest in the G7, for the entire parliament…”

Initially, these tax commitments were perceived as politically essential to counter claims that a Keir Starmer administration would implement tax-and-spend policies. However, the quadruple tax lock faced significant criticism from numerous economists for the five-year limitation it imposed on the Chancellor during uncertain times.

Fast forward approximately two years since the manifesto’s release, and the economists’ concerns have been validated. Recent data from HMRC, released at the end of April, revealed that in the previous tax year, income tax, national insurance (NI), VAT, and corporation tax constituted 86% of all tax revenues. This is not surprising; over the last decade, these four taxes have accounted for more than £4 out of every £5 collected in taxes.

Despite the manifesto’s assurances, income tax revenues increased by 9% in 2025/26 compared to the prior year—outpacing both inflation and the growth of the UK economy. This increase is attributed to the freezing of the personal allowance and tax thresholds, which has pulled more individuals into the tax system and pushed existing taxpayers into higher tax brackets.

NI revenues surged even more significantly, rising by 16.3% due to changes to the level of employer’s NI contributions that contradicted the manifesto. Together, NI and income tax—the two taxes levied on earnings—accounted for 56.5% of all funds received by HMRC.

The increases in taxes on earnings stand in contrast to the growth of VAT, the third-largest source of tax revenue, which rose by 5.7%. Corporation tax experienced even slower growth at 4.6%, potentially due to employers claiming more tax relief on the increased NI contributions.

The dominance of the big four manifesto-locked taxes explains why the Chancellor has made so many tweaks to the overall system to raise additional revenue. Be prepared: it is beginning to look like that process will be repeated at the next Budget.

For HMRC’s latest bulletin on tax receipts and NI contributions, visit here, or speak to our tax consultancy team.

Further information has surfaced regarding the possible effects of the ‘mansion tax’ that was introduced in the most recent Budget.

Rachel Reeves’ initial two Budgets have thus far included announcements of tax-increasing measures with postponed implementation dates. For instance, the contentious modifications to inheritance tax (IHT) concerning business and agricultural relief were revealed in October 2024, yet they have only recently come into effect. Likewise, the inclusion of pensions under the purview of IHT was announced concurrently, but will not take effect until 6 April 2027.

In her Autumn 2025 Budget, she outlined proposals for a High Value Council Tax Surcharge (HVCTS – also known as ‘mansion tax’) on properties valued at £2 million and above, set to begin in April 2028. Although there was limited information provided about this measure, a consultation was promised to occur ‘in the New Year.’ Up to this point, no information has been released by the Treasury; however, just prior to Easter, the Office for Budget Responsibility (OBR) presented its evaluation of the anticipated effects of the new tax.

These included some interesting nuggets:

• By 2028, the OBR thought the full value of the future HVCTS liability would be reflected in property prices. Although the OBR did not spell out the numbers, what this means in practice is that for every £1,000 of consumer price index (CPI)-linked HVCTS annual charge, the OBR expects a property’s value to drop by about £35,000. For the lowest £2,500 charge covering properties valued at £2–2.5 million, their value would drop by about £87,500, according to OBR theory.

• The OBR forecasts that there will be a bunching of prices just below each threshold, which would further lower prices for properties that would otherwise be just above a threshold. The OBR is on solid ground with this assumption, as it is exactly what happened when a single stamp duty rate was based on a house’s price.

• One-in-five property owners (who are liable to the tax, rather than the occupiers) are expected to lodge an appeal, with a 40% success rate.

Perhaps the most telling point is that the new tax would initially raise only £400 million in 2028/29, hardly even a rounding error in Treasury accounting terms. Almost the same sum could have been generated by raising the standard rate of VAT from 20% to 20.04%, although the politics would have been much trickier.

We’ll have to wait and see if the OBR’s expectations pan out. Read more on HVCTS here.

Directors of closely held companies will now be required to publish more comprehensive information than before when completing their self-assessment tax returns for the fiscal year 2025/26. In the long run, close companies themselves will also need to provide considerably more comphrensive information.

The issue of dividend income

Unlike savings income, for which financial institutions report details to HMRC, it has historically been challenging for HMRC to verify whether a taxpayer has accurately reported dividend income; especially when this income is derived from a close company and credited to the director’s current account instead of being disbursed.

The current tax gap is estimated to exceed £45 billion, with small businesses accounting for the largest share of this deficit.

HMRC has previously conducted a focused campaign targeting directors suspected – based on an analysis of company accounts – of failing to declare dividends.

Increased information requirements for close companies

There is now an obligation for self-assessment tax returns to include a distinct employment page for each directorship held in a close company, even if no salary or dividends are received. The following information must be provided:

• The name of the close company
• The company’s registration number
• The amount of dividend income received from the company
• The percentage of shareholding in the company

Once the close company is mandated to provide more detailed information, it will enable HMRC to easily cross-reference the two sets of data.

Close company reporting under review

Currently under consultation, HMRC’s proposals may require close companies to report not only dividends but also details regarding cash withdrawals, loans, debts, and asset transfers between the company and its director(s).

The tax implications of operating as a limited company have risen in recent years, making the use of an unincorporated structure a more appealing option. The new reporting obligations are likely to further solidify this trend.

Self-assessment tax return notes (7.1 to 7.4 relate to the new reporting requirements) for the employment section can be found here.

The quantity of property valuations disputed by HMRC has increased by over 20% in the last year. This is not surprising considering that stagnant inheritance tax (IHT) thresholds and rising property prices have led more individuals to fall within the IHT bracket.

With residential properties representing nearly 50% of the net worth of estates, disputing valuations presents an effective method for HMRC to enhance tax revenues, particularly as artificial intelligence can now be employed to detect discrepancies.

Expert Recommendations

There can be considerable financial repercussions if an executor undervalues property in an IHT declaration:

• In addition to the extra IHT owed, late payment interest – currently at 7.75% – will be applicable on the shortfall.
• A penalty may also be imposed if the underpayment arises from a return that contains inaccuracies due to a lack of reasonable care.

The best course of action for executors is to engage a professional valuer instead of merely depending on an estimate from a local estate agent. However, averaging the valuations from three estate agents will demonstrate that reasonable care has been exercised.

Future Outlook

Regrettably, the circumstances are not expected to improve in the coming years. IHT thresholds are projected to remain frozen until 5 April 2031, while the property market, despite being subdued due to the inflationary effects of the Middle East conflict, continues to show resilience and is unlikely to experience declining values, with the exception of London and the South East of England.

The incorporation of most unused pension pots into the IHT net starting April 2027 (unless inherited by a spouse or civil partner) will further increase the number of estates liable for IHT.

Estate Planning

Wills should be current, reflecting realistic property valuations and the impending inclusion of pension pots. Ensure that, whenever feasible, the residence nil rate band is fully utilized, as this can result in an IHT saving of £140,000 for couples.

Lifetime gifts are becoming increasingly popular as a means to mitigate potential IHT liabilities. One problem is that the main residence might be the only sizeable asset, but downsizing could be a way of releasing funds for lifetime gifting.

The government’s guide to how to value an estate for IHT and report its value can be found here.

More than 580,000 traders were penalised for late payment of VAT last year, representing a quarter of businesses registered for VAT. A sure sign that the tougher penalty regime introduced in 2023 is hitting cash-strapped businesses.

Penalty regime

• A penalty will not be imposed if a trader presents a reasonable justification. Illness and personal issues are not considered valid justifications unless they are exceptionally severe. Insufficient funds are also not deemed valid, nor is dependence on a third party or the absence of a reminder from HMRC.
• However, a trader can prevent any additional penalties from accumulating by establishing a time to pay (TTP) arrangement with HMRC. For instance, penalties can be avoided if a business secures an arrangement prior to a VAT payment being 15 days overdue.

Traders facing difficulties in settling a VAT obligation should refrain from disregarding the overdue invoice. Instead, it is advisable to negotiate a TTP arrangement to allow for some financial relief.

Regardless of whether any late payment penalties are applied, late payment interest will accrue from the due date until the VAT liability is settled. The current interest rate is set at 7.75%.

Penalty increases in 2027

Beginning in April 2027, the 3% late payment penalty that is applied after day 15 will rise to 4%, as will the penalty imposed after day 30.

At present, if a business is, for example, 50 days late in paying a VAT liability of £50,000, the total penalties incurred amount to £3,273. This total will escalate to £4,273 starting in April 2027; a clear indication that businesses must prioritize their cash flow management.

HMRC’s guidance on how late payment penalties work can be found in the guidance.