January 2026 Tax News

Making Tax Digital (MTD) for income tax will be mandated for a large group of self assessment taxpayers from 6 April 2026, with even more individuals being mandated in 2027 and 2028. The following MTD for income tax measures were announced at Budget 2025: Let’s start with some good news! The government has announced that late filing penalties will not be issued in respect of quarterly updates in 2026/27. This easement will not apply to the 2026/27 annual tax return, which must be filed by 31 January 2028. All quarterly updates must be submitted before the annual tax return can be filed. We had previously been told that taxpayers who currently report income on the SA109 self assessment page (residence, remittance basis etc) will not need to comply with the MTD rules until April 2027. Budget 2025 included a list of even more types of taxpayer who will be deferred until April 2027: - Recipients of trust and estates income, - Individuals who use averaging adjustments (e.g. farmers and creative artists), - Recipients of qualifying care income, and - Non-UK resident foreign entertainers or sportspeople.  Taxpayers who are under deputyship will also be exempt from MTD for income tax.

From 6 April 2026, employees will no longer be able to claim a tax deduction from their earnings in respect of expenses incurred while working from home. Historically, some home-working employees have claimed a flat-rate deduction of £6 per week or the actual costs of working from home, if higher. The government has said that such relief will be abolished because too many people are claiming the deduction when they are not entitled to it. Employers will still be able to reimburse home-working expenses to employees free of PAYE tax and national insurance contributions, but only if those expenses are wholly, exclusively and necessarily incurred as a result of their employment duties. This is a high bar to cross – it generally means that the employee’s contract requires** **them to work from home. Employees who choose to work from home will not qualify for tax-free reimbursement.

From April 2027 it will be mandatory for employers to include most benefits in kind (BiKs) provided to employees in their payroll. All BiKs will need to be payrolled except employer provided living accommodation and interest free and low interest (beneficial) loans. It will be possible to payroll these two BiKs on a voluntary basis. Early preparation can ensure a smooth transition to the new system with minimal disruption, cost, and impact on employees. Employers are also reminded not to underestimate the time it will take to ensure payroll processes are robust enough to handle real time reporting of BiKs. We can help you with the switch to payrolling BiKs, but it’s important that your employees are made aware of the changes to how their BiKs will be taxed from April 2027. Early communication will be key to enable them to understand how this might affect their tax codes and take-home pay.  It is important that you explain that: - employees who are currently paying tax in arrears on their BiKs will not be doing so from April 2027 onwards – many employees may not realise that this is how they were paying tax on their BiKs, and that they will be paying tax on their BiKs in the year that they receive them. - they may currently have a deduction in their tax code so that they pay tax on an estimated BiK – this will no longer be the case from April 2027. - tax on BiKs will have to be paid in real time in the year that they are received. Where an employee is also paying tax on a BiK provided in a previous year, from April 2027 it might seem to them that they are paying tax twice on the BiK. You might need to explain that they will be paying tax in real time on the BiKs they receive for that year whilst also catching up with payment of tax for the BiKs from the previous years. If the move to payrolling BiKs will affect you and your employees, please speak to us. We will be happy to help you switch to the new process.

Over the coming years we will be hearing a lot more about e-invoicing because the government has confirmed that it will be mandated for VAT invoices from 2029.  It believes that growth, administrative benefits and increased revenue can be optimally achieved by the introduction of e-invoicing.  Electronic invoicing or 'e-invoicing' is the digital exchange of invoice data between a buyer and a supplier's financial systems. An e-invoice is not just a digital photograph or an email attachment – it will require both the supplier and customer to have compatible software so that data in prescribed fields can be transmitted from one to the other. At Budget 2025 the government announced that in 2029, business-to-business (B2B) and business-to-government (B2G) VAT e-invoices will be mandatory. They also confirmed that real-time reporting of e-invoices to HMRC will also be mandated in future, although this will occur after 2029. The government plans to announce a detailed roadmap implementing mandatory e-invoicing for VAT at Budget 2026.