Category: Tax Services

What Happens to Your Personal Allowance Above £100,000 Income?

Posted on by Farazia Gillani

For UK taxpayers asking “What happens to my Personal Allowance if I earn over £100,000?”, the answer depends on HMRC’s Personal Allowance taper rules. For the 2026/27 personal tax allowance, the standard tax-free amount remains £12,570, but it gradually reduces once adjusted net income exceeds £100,000. The allowance falls by £1 for every £2 earned above this threshold and disappears completely when income reaches £125,140. This affects employees, company directors, pensioners and anyone with multiple taxable income sources.

The issue has become increasingly relevant because frozen tax thresholds mean more taxpayers are entering higher tax bands without changes to the underlying allowances. For high earners, the taper can significantly change take-home pay and create unexpected tax liabilities if income is not planned carefully.

Key Points

  • The standard Personal Allowance for 2026/27 is £12,570.
  • The allowance reduces once adjusted net income exceeds £100,000.
  • The reduction rate is £1 of allowance lost for every £2 of additional income.
  • The Personal Allowance becomes unavailable at £125,140.
  • High earners can face an effective marginal tax rate of 60% between £100,000 and £125,140.
  • Pension contributions and income timing can affect adjusted net income.

How the Personal Allowance Taper Works for High Earners in 2026/27

The Personal Allowance is the amount an individual can earn before paying Income Tax. As part of the wider UK income tax rates system, it provides a tax-free amount for most taxpayers.

The personal tax allowance 2026/27 remains a key reference point for taxpayers because it determines how much income can be received before Income Tax applies. However, higher earners may receive a reduced allowance once their adjusted net income passes the £100,000 threshold.

For the 2026/27 tax year, the standard Personal Allowance is £12,570. It is reduced by £1 for every £2 that adjusted net income exceeds £100,000, reaching zero when income reaches £125,140.

Adjusted net income is not limited to salary. It can include:

  • Employment income and bonuses
  • Pension income
  • Rental income
  • Taxable benefits
  • Certain investment income

This means someone earning £95,000 from employment may still enter the taper zone if additional income, such as bonuses or benefits, takes their adjusted net income above £100,000.

Why More Taxpayers Are Watching the £100,000 Threshold

The personal tax allowance 2026/27 remains at £12,570 following several years of frozen thresholds. This has increased interest in searches such as UK personal allowance 2026 increase and When will the personal tax allowance increase?

The freeze means that as wages rise, more individuals may move into higher tax positions without receiving an increase in the amount of income they can earn tax-free. This has increased searches around a potential UK personal allowance 2026 increase, as taxpayers look for clarity on whether future budgets may change the current threshold.

Questions such as “Will Labour increase personal tax allowance?” also reflect wider public interest in whether future governments will change income tax thresholds. However, current rules continue to apply unless legislation changes.

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Who Is Affected by the Personal Allowance Reduction

The taper mainly affects:

  • Employees with an annual income above £100,000
  • Directors receiving salary and dividends
  • Individuals with large bonuses
  • Professionals with pension income alongside employment earnings
  • People with multiple taxable income sources

Company directors are particularly affected because remuneration decisions can involve salary, dividends and pension contributions. A change in one area can alter adjusted net income and affect the amount of Personal Allowance available.

Why the £100,000–£125,140 Band Creates a 60% Tax Trap

The Personal Allowance taper creates a higher effective tax rate than many taxpayers expect.

Between £100,000 and £125,140, taxpayers lose part of their tax-free allowance while also paying Income Tax on additional earnings. This creates an effective marginal rate of 60% for affected income.

The interaction between Personal Allowance tapering and UK income tax rates means some taxpayers experience a higher effective tax cost than expected, even though the headline Income Tax bands remain unchanged.

For example, an individual earning £110,000 does not simply pay tax on the extra £10,000 above £100,000. Their Personal Allowance is also reduced by £5,000, increasing the amount of income subject to tax.

This is why high earners often review pension contributions, bonus timing and income structure before the end of the tax year.

HMRC confirms that adjusted net income above £100,000 can reduce the Personal Allowance, with the allowance withdrawn completely where adjusted net income reaches £125,140.

What UK Businesses Should Consider

For employers, the Personal Allowance taper creates payroll considerations, especially where employees receive variable pay.

Businesses should:

  • Apply HMRC tax codes correctly through payroll.
  • Inform employees when bonuses may affect their tax position.
  • Review director remuneration arrangements annually.
  • Ensure payroll systems reflect updated tax codes.
  • Encourage employees to review their HMRC records.

Employers do not calculate the Personal Allowance taper manually. HMRC provides tax codes based on individual circumstances, and businesses must apply those codes accurately.

How Can Apex Accountants Help?

Apex Accountants supports directors, businesses and high earners with tax planning and payroll advice linked to Personal Allowance changes.

We can help with:

  • Reviewing PAYE tax codes for higher earners.
  • Assessing how salary, dividends and bonuses affect tax exposure.
  • Advising directors on remuneration planning.
  • Reviewing pension contribution strategies.
  • Supporting businesses with payroll accuracy.

Our approach focuses on helping clients understand how tax rules affect real financial decisions. Call us now, and our tax experts will guide you on your personal allowance above £100,000 Income.

Conclusion

For anyone asking “What happens to my Personal Allowance if I earn over £100,000?”, the key point is that the allowance gradually reduces after the £100,000 threshold and disappears completely at £125,140. The taper can significantly affect take-home pay, especially for directors, professionals and individuals with multiple income sources.

Understanding how Personal Allowance interacts with income, bonuses and pension planning can help taxpayers make better decisions. To review your tax position, contact Apex Accountants or book a free consultation.

FAQs

What is Personal Allowance?

Personal Allowance is the amount of income an individual can receive before paying Income Tax. For most taxpayers, this provides the first level of tax-free income before Income Tax rates apply.

What happens to my Personal Allowance if I earn over £100,000?

Your Personal Allowance reduces by £1 for every £2 of adjusted net income above £100,000 and disappears at £125,140.

Does a bonus affect my Personal Allowance?

Yes. Bonuses count towards adjusted net income and can reduce the available Personal Allowance.

Can pension contributions protect my Personal Allowance?

Certain pension contributions can reduce adjusted net income and may help preserve some Personal Allowance.

Will the Personal Allowance increase in future?

Future increases depend on government policy decisions. Current thresholds remain fixed unless changed through legislation.

Tax Codes: What Should You Put for Personal Allowances?

Posted on by Rida Ahmed

For UK employees, pensioners and employers asking, “What should I put for personal allowances?”, the answer depends on the person’s tax position rather than a figure chosen manually. For the 2026-2027 tax year, the standard Personal Allowance is £12,570, and many people with one job or pension will usually have a 1257L tax code. Employers should rely on HMRC information, a P45 or the starter checklist process when setting up PAYE.

A wrong allowance or tax code can affect take-home pay and create later corrections. For businesses, payroll mistakes can lead to employee queries, extra administration and inaccurate deductions.

Key Points

  • The standard Personal Allowance for 2026 to 2027 is £12,570.
  • The common 1257L tax code usually applies to people receiving the standard allowance.
  • Employers should not decide an employee’s allowance without HMRC information.
  • A P45 is normally the starting point when a worker changes jobs.
  • The starter checklist PAYE process applies when a new employee has no P45.
  • Higher earners may lose some or all of their Personal Allowance.

How Does the 1257L Tax Code Work?

The UK Personal Allowance remains fixed at £12,570 for the 2026 to 2027 tax year. The tax year runs from 6 April 2026 to 5 April 2027, and the allowance represents the amount of income an individual can receive before Income Tax becomes payable.

For payroll purposes, employees do not normally enter a cash allowance figure themselves. Instead, HMRC converts their circumstances into a tax code, which employers use through PAYE.

How HMRC Decides the Tax Code:

Personal Allowances are a central part of the PAYE system. They determine how much income is treated as tax-free before Income Tax is deducted from earnings.

The figure shown through payroll is usually reflected through a personal allowance tax code rather than a separate payment adjustment. HMRC considers factors such as employment income, taxable benefits, pension income and unpaid tax when calculating the correct code.

For most employees, the employer’s role is to apply the code provided by HMRC rather than calculate the allowance independently.

When to Use a P45 or Starter Checklist:

If an employee has one job, no taxable benefits, no additional income and no outstanding tax adjustments, the usual position is the standard 1257L tax code.

However, the correct answer depends on the form being completed:

  • When starting a job, provide details from your P45 where available.
  • If there is no P45, complete the starter checklist PAYE questions accurately.
  • Check HMRC records if your income or employment situation has changed.
  • Do not automatically select the highest allowance if you have other income sources.

A 1257L tax code generally means the person receives the standard Personal Allowance. The number represents the tax-free amount divided by ten, while the letter indicates the individual’s circumstances.

Which Situations Change a Tax Code:

For employers, the standard Personal Allowance translates into PAYE payroll thresholds of £242 per week and £1,048 per month during the 2026 to 2027 tax year.

Not every taxpayer receives the full allowance. HMRC can adjust tax codes because of:

  • Company benefits such as private medical insurance or a company car.
  • Untaxed income.
  • Previous underpaid tax.
  • More than one employment.
  • Pension income.

High earners are also affected. A personal allowance is reduced by £1 for every £2 of adjusted net income above £100,000 and can fall to zero once income reaches £125,140 or above.

Who Is Most Likely to Get the Wrong Code?

The issue commonly affects:

  • Employees joining a new employer.
  • Businesses processing payroll for new starters.
  • Directors receiving PAYE salary.
  • Workers with multiple jobs.
  • Pensioners with employment income.
  • Employees receiving taxable benefits.

The correct tax code becomes particularly important when someone’s circumstances change. A new job, second income source or benefit can alter the amount of tax-free income available.

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Why Employers Should Not Guess the Allowance:

The main mistake businesses and employees make is treating personal allowance as a fixed choice rather than part of the wider PAYE system.

Someone completing a form may see a question about allowances and assume they should enter £12,570. In reality, payroll depends on the tax code issued for that individual.

A business should avoid manually changing allowances unless supported by HMRC guidance. Applying an incorrect code can result in employees paying the wrong amount of tax throughout the year.

Employees should regularly check their tax code through their HMRC account, especially after changing jobs, receiving benefits or starting pension income.

How to Check and Correct PAYE Details:

Payroll accuracy affects both compliance and employee trust. A wrong tax code can reduce or increase take-home pay incorrectly and may require later adjustments through PAYE.

For small businesses, payroll queries can create unnecessary administration. Directors also need to consider how salary, dividends, benefits and other income affect their overall tax position.

Keeping payroll records accurate and applying HMRC coding notices promptly helps prevent avoidable issues. Employees who change jobs or take on a second income should always confirm their personal allowance tax code is up to date before the next payroll run.

What Businesses Should Do

Employers should:

  • Use P45 details when available.
  • Ask new employees to complete the starter checklist where required.
  • Apply HMRC coding notices promptly.
  • Review unusual codes such as BR, 0T, K and emergency codes.
  • Update payroll records when employee circumstances change.
  • Encourage employees to review their HMRC tax details.

How Can Apex Accountants Help?

Apex Accountants supports businesses with PAYE, payroll and tax code matters by reviewing processes and identifying areas where errors may occur. Our team provides practical guidance to help employers maintain accurate payroll records and apply the correct tax treatment.

We can help with:

  • Reviewing PAYE tax codes and payroll calculations.
  • Checking starter checklist treatment for new employees.
  • Advising directors on salary, benefits and wider tax considerations.
  • Identifying potential payroll errors linked to incorrect tax codes.
  • Supporting businesses with HMRC-related payroll queries.

By combining payroll knowledge with wider tax expertise, Apex Accountants helps businesses manage their obligations with greater confidence and accuracy. Contact us and book your consultation with tax experts today.

Conclusion

For most people asking, “What should I put for personal allowances”, the starting point is the standard £12,570 Personal Allowance and the commonly used 1257L tax code. However, the correct position depends on HMRC information, employment circumstances and other sources of income. To review your PAYE position, contact Apex Accountants today.

FAQs

What should I put for personal allowances on a tax form?

Most people with one job and no adjustments will usually have the standard Personal Allowance of £12,570, but the correct answer depends on HMRC information.

What does a 1257L tax code mean?

A 1257L tax code usually means the taxpayer receives the standard Personal Allowance through PAYE.

Should employers choose an employee’s Personal Allowance?

No. Employers should use the tax code provided by HMRC or information from the starter checklist process.

Can my Personal Allowance be reduced?

Yes. It can be reduced because of high income, taxable benefits, unpaid tax or other income.

How can I check if my tax code is correct?

You can review your tax code through HMRC’s online Income Tax service and update any incorrect details.

Tax Liabilities From Cryptoassets Explained for UK Investors and Traders 

Posted on by Talha Zubair

We are increasingly approached by people who have traded between tokens for several years but never withdrawn money to a UK bank account. Many assume that no tax arises until cryptocurrency is converted into pounds. That is not how the UK rules work.

HMRC has confirmed that it may contact people who have traded cryptoassets by letter, email or text message. The contact may ask them to check whether their crypto income and gains have been declared correctly. This makes it important to review potential tax liabilities from cryptoassets before replying or submitting another tax return.

Quick Answer

  • Buying and continuing to hold cryptoassets does not normally create an immediate tax charge.
  • Selling, exchanging, spending or giving away tokens can be a disposal for Capital Gains Tax.
  • Crypto received through employment, mining, staking or lending may be subject to Income Tax.
  • The Capital Gains Tax annual exempt amount is £3,000 for 2026/27.
  • Cryptoasset service providers have collected customer tax details under the Cryptoasset Reporting Framework since 1 January 2026.
  • Undeclared liabilities can sometimes be corrected through self-assessment or HMRC’s Cryptoasset Disclosure Service.

What Are Cryptoassets for UK Tax Purposes?

Cryptoassets are digital representations of value whose transactions are secured and validated using distributed ledger technology or similar cryptographic systems. They include exchange tokens such as bitcoin, utility tokens, security tokens, stablecoins and non-fungible tokens.

HMRC does not generally treat cryptoassets as money or currency. Their tax treatment depends on the nature of the asset, how it was acquired and what the owner did with it. A token received as payment for work can therefore have a different treatment from the same token bought as an investment.

This distinction is central to Cryptoassets and tax because a transaction may fall under:

  • Capital Gains Tax
  • Income Tax
  • National Insurance contributions
  • Corporation Tax
  • Inheritance Tax
  • VAT, where a business supplies taxable goods or services in return for cryptoassets

For most individuals buying tokens as investments, HMRC expects gains and losses to fall within the Capital Gains Tax rules rather than being treated as trading profits. The position may differ where the frequency, organisation, commercial purpose and overall circumstances amount to a financial trade.

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Why Is HMRC Reviewing Tax Liabilities From Cryptoassets?

HMRC is reviewing crypto activity because exchange and service-provider information can be compared with tax returns and other taxpayer records. Its official guidance confirms that people who traded cryptoassets may receive letters, emails or text messages asking them to check and report crypto income or gains.

Receiving a letter does not automatically mean HMRC has opened a formal investigation or decided that tax is due. It does mean the taxpayer should carry out a proper reconciliation rather than reply from memory.

A review should include:

  • Centralised exchange accounts
  • Self-custody wallets
  • Decentralised exchanges
  • Staking and lending platforms
  • Airdrops and token rewards
  • Purchases made using tokens
  • Transfers between personally controlled wallets
  • Transactions on overseas platforms
  • Previous disposals and reported capital losses

One common mistake is to review only cash withdrawals. A taxable disposal may have occurred even where the proceeds remained within the crypto ecosystem.

Which Crypto Transactions Trigger Capital Gains Tax?

Capital gains tax can arise when an individual sells, exchanges, spends or gives away cryptoassets. The tax is charged on the gain, not the total amount received.

HMRC treats the following transactions as disposals:

Crypto ActivityUsual UK Tax TreatmentPractical Point
Buying and holding tokensNo immediate disposalTax is normally considered when the tokens are later disposed of.
Selling tokens for poundsCapital disposalCalculate the difference between disposal proceeds and allowable cost.
Exchanging one token for anotherCapital disposalThe sterling market value of the token received is used.
Using tokens to buy goods or servicesCapital disposalTax may arise even though no cash is received.
Gifting tokens to another personUsually a market-value disposalTransfers to a spouse or civil partner normally follow different rules.
Moving tokens between wallets under the same ownershipNormally no disposalEvidence of beneficial ownership should be retained.
Donating tokens to charityUsually no Capital Gains TaxExceptions can apply to tainted donations or sales above acquisition cost.

HMRC specifically confirms that exchanging one type of token for another is a disposal. Moving the same tokens between wallets that remain under the same beneficial ownership is not normally a disposal.

The gain is broadly calculated as:

Sterling disposal value minus allowable acquisition cost and allowable transaction costs

Allowable costs may include acquisition expenditure, transaction fees, certain valuation costs and the appropriate share of a pooled acquisition cost. Costs already deducted for Income Tax cannot normally be deducted again.

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When Does Receiving Crypto Create an Income Tax Liability?

Crypto received from employment, mining, staking or lending can create an Income Tax liability at the point of receipt. Its sterling value at that time is normally used to calculate the taxable amount.

How Crypto Is ReceivedUsual Tax Treatment
Employment remunerationEmployment income, potentially subject to PAYE and National Insurance
Mining carried on as a trade.Trading income
Occasional mining outside a tradeMiscellaneous income
Staking rewards outside a tradeMiscellaneous income
Lending or DeFi returnsUsually miscellaneous income where no trade exists
Airdrop received for performing a serviceTrading or miscellaneous income
Unsolicited personal airdrop with no service or conditionMay fall outside Income Tax, although a later disposal can create a capital gain

HMRC allows up to £1,000 of combined trading and miscellaneous income each tax year through the trading and miscellaneous income allowance. Crypto income counts towards the same allowance as other relevant income sources. Where total miscellaneous income is between £1,000 and £2,500, HMRC says the individual should contact it. Where it exceeds £2,500, self-assessment registration may be required.

An airdrop does not automatically create Income Tax. HMRC says Income Tax may not apply where tokens are received without the recipient providing a service, meeting conditions or carrying on a related trade. A later sale or exchange can still produce a chargeable gain.

Where income tax has already been charged on tokens, the value taxed as income generally becomes part of their acquisition cost. Capital gains tax is then considered only on the subsequent increase or decrease in value.

How Much Tax on Cryptoassets Could You Pay in 2026/27?

For 2026/27, individuals have a capital gains tax annual exempt amount of £3,000. Gains falling within the unused basic-rate band are generally taxed at 18%, while gains above that band are generally taxed at 24%.

2026/27 MeasureAmount or Rate
Capital Gains Tax annual exempt amount£3,000
Capital Gains Tax rate within the available basic-rate band18%
Capital Gains Tax rate above the basic-rate band24%
Basic-rate band used in the CGT calculation£37,700
Trading and miscellaneous income allowanceUp to £1,000

Income from employment, staking, mining or lending is taxed under the relevant Income Tax rules rather than the Capital Gains Tax rates. The precise rate depends on the taxpayer’s total income, residence and circumstances. Scottish Income Tax bands differ for certain types of non-savings, non-dividend income.

Worked Crypto Capital Gains Tax Example

Suppose an individual has taxable income of £30,000 and makes total net crypto gains of £15,000 during 2026/27.

  1. Deduct the £3,000 annual exempt amount.
  2. The taxable gain is £12,000.
  3. The remaining basic-rate band is £37,700 minus £30,000, which equals £7,700.
  4. £7,700 is taxed at 18%, producing £1,386.
  5. The remaining £4,300 is taxed at 24%, producing £1,032.
  6. The total Capital Gains Tax is £2,418.

This assumes there are no other gains, losses or reliefs affecting the calculation.

A separate reporting rule can apply even where the gain is below £3,000. An individual already registered for self-assessment must report capital disposals if the total proceeds from relevant assets exceed £50,000 for 2023/24 onwards.

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How Are Crypto Gains Calculated Under HMRC Pooling Rules?

Fungible tokens of the same type are normally grouped into a separate Section 104 pool. Instead of identifying the precise bitcoin or ether sold, the taxpayer maintains a running quantity and pooled allowable cost.

Each token type requires its own pool. Bitcoin, ether and another token would therefore have three separate calculations.

Disposals are matched in this order:

  1. Tokens acquired on the same day as the disposal
  2. Tokens of the same type acquired within the following 30 days
  3. Tokens held in the Section 104 pool

The 30-day rule can affect people who sell tokens and buy the same type back shortly afterwards. It may prevent the new purchase cost from immediately entering the general pool and instead match it against the earlier disposal.

NFTs are normally separately identifiable. HMRC therefore states that they are not pooled in the same way as interchangeable tokens.

Pooling is one reason exchange-generated gain reports should not be accepted without checking them. A platform may not know what the user holds elsewhere, whether tokens were transferred between personal wallets or whether a same-day or 30-day acquisition occurred on another exchange.

What Records Does HMRC Expect Crypto Investors to Keep?

Taxpayers must keep records showing how each taxable figure was calculated. An exchange statement alone is rarely sufficient where several platforms or private wallets have been used.

Records should include:

  • The type and quantity of tokens
  • Acquisition and disposal dates
  • Sterling values at the time of each transaction
  • Transaction identifiers
  • Wallet addresses
  • Exchange statements
  • Bank statements
  • Fees and other allowable costs
  • Tokens remaining after each disposal
  • Pooled costs before and after each transaction
  • Evidence that wallet-to-wallet movements remained under the same beneficial ownership
  • Records of mining, staking, lending and airdrop income

HMRC warns that exchange reports are not tax calculations and do not maintain a taxpayer’s complete pooled costs. Individuals remain responsible for keeping their own records.

Values must be converted into pounds sterling using a reasonable and consistently applied valuation at the relevant transaction time. Retaining the pricing source and calculation is particularly important for low-liquidity tokens.

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How Does the Cryptoasset Reporting Framework Affect HMRC Data?

The Cryptoasset Reporting Framework requires relevant service providers to collect identifying information and report transaction data. It gives HMRC a more systematic method of linking crypto activity to individual and business tax records.

Since 1 January 2026, service providers have been required to collect details, including a customer’s:

  • Full name
  • Address
  • Country or countries of tax residence
  • Tax identification number

Entities may also need to provide information about their controlling persons.

The first provider reports must be submitted between 1 January and 31 May 2027, covering the calendar year from 1 January to 31 December 2026. Subsequent reports are due by 31 May for the preceding calendar year.

Using an overseas exchange does not necessarily keep the activity outside HMRC’s view. Where the provider’s country participates in the same international reporting arrangements, its tax authority can share information with HMRC.

CARF data does not calculate the customer’s UK tax liability. It provides transaction and identity information that HMRC can compare with declared income and gains. The taxpayer must still apply the UK income, disposal, pooling and loss rules correctly.

What Should You Do if HMRC Contacts You About Crypto?

You should verify the communication, preserve the underlying records and calculate the correct position before replying. A rushed response based only on one exchange account may create further inconsistencies.

Take the following steps:

  1. Confirm the contact is genuine. Compare it with HMRC’s published contact guidance and do not provide information through an unverified link.
  2. Read the wording carefully. Establish whether it is an educational letter, a request to review your position, a formal information notice or an investigation.
  3. Download transaction histories promptly. Platforms can close, merge or restrict access to old records.
  4. Map transfers between accounts and wallets. This avoids treating internal movements as sales while identifying genuine swaps.
  5. Separate income from capital transactions. Staking income should not simply be grouped with investment gains.
  6. Reconstruct token pools. Apply same-day, 30-day and Section 104 matching rules.
  7. Review all relevant tax years. Do not restrict the calculation to the year mentioned unless the letter clearly does so.
  8. Correct errors through the appropriate route. This may involve an amended return, a new return or HMRC’s disclosure service.
  9. Reply within the stated deadline. Keep a copy of the calculations, supporting records and correspondence.

Where the records involve multiple wallets, DeFi arrangements, historic transactions or missing acquisition values, obtaining professional HMRC investigation support before responding can reduce the risk of providing an incomplete explanation.

How Can Undeclared Crypto Tax Be Corrected?

Undeclared crypto income or gains should be corrected using the route appropriate to the tax year and the taxpayer’s filing position. HMRC operates a dedicated Cryptoasset Disclosure Service for unpaid Income Tax and Capital Gains Tax relating to assets including exchange tokens, NFTs and utility tokens.

CircumstancePossible Correction Route
A current return has not yet been submitted.Include the correct figures in Self Assessment
A submitted return remains open for amendment.Amend the Self Assessment return
A return should have been submitted but was not.Register or submit the missing return as required.
Unpaid tax relates to earlier years.Consider the Cryptoasset Disclosure Service.
HMRC has already opened an enquiry.Follow the enquiry process rather than making an unrelated disclosure.

The number of years covered depends partly on the taxpayer’s behaviour:

  • Up to 4 years where reasonable care was taken
  • Up to 6 years where insufficient care was taken
  • Up to 20 years where the failure was deliberate

HMRC charges interest from the date the tax should have been paid. Its crypto disclosure guidance also requires the taxpayer to calculate the appropriate penalties and generally pay the disclosed amount within 30 days of submitting the disclosure.

Penalties are fact-specific. HMRC states that where it identifies unpaid crypto tax, a penalty can reach 100% of the tax due, plus interest, with potentially higher penalties for offshore matters. This is a maximum rather than an automatic rate. The final percentage depends on matters such as behaviour, disclosure and cooperation.

A voluntary and complete disclosure will generally place a taxpayer in a stronger position than waiting for HMRC to identify the discrepancy.

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What Crypto Tax Changes Are Planned From April 2027?

The government has published draft legislation proposing new rules for eligible stablecoins, cryptoasset loans and liquidity pools from April 2027. These measures are not yet the rules for 2026/27 and should not be applied early.

The proposed changes include:

  • Exempting disposals of eligible stablecoins from Capital Gains Tax for individuals and trustees
  • Taxing interest-like returns from eligible stablecoins as savings income
  • Applying the stablecoin changes from 6 April 2027 for individuals and trustees
  • Applying separate company provisions from 1 April 2027
  • Introducing no-gain, no-loss treatment for specified crypto lending arrangements
  • Introducing new rules for certain borrowing and automated market-maker liquidity arrangements

The government intends to include these measures in Finance Bill 2026/27. Draft legislation was released for technical consultation, which means the final wording may change before enactment.

Until the legislation takes effect, eligible stablecoin exchanges and transfers into lending or liquidity arrangements must be considered under the existing rules. Taxpayers should not assume that a stablecoin transaction is currently exempt merely because its value is linked to sterling or another fiat currency.

For more background on the reporting changes, see our guide to crypto tax reporting requirements in the UK.

FAQs About Tax on Cryptoassets in UK

Do I Pay Tax if I Only Buy and Hold Crypto?

Buying cryptoassets and continuing to hold them does not normally create an immediate Capital Gains Tax charge. Tax is generally considered when the tokens are sold, exchanged, spent or given away. Income Tax may apply earlier where the tokens were received as earnings or rewards.

Are Crypto-to-Crypto Swaps Taxable Without a Cash Withdrawal?

Yes. Exchanging one type of token for another is normally a disposal for Capital Gains Tax, even when no pounds enter a bank account. The sterling market value of the tokens received is used when calculating the disposal proceeds.

Can I Claim a Tax Loss if I Lose My Private Key?

Losing a private key does not itself count as a disposal because the tokens still exist on the distributed ledger. A negligible-value claim may be possible where there is no realistic prospect of recovering the key or accessing the assets. Evidence of the loss and recovery attempts should be retained.

Must I Report Crypto Gains Below the £3,000 Allowance?

You will not normally pay Capital Gains Tax where total taxable gains remain within the annual exempt amount. However, someone already within Self Assessment must report relevant disposals if total proceeds exceed £50,000. Reporting a capital loss may also be worthwhile so it can be used against qualifying gains in later years.

Can HMRC See Transactions on an Overseas Crypto Exchange?

HMRC may receive information from overseas providers where the relevant country participates in international cryptoasset reporting arrangements. CARF is designed to allow transaction and identity information to be exchanged between participating tax authorities.

Do I Need an Accountant to Report Crypto Tax?

There is no general legal requirement to appoint an accountant solely because you own cryptoassets. Professional assistance is required where there are multiple exchanges, DeFi transactions, missing records, historic liabilities, large gains or HMRC correspondence. The value lies in reconstructing the figures correctly and applying the income, pooling and disclosure rules consistently.

When Should You Seek Professional Crypto Tax Advice?

Professional advice is particularly useful before responding to HMRC, correcting several tax years or submitting calculations involving multiple exchanges and wallets.

Apex Accountants can review transaction records, reconstruct token pools, separate income from capital gains and assess whether a tax return amendment or disclosure is required. Our capital gains tax services and HMRC tax investigation support can provide a structured route to correcting the position.

The next step is to book a consultation before replying to HMRC or submitting figures that may be incomplete.

Inheritance Tax and Pensions: Will My Pension Be Taxed When I Die?

Posted on by Noor E Amina

In many cases, your pension may not be taxed in the same way as the rest of your estate, but the rules depend on your age at death, the pension type and whether death occurs before or after 6 April 2027. The question “will my pension be taxed when I die?” has become more urgent for UK families, company directors and pension beneficiaries. The answer depends on three factors: the type of pension, the age at death, and the date of death. Under current rules, many unused pension pots can still pass outside the inheritance tax net. From 6 April 2027, most unused pension funds and pension death benefits will be brought into the value of the deceased person’s estate for inheritance tax purposes.

Key Points

  • Most unused pension funds will fall within inheritance tax from 6 April 2027.
  • Death in service benefits from registered pension schemes will remain outside the new inheritance tax charge.
  • If death occurs before age 75, some pension death benefits may be paid free of income tax, subject to the rules.
  • If death occurs at age 75 or later, beneficiaries usually face income tax on pension death benefits.
  • The standard inheritance tax rate is 40% on the value of the estate above the available threshold.

The Autumn Statement Shakeup: What Changed Under the Finance Act 2026?

Finance Act 2026 received Royal Assent on 18 March 2026. The legal basis for the reform sits in the Finance Act 2026, which legislates for changes affecting the inheritance tax treatment of unused pension funds and pension death benefits. The legislation brings reforms into effect for deaths on or after 6 April 2027. If a pension scheme member dies before 6 April 2027, the current rules will apply, even if benefits are paid after that date.

HMRC has said personal representatives, rather than pension scheme administrators, will be liable for reporting and paying inheritance tax due on unused pension funds and pension death benefits.

The Evolution of Wealth Protection: Background and Context

In recent years, they have also been used as estate planning tools. The wider debate around inheritance tax on pensions has grown because many families have treated unused pension funds differently from savings, property, and investments. 

A common planning approach has been to spend ISAs, savings, and other taxable assets first, while leaving defined contribution pension funds untouched. That allowed unused pension wealth to pass to nominated beneficiaries, often outside inheritance tax.

UK pension death taxation still depends on whether the payment is a lump sum, drawdown, annuity protection, dependant’s pension or death in service benefit.

Age 75 and the Two-Year Window: How Pension Tax Depends on Age and Payment Type

Before 6 April 2027, many discretionary pension schemes can pay unused funds outside the estate for inheritance tax. However, income tax may still apply depending on age at death and how the benefits are paid.

If the pension member dies before age 75, lump sum death benefits can generally be tax-free if paid within two years and within the relevant allowance rules. HMRC guidance states that lump sum death benefits become taxable where the member dies aged 75 or older, or where payment is made more than two years after the scheme administrator became aware of the death.

From 6 April 2024, the lifetime allowance was abolished. It was replaced for these purposes by limits including the lump sum and death benefit allowance. The standard lump sum and death benefit allowance is usually £1,073,100, although protected allowances may apply.

If death occurs at age 75 or later, beneficiaries normally pay income tax at their marginal rate on taxable pension death benefits. Where taxable lump sum death benefits are paid to non-individuals, such as a trust or company, a 45% special lump sum death benefits charge can apply.

Navigating the Thresholds: Key Rules or Changes

The incoming pension inheritance tax 2027 rules make pension values part of wider estate planning.

Deaths before 6 April 2027

For most pensions, inheritance tax will not usually apply to unused discretionary pension funds.

Income tax can still apply. Key points include:

  • Death before age 75 may allow tax-free death benefits, subject to timing and allowance rules.
  • Death at age 75 or later normally brings income tax for the beneficiary.
  • Payments outside the two years can become taxable.

Deaths on or after 6 April 2027

Most unused pension funds and pension death benefits will be included in the estate for inheritance tax.

The government has confirmed important exclusions. Death-in-service benefits payable from registered pension schemes will remain outside inheritance tax. Dependants’ scheme pensions from defined benefit arrangements and collective money purchase arrangements are also excluded from the changes.

The nil-rate band is fixed at £325,000, and the residence nil-rate band is fixed at £175,000, with the residence nil-rate band taper starting at £2 million.

Assessing Your Exposure: Who Is Affected

The change is most relevant to:

  • Individuals with sizeable defined contribution pensions.
  • Company directors who have used employer pension contributions as a long-term extraction strategy.
  • Families where pension pots were expected to pass outside inheritance tax.
  • Business owners with death in service and workplace pension arrangements.

Understanding inheritance tax on pensions is essential for anyone reviewing their long-term estate and retirement plans. Defined benefit pensions may be affected differently. A spouse’s or dependant’s pension is not the same as an unused pension pot.

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Proactive Steps for Directors: What Businesses Should Do

For company owners, the change may affect long-term extraction plans where pension contributions were used to build retirement wealth while also reducing future estate exposure.

A pension may still be valuable, but it should no longer be viewed as automatically outside the inheritance tax calculation after April 2027.

For employers, death-in-service arrangements need review. The government has confirmed that death in service benefits from registered pension schemes will remain outside the new inheritance tax scope, but scheme structure and documentation should still be checked.

What Businesses Should Do

Business owners and directors should take practical steps now:

  • Review pension nomination forms and keep them current.
  • Check whether pension benefits are defined contribution, defined benefit, or death in service.
  • Calculate likely estate values, including pension wealth from 6 April 2027.
  • Review the inheritance tax impact of company pension contributions.
  • Consider whether wills and pension nominations still work together.
  • Take advice before making large pension, gifting, or estate planning decisions.

Pensions still offer valuable tax relief and retirement planning advantages. The point is to assess them within the full estate and family wealth position.

How Can Apex Accountants Help?

Apex Accountants can support individuals, directors, and family businesses with pension-related tax planning and inheritance tax reviews.

Our advisory work can include:

  • Reviewing pension tax exposure before and after 6 April 2027.
  • Assessing inheritance tax risk for business owners and high earners.
  • Checking how pension death benefits interact with wills and estate planning.
  • Advising on company pension contributions and director remuneration.

Our advisers help clients prepare early for pension inheritance tax 2027, so nothing is left to the last minute. Apex Accountants provides tax planning support that covers income tax, capital gains tax, inheritance tax, payroll, VAT, and corporation tax, with specific support for inheritance tax and pension planning strategies. Contact Apex Accountants today and book a free consultation with one of our experts to get all the guidance you need.

Conclusion

The question “Will my pension be taxed when I die?” now needs a dated answer. For deaths before 6 April 2027, many unused pension funds may remain outside inheritance tax, although income tax can still apply. For deaths on or after 6 April 2027, most unused pension funds will be brought into the estate for inheritance tax. 

FAQs

Will my pension be taxed when I die before age 75?

It may be paid free of income tax if the conditions are met, including the two-year payment rule and allowance limits. Inheritance tax treatment depends on the date of death and the pension structure.

What happens if I die after age 75?

Beneficiaries will usually pay income tax at their own marginal rate on taxable pension death benefits.

Will pensions be subject to inheritance tax from 2027?

Yes, most unused pension funds and pension death benefits will be included in the estate for deaths on or after 6 April 2027.

Are death-in-service benefits included in the 2027 change?

No. The government has confirmed that death-in-service benefits from registered pension schemes will remain outside the inheritance tax scope.

What is the inheritance tax rate?

The standard inheritance tax rate is 40% on the value of the estate above the available threshold.

What Are the EIS and VCT New Limits From April 2026? 

Posted on by Farazia Gillani

We are increasingly asked whether the EIS and VCT new limits give growing companies more scope to raise tax-advantaged investments. The answer is yes, but the changes do not simply increase every allowance available to companies and investors.

From 6 April 2026, most qualifying companies can raise considerably more under the Enterprise Investment Scheme and through Venture Capital Trust investment. The company’s gross asset thresholds have also increased. However, the upfront income tax relief available to individuals investing in newly issued VCT shares has fallen from 30% to 20%.

Quick Answer

  • Most qualifying companies can now raise up to £10 million in a rolling 12-month period, increased from £5 million.
  • The standard lifetime investment limit has increased from £12 million to £24 million.
  • Knowledge-intensive companies can raise up to £20 million annually and £40 million over their lifetime.
  • The gross assets test is now £30 million before investment and £35 million immediately afterwards.
  • VCT income tax relief has fallen from 30% to 20% for investments made from 6 April 2026.
  • EIS income tax relief remains at 30%.
  • Older limits continue to apply to certain Northern Ireland companies carrying on specified activities.

What Are the EIS and VCT New Limits From 6 April 2026?

The EIS and VCT new limits double the main annual and lifetime funding caps for most qualifying companies. They also increase the amount of gross assets a company may hold while remaining within the schemes.

Company TestBefore 6 April 2026From 6 April 2026
Standard annual investment limit£5 million£10 million
Knowledge-intensive annual limit£10 million£20 million
Standard lifetime investment limit£12 million£24 million
Knowledge-intensive lifetime limit£20 million£40 million
Gross assets immediately before investment£15 million£30 million
Gross assets immediately after investment£16 million£35 million

These limits consider relevant risk finance investments received under EIS, VCT, SEIS and certain other forms of qualifying support. Amounts received by subsidiaries, former subsidiaries or businesses later acquired by the company may also need to be counted.

The limits are not separate pots for EIS and VCT funding. A company cannot raise £10 million through EIS and then treat a further £10 million of VCT-backed funding as falling outside the same annual limit.

Read: Reduce Capital Gains Tax With EIS, SEIS, VCT Tax Benefits

Which Companies Benefit From the EIS Changes in 2026?

Most UK growth companies that remain within the wider EIS qualifying conditions can benefit from the increased limits. The changes are particularly relevant to businesses that had reached, or were approaching, the former £5 million annual or £12 million lifetime caps.

A qualifying company may now have more room to

  • complete a larger funding round
  • raise follow-on finance from existing or new investors
  • accept investment at a later stage of growth
  • combine direct EIS investment with VCT-backed funding
  • continue expansion after reaching the former lifetime ceiling
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Example

Consider a qualifying technology company that had already received £11 million of relevant risk finance investment before April 2026.

Under the previous standard lifetime limit of £12 million, it would generally have had only £1 million of remaining headroom. Under the new £24 million lifetime limit, it may have significantly more capacity, provided the company and the new share issue satisfy all other conditions.

The increased cap does not automatically make a company eligible. Its trade, age, share structure, use of funds and risk-to-capital position must still meet the scheme rules. HMRC requires the company to have objectives to grow and develop over the long term, while the investment must expose the investor to a significant risk of capital loss.

How Do the New Limits Affect Knowledge-Intensive Companies?

A qualifying knowledge-intensive company can now receive up to £20 million in relevant investment during a rolling 12-month period and £40 million over its lifetime. These are twice the limits that generally applied before 6 April 2026.

Knowledge-intensive company status is intended for businesses carrying out substantial research, development or innovation. Additional tests apply, so a company does not qualify merely because it operates in technology, software or life sciences.

The increased limits may be particularly valuable for businesses with:

  • long research and development periods;
  • high product-development costs;
  • substantial technical staffing requirements;
  • delayed commercial income;
  • repeated funding needs before profitability.

A company intending to rely on the higher limits should establish its status before presenting the investment as EIS or VCT qualifying. The relevant evidence may include expenditure records, employee qualifications, intellectual property ownership and details of the company’s innovation activities.

Read: Record VCT Fundraising and Tax Relief Changes

What Changed in the Gross Assets Test?

For most companies, gross assets must not exceed £30 million immediately before the investment and £35 million immediately afterwards. Before 6 April 2026, the equivalent limits were £15 million and £16 million.

The test is applied to the company or, where applicable, the relevant group. It is based on gross assets rather than net assets, so liabilities do not simply reduce the figure for this purpose.

The timing of the test matters:

  • Immediately before the share issue: gross assets must not exceed £30 million.
  • Immediately after the share issue: gross assets must not exceed £35 million.

A company with £29 million of gross assets before raising £5 million would have £34 million immediately afterwards, assuming no other balance-sheet movement. It may therefore remain within the increased asset thresholds.

By contrast, a company with £32 million of assets immediately before the issue would normally fail the first part of the test, even if it had significant liabilities.

Management accounts and an up-to-date balance sheet should be reviewed before the investment date. Relying only on the previous statutory accounts may produce the wrong answer where the company’s assets have changed materially.

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Have the EIS Tax Reliefs Available to Investors Changed?

The main EIS income tax relief rate remains 30%, despite the higher company fundraising limits. An individual may generally claim relief on up to £1 million of EIS investment per tax year or up to £2 million where the amount above £1 million is invested in knowledge-intensive companies.

The tax reduction cannot exceed the investor’s UK income tax liability for the relevant year. Unused relief cannot be carried forward to a later tax year, although eligible EIS shares may be treated as issued in the preceding tax year, subject to that year’s limits and conditions.

EIS Investor Example

An investor subscribes £100,000 for qualifying EIS shares during 2026/27.

At 30%, the maximum initial income tax relief is:

£100,000 × 30% = £30,000

The investor must have sufficient income tax liability to use the full £30,000. The company and investor must also continue meeting the EIS requirements, including the relevant minimum holding period.

The increase in company funding limits does not increase the standard 30% relief rate or the general £1 million investor allowance.

What Are the Main VCT Income Tax Relief Changes in 2026?

The company-level funding and gross asset limits have increased, but the upfront VCT income tax relief rate has fallen to 20% for qualifying investments from 6 April 2026. The individual investment limit remains £200,000 per tax year.

The principal VCT investor position is now:

VCT Rule2025/26From 2026/27
Maximum annual investment qualifying for relief£200,000£200,000
Upfront income tax relief30%20%
Maximum potential initial relief£60,000£40,000
Tax treatment of qualifying VCT dividendsTax-freeTax-free
Capital Gains Tax on qualifying VCT disposalsExemptExempt

HMRC’s updated guidance confirms that investors can claim VCT relief on no more than £200,000 in a tax year and that the applicable rate is now 20%. VCT relief is available only for the tax year in which the qualifying investment is made; unlike EIS relief, it cannot be carried back to the previous year.

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VCT Investor Example

An investor subscribes £100,000 for newly issued qualifying VCT shares during 2026/27.

The maximum upfront income tax relief is:

£100,000 × 20% = £20,000

Before 6 April 2026, an equivalent qualifying subscription could have generated relief of £30,000. The 2026 change therefore reduces the initial tax saving by £10,000 on a £100,000 investment.

The investor must still have enough UK income tax liability to absorb the relief and meet the required holding conditions.

Do the EIS and VCT Scheme Changes Apply to Every Company?

No. Certain companies registered in Northern Ireland continue to use the former annual, lifetime and gross asset limits. HMRC refers to these businesses as specified companies.

Broadly, a specified company is one whose registered office is in Northern Ireland and which carries on a trade involving:

  • goods, generally including manufacturing rather than services; or
  • specified wholesale electricity market activities, including generation, transmission or distribution.

For these companies, the standard annual limit remains £5 million, and the standard lifetime limit remains £12 million. A qualifying knowledge-intensive specified company retains the former £10 million annual and £20 million lifetime limits.

This exception exists because different subsidy control arrangements can apply to certain Northern Ireland activities. A Northern Ireland company should not assume that it qualifies for the higher limits simply because its investment takes place after 6 April 2026.

Do the Higher Limits Remove the Other EIS Eligibility Conditions?

No. The EIS changes 2026 increase selected financial thresholds but do not remove the wider qualifying conditions. A company must still satisfy requirements covering its trade, age, independence, use of funds and share issue.

The company will normally need to consider whether:

  • it carries on a qualifying trade
  • it has a permanent establishment in the UK
  • it is not controlled by another company
  • the shares are eligible ordinary shares
  • the investment is made for genuine commercial reasons
  • the funds will be used for qualifying business growth
  • the money will be employed within the required period
  • the company remains within the relevant employee limit
  • the investment satisfies the risk-to-capital condition
  • it is within the permitted period following its first commercial sale

For most companies, the initial investment must generally occur within seven years of the first commercial sale. Different provisions can apply to knowledge-intensive companies and to businesses raising finance for a new product or market under the relevant conditions.

EIS qualification is not a one-time test completed on the investment date. A later breach can lead to investors losing relief.

Also Read: Everything About R&D Tax Relief Advance Assurance For SMEs

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Should a Company Apply for EIS Advance Assurance?

A company considering an EIS fundraising round should usually consider advance assurance before approaching investors, particularly where eligibility is not straightforward. Advance assurance gives HMRC an opportunity to consider whether specified conditions are likely to be met based on the information provided.

It is not a guarantee that investor relief will ultimately be available. HMRC makes clear that assurance addresses only certain conditions and is based on the facts included in the application.

A well-supported application will commonly include:

  • a current business plan;
  • financial forecasts;
  • details of the proposed share issue;
  • an explanation of how the funds will be used;
  • the company’s group structure;
  • information about previous risk finance investment;
  • evidence of potential investors or a fund manager;
  • details supporting knowledge-intensive status, where relevant.

Companies should also check how much relevant investment they and their subsidiaries have already received. Historical funding can count towards the new annual and lifetime limits.

Apex Accountants provides Enterprise Investment Scheme support for companies assessing eligibility, preparing advance assurance applications and completing post-investment compliance work.

What Should Companies Do Before Using the Higher Limits?

A company should complete a documented eligibility review before describing a funding round as EIS or VCT qualifying. The new thresholds create more funding capacity, but errors elsewhere can still put investor relief at risk.

The review should cover four main areas.

1. Recalculate Previous Risk Finance Investment

Compile all relevant amounts received by:

  • the company;
  • current subsidiaries;
  • relevant former subsidiaries;
  • acquired businesses whose previous funding may count;
  • group companies that employed risk finance money in the qualifying trade.

The calculation should cover both the rolling 12-month limit and the lifetime limit.

2. Test Gross Assets at the Correct Time

Prepare reliable financial information immediately before the proposed share issue. Then model the company’s gross assets immediately after receiving the investment.

3. Review the Use of Funds

The investment must support qualifying growth and development. Companies should document how the money will be spent and connect it to the forecasts and business plan.

4. Protect Post-Investment Compliance

The company should monitor changes involving:

  • share capital;
  • investor rights;
  • subsidiaries;
  • trading activities;
  • use of funds;
  • payments or benefits to investors;
  • company acquisitions or disposals.

Post-investment actions can affect relief even when the company qualified on the original issue date.

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Frequently Asked Questions

Did EIS income tax relief fall to 20% in April 2026?

No. EIS income tax relief remains at 30% for qualifying investments. It is VCT upfront income tax relief that fell from 30% to 20% for investments made from 6 April 2026.

Can a company that reached the old £12 million EIS limit raise more?

Potentially, yes. A qualifying company that is not a specified Northern Ireland company may now have a lifetime limit of £24 million, or £40 million if it qualifies as knowledge-intensive. Previous relevant investment still counts, and all other EIS conditions must be satisfied.

Is the £10 million limit based on the tax year?

No. The company annual funding limit operates over a rolling 12-month period, not simply from 6 April to 5 April. Companies must therefore examine relevant investment received during the 12 months surrounding the proposed funding.

Can an investor put £2 million into an ordinary EIS company?

An investor can claim EIS relief on up to £2 million in a tax year only where at least £1 million is invested in knowledge-intensive companies. The general limit for investments not qualifying under the knowledge-intensive rules remains £1 million.

Do the new limits apply to SEIS?

The April 2026 increases discussed here apply to company limits under EIS and VCT. SEIS continues to have its own rules and thresholds, including a maximum qualifying investor subscription of £200,000 per tax year and separate company fundraising limits.

Does HMRC advance assurance guarantee EIS tax relief?

No. Advance assurance is based on the information supplied and covers only specified scheme conditions. Final relief also depends on the actual share issue, the investor’s circumstances and continued compliance after the investment.

How Can Apex Accountants Help With an EIS Funding Round?

The higher limits give qualifying growth companies more scope to raise tax-advantaged finance, but the additional headroom does not reduce the importance of a complete eligibility review.

Apex Accountants can assess previous risk finance funding, review the gross assets test, prepare financial forecasts and support an EIS advance assurance application. We can also assist with the post-investment compliance statement required before qualifying investors receive their EIS certificates.

For companies planning a new round under the EIS and VCT scheme changes, the next sensible step is to review eligibility before finalising investment terms. Book a consultation with Apex Accountants to discuss the proposed funding structure.

Everything About R&D Tax Relief Advance Assurance For SMEs

Posted on by Rida Ahmed

We’re increasingly asked by SME clients whether it’s worth applying for advance assurance before submitting an R&D tax relief claim. Until this year, the honest answer was often “probably not” — the existing scheme was narrow, and HMRC’s own figures show it went almost entirely unused. That’s changed. On 18 May 2026, HMRC launched a new targeted advance assurance pilot alongside the existing full claim service, giving a wider group of SMEs a route to certainty on the specific issues most likely to trigger an enquiry.

This matters because HMRC’s compliance activity on R&D claims has intensified sharply since 2023, and a badly evidenced claim can now mean a lengthy enquiry rather than a quick refund. Advance assurance, done properly, is one of the few tools available to de-risk a claim before it’s even submitted.

Quick answer:

  • HMRC’s new targeted advance assurance pilot launched on 18 May 2026 and will run until May 2027.
  • It lets eligible SMEs get HMRC’s view on up to 2 specific areas of an R&D claim, not the whole thing.
  • Alongside it, the older full claim advance assurance service still exists, but only for genuine first-time SME claimants.
  • HMRC aims to respond within 40 calendar days, but there’s no right of appeal if assurance is refused.
  • Uptake of the original scheme was under 1% of eligible companies — this pilot exists specifically to fix that.

What is R&D tax relief advance assurance for SMEs?

Advance assurance is a voluntary HMRC service that lets a company find out, before it claims, whether HMRC agrees its research and development work qualifies for R&D tax relief. It is not the claim itself — you still have to submit the actual claim through your corporation tax return afterwards.

Where HMRC grants assurance, it confirms in writing that it will accept the claim on the terms discussed and agreed upon, provided nothing material changes. This has always mattered to SMEs because R&D tax relief carries genuine technical judgement — what counts as a “qualifying uncertainty” isn’t always obvious — and getting that judgement wrong after the money has already been claimed and spent is a far worse position than finding out beforehand.

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What is the new targeted advance assurance pilot?

The targeted advance assurance pilot gives companies the option to obtain HMRC’s opinion on particular parts of an R&D tax relief claim before it is submitted. Introduced on 18 May 2026, the scheme is scheduled to operate on a trial basis until May 2027.

Unlike standard advance assurance, the pilot does not require HMRC to review every part of the proposed claim. A business can instead choose a maximum of two areas where the tax treatment may be uncertain or carry greater risk.

HMRC may provide assurance on:

  • Whether the activities within a project qualify as R&D under the tax rules.
  • Whether eligible R&D costs incurred overseas can be included.
  • Whether expenditure on work subcontracted to another business qualifies.
  • Whether the business falls within an exception to the PAYE and National Insurance cap.

Each application must focus on one R&D project and one of these areas. Businesses seeking HMRC’s view on two separate points must therefore submit two applications. Further applications will be needed where advice is required on another project or an additional issue.

Which companies can apply for the HMRC advance assurance pilot?

To apply, your company must be an SME carrying out, or genuinely planning to carry out, qualifying R&D – and you must not have already claimed relief or received assurance on those same two areas for the accounting period in question. Both the company itself and an authorised agent can submit the application.

You cannot use the targeted pilot if any of the following apply:

  • Your company is a large company rather than an SME.
  • You want assurance on three or more areas of the same claim.
  • You’ve already applied for full claim advance assurance for the same period.
  • The company, or a connected person, has entered a disclosable tax avoidance scheme (DOTAS), is classed as a ‘corporate serious defaulter’, or has an open corporation tax enquiry.

Unlike the older full claim service, the targeted pilot is not restricted to first-time claimants. That’s a genuine widening of access, and it’s the detail most competitor coverage on this topic glosses over.

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How does the HMRC advance assurance pilot differ from full-claim advance assurance?

The two services exist side by side, but they’re built for different situations, and a company cannot apply under both for the same period or project.

Targeted advance assurance (pilot)Full claim advance assurance
Launched18 May 2026Established service since 2015
ScopeUp to 2 specific areas of a claimThe entire claim
EligibilitySMEs can be first-time or repeat claimantsSMEs claiming for the first time only
Duration of coverPer project/area agreedFirst 3 accounting periods
Response targetWithin 40 calendar daysNot separately specified by HMRC
Appeal if refusedNo right of appealNo right of appeal
Runs untilMay 2027 (pilot period)Ongoing

Full claim advance assurance remains the better fit for a genuinely new claimant wanting blanket comfort on an entire, relatively straightforward project across three years. The targeted pilot suits a company—first-time or not—that’s confident about most of its claim but uncertain on one or two specific technical points, such as whether a subcontracted element qualifies.

Why did HMRC introduce this pilot now?

HMRC introduced the pilot because the existing advance assurance service had almost no uptake, despite being available since 2015. Its own consultation, launched at the Spring Statement 2025, recorded just 80 applications in the 2023 to 2024 tax year, against roughly 11,500 eligible companies — a take-up rate of well under 1%.

That consultation ran from 26 March to 26 May 2025 and asked whether a wider clearance model, potentially including paid-for or even mandatory assurance for higher-risk claims, could reduce error and fraud while giving businesses more certainty. Professional bodies including the ICAEW and CIOT responded, broadly supporting reform but warning that any new process had to offer a genuine benefit, not just extra administration.

The targeted pilot announced at the Autumn Budget 2025 and launched in May 2026 is HMRC’s direct response: a narrower, faster-to-complete alternative aimed at the specific technical flashpoints – overseas costs, contracted-out work, the PAYE cap, and the basic R&D definition – that most often lead to an enquiry.

HMRC’s R&D tax relief advance assurance pilot announcement: HMRC’s R&D Tax Relief Advance Assurance Pilot (2026): What UK SMEs Need to Know

How do you apply for targeted advance assurance?

You apply online, either yourself or through an authorised agent, and HMRC aims to process the application within 40 calendar days of receiving a full, accurate submission.

Before applying, gather:

  • Your Company Registration Number (CRN).
  • The start date of the project and the accounting period the claim will relate to.
  • Details of the competent professional and a senior officer within the company.
  • A project overview, forecasted expenditure, and project duration.
  • Details of the type of records held to support the claim.
  • If overseas expenditure is one of your chosen areas, an explanation of why you believe the cost qualifies.

The online form cannot be saved partway through and doesn’t accept attachments, so it’s worth preparing everything in a separate document first. An agent acting on your behalf will need appropriate authorisation — form 64-8 for general tax representation or form COMP1 if HMRC is to deal directly with the adviser during a compliance check.

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What happens if HMRC refuses advance assurance?

If HMRC refuses assurance, it will write to explain the reasons — but there is no right of appeal, and you cannot reapply for assurance in that same area and period. This is arguably the single most important caveat in the whole scheme and one that several competitor articles understate.

A refusal doesn’t stop you claiming R&D tax relief through your company tax return in the normal way. HMRC is explicit, however, that you should carefully check the conditions on the declined area before doing so, since a refusal is a strong signal that HMRC has doubts about that aspect of the claim.

What should SMEs do next?

If your company is planning R&D work and has a genuine question mark over one specific technical area — rather than the whole project — the targeted pilot is worth serious consideration, particularly given HMRC’s heightened compliance focus on R&D claims since 2023. If you’re a true first-time claimant with a straightforward project, full claim advance assurance may still be the simpler route.

Either way, the quality of the application matters far more than the choice of scheme. HMRC is assessing technical detail, not enthusiasm, and a poorly evidenced application is likely to fare no better under the new pilot than under the old process.

FAQs About R&D Tax Relief Advance Assurance

Does advance assurance guarantee my R&D claim will be accepted?

Not automatically. It guarantees HMRC’s agreed position on the specific area or areas covered, provided the actual claim is consistent with what you described in your application. If your project or costs change materially afterwards, the assurance may no longer apply.

How much does advance assurance cost to apply for?

Both the targeted pilot and full claim advance assurance are free HMRC services with no application fee. However, most SMEs use a specialist adviser to prepare the technical evidence behind the application, and that advisory time is a cost worth budgeting for.

Do I need an accountant or tax adviser to apply?

You can apply yourself or through an authorised agent — it isn’t a legal requirement to use an adviser. In practice, because the areas HMRC will assess are technically precise, most companies get better outcomes with support from an adviser experienced in R&D tax relief.

What happens if my R&D activities change after assurance is granted?

HMRC’s confirmation letter sets out the company’s responsibilities and what happens if the R&D activities change from what was described. Material changes can affect whether the original assurance still covers the eventual claim, so it’s important to notify your adviser promptly if the project’s scope shifts.

Can large companies apply for advance assurance?

No, eligibility for both forms of advance assurance is limited to businesses that meet HMRC’s SME criteria. This generally means employing fewer than 500 people and having either annual turnover below €100 million or total assets below €86 million. Figures from connected and associated businesses must also be included when applying these limits. Companies outside the SME definition use the merged R&D expenditure credit scheme for their claims. 

How long will the targeted advance assurance pilot run?

The pilot launched on 18 May 2026 and is scheduled to run until May 2027. As with any pilot, HMRC could extend, narrow, or make it permanent depending on how take-up and outcomes compare with the previous scheme.

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Getting your R&D claim right, before you file it

Advance assurance can take real uncertainty out of an R&D claim, but only if the underlying technical case is sound — HMRC’s pilot doesn’t change what qualifies as R&D; it simply tells you its view earlier. If you’re weighing up whether your project qualifies, whether contracted-out work is claimable, or whether advance assurance is the right step before you file, Apex Accountants’ R&D tax relief team can review your position and prepare the application on your behalf. The sensible next step is usually a short conversation before any figures go anywhere near HMRC — you can book a consultation with us to talk it through.

Changes to Capital Goods Scheme for VAT: What UK Businesses Need to Know

Posted on by Nida Umair

A client came to APEX last year partway through refurbishing a mixed-use building — offices upstairs, a partly exempt letting downstairs. The spend sat just above the old £250,000 capital goods scheme threshold, which meant ten years of annual VAT adjustments to track and defend. Under the rules that now apply, that same refurbishment would fall outside the scheme entirely. From 29 July 2026, HMRC will raise the Capital Goods Scheme threshold for land, buildings and civil engineering work from £250,000 to £600,000 and will remove computers from the scheme altogether. This is the biggest change to CGS since it was introduced in 1990, and it will pull thousands of smaller property transactions out of a notoriously complex compliance regime.

Quick answer:

  • The Capital Goods Scheme (CGS) threshold for land, buildings and civil engineering works rises from £250,000 to £600,000 (excluding VAT) from 29 July 2026.
  • Computers and computer equipment are removed from the CGS entirely from the same date — the old £50,000 threshold no longer applies to them.
  • The change only affects capital expenditure incurred on or after 29 July 2026; anything already committed under contract before that date follows the old rules.
  • It’s made via secondary legislation amending regulations 113 and 114 of the VAT Regulations 1995 (SI 1995/2518) — this is a confirmed HMRC measure, not a consultation proposal.
  • HMRC estimates the change will save affected businesses roughly £0.6 million a year in administrative costs, with negligible Exchequer impact.

What is the Capital Goods Scheme for VAT?

The Capital Goods Scheme for VAT is an adjustment mechanism that spreads the recovery of input tax on certain high-value assets over several years, rather than allowing a single claim at the point of purchase. It exists to stop businesses over- or under-claiming VAT when the taxable use of an asset changes after acquisition.

Under current law, two categories of asset fall within CGS:

  • Land, buildings and civil engineering works, where capital expenditure is £250,000 or more (excluding VAT) — adjusted over 10 successive intervals.
  • Computers and computer equipment, where capital expenditure is £50,000 or more — adjusted over 5 successive intervals.

Once an asset is inside the scheme, the business must revisit the VAT recovery percentage every year for the length of the adjustment period, comparing the asset’s actual taxable use against the baseline set in year one. 

If taxable use rises, HMRC repays more VAT; if it falls, the business repays VAT already claimed. A change of use on disposal within the adjustment period can trigger a single, larger reconciliation covering all the remaining years at once.

 Businesses that are fully taxable are not automatically exempt from this – a change from taxable to exempt use, such as an office building later let on an exempt basis, can still trigger a clawback even where the business recovers all its VAT elsewhere.

Read: VAT on Online Marketplace Sales: What UK Sellers Need to Know About the New HMRC Consultation

What’s changing under the Capital Goods Scheme simplification?

HMRC is making two specific changes to CGS from 29 July 2026, confirmed in its policy paper on the simplification of the scheme. The threshold for land, buildings and civil engineering works increases, and computers leave the scheme completely.

  • Higher property threshold: the £250,000 trigger for land, buildings and civil engineering works rises to £600,000 (excluding VAT). Expenditure below that level will no longer create a CGS item at all.
  • Computers removed entirely: computers and items of computer equipment are taken out of the scheme’s scope. The old £50,000 threshold and 5-interval adjustment period for computer equipment cease to apply.

The legal mechanism is an amendment to Part XV of the VAT Regulations 1995 (SI 1995/2518). Regulation 113(2) is amended to remove the reference to computers and computer equipment, and regulation 113(4) is amended to raise the property threshold, with consequential changes to regulations 113A and 114.

When do the new CGS rules take effect?

The changes take effect on 29 July 2026 and are not retrospective. Capital expenditure incurred before that date — meaning goods or services already received, or goods already imported or acquired — continues to be governed by the old £250,000 and £50,000 thresholds, even if the asset’s adjustment period runs on for years afterwards.

In practice, this means:

  • A property purchase or refurbishment where the tax point falls before 29 July 2026 is tested against the old £250,000 threshold, regardless of when the deal completes on paper.
  • A property purchase or refurbishment where the tax point falls on or after 29 July 2026 is tested against the new £600,000 threshold.
  • Assets already inside CGS under the old rules stay inside CGS and continue their existing adjustment period — the threshold change does not remove them from the scheme retroactively.

Businesses part-way through a phased development that straddles the date should take advice before assuming which threshold applies, since the transitional rule is based on when expenditure is incurred, not when the wider project is signed off.

How does the higher £600,000 threshold work in practice?

A capital project only falls within CGS if its VAT-exclusive cost meets or exceeds the relevant threshold — everything below that line is recovered under normal partial exemption rules with no ongoing adjustment obligation. Here’s how that plays out for a typical partly exempt business.

Example: 

A dental practice buys and fits out a new clinic building for £400,000 (excluding VAT), incurring £80,000 of VAT. Under the current £250,000 threshold, that expenditure falls within CGS, committing the practice to ten years of annual adjustment calculations as its mix of NHS and private (exempt/taxable) work shifts. 

Under the new £600,000 threshold, the same £400,000 spend falls outside the scheme entirely. The practice recovers VAT once, under its normal partial exemption method, with no ten-year tail of adjustments to monitor or defend at inspection.

The same logic applies to refurbishments. A £900,000 refurbishment of an existing building still crosses the new threshold and remains a CGS item in its own right, tracked separately from the underlying property. Businesses working close to £600,000 should model the VAT position before committing to a build contract, since structuring the spend (or timing it either side of 29 July 2026) can determine whether ten years of adjustment obligations apply.

Why is HMRC removing computers from the Capital Goods Scheme?

HMRC says the computer category has become redundant because the cost of qualifying equipment has fallen well below the £50,000 threshold since the scheme was introduced in 1990, so it is very rarely triggered in practice. Removing it eliminates a compliance obligation that HMRC itself acknowledges delivers little practical benefit for the Exchequer.

The wider reform follows a long consultation history. The government launched a Call for Evidence in July 2019, after the 2017 Office of Tax Simplification VAT review flagged CGS as unnecessarily burdensome for smaller businesses. A summary of responses was published in March 2021, and the specific threshold and computer changes were formally announced on 28 April 2025 as part of the government’s Tax Update: Simplification, Administration and Reform work. HMRC’s own impact assessment projects negligible Exchequer cost and estimates ongoing administrative savings for businesses of around £0.6 million a year, concentrated among smaller property owners who previously fell within scope simply because of rising property values.

Who is affected by these changes to VAT on capital expenditure?

The changes affect any VAT-registered business incurring capital expenditure on land, buildings, civil engineering works, or computer equipment. In practice, the businesses most affected fall into a few groups.

  • Partly exempt businesses — including care providers, financial services firms, education providers and charities — who mix taxable and exempt income and have historically had to track CGS adjustments on modest property purchases.
  • Property investors and developers carrying out refurbishments or fit-outs in the £250,000–£600,000 band, who will now fall outside the scheme altogether.
  • SMEs buying or improving commercial premises, for whom the old threshold had become disproportionate as property values rose since 1990.
  • Any business holding computer equipment previously caught by the £50,000 threshold, which will simply stop being a CGS consideration from 29 July 2026.

Wholly taxable businesses are not exempt from the practical effects either — even a fully taxable business can find a change of use (for example, letting out surplus space on an exempt basis) crystallising a CGS liability, so the higher property threshold is a genuine simplification for that group too.

Also Read: Getting Your Business Ready for the Summer’s Temporary VAT Cut

What should businesses do to prepare?

Businesses with capital projects planned for mid-to-late 2026 should establish now whether their expenditure will fall inside or outside CGS once the new threshold applies. Three practical steps matter most.

  • Identify the tax point for any pending land, building or civil engineering spend, since that — not the completion date of the wider project — determines which threshold applies.
  • Review existing CGS records for assets already inside the scheme under the old £250,000 or £50,000 thresholds; these continue on their original adjustment period regardless of the reform.
  • Reassess partial exemption methods where CGS previously drove the choice of method, since removing an asset from CGS can change what special method (if any) is still worthwhile.

FAQs About HMRCs Changes To Capital Goods Scheme

Does the Capital Goods Scheme only affect partly exempt businesses?

No. While partly exempt businesses are most exposed, a fully taxable business can still be caught if the use of an asset later changes — for example, letting out space that was originally used for taxable trading. The scheme is triggered by a change in use, not by a business’s overall VAT status at the time of purchase.

What happens if I sell a capital item during the adjustment period?

Selling a capital item during its adjustment period crystallises all the remaining years’ adjustments in a single calculation, made in the VAT return covering the sale. If the sale itself is a taxable supply, the remaining intervals are treated as 100% taxable use; if it’s exempt, they’re treated as 0% taxable use, which can produce a significant one-off VAT repayment or claim.

Do the new thresholds apply retrospectively to buildings I already own?

No. The higher threshold only applies to capital expenditure incurred on or after 29 July 2026. Assets that were already inside the Capital Goods Scheme under the £250,000 or £50,000 thresholds remain inside the scheme and continue their existing adjustment period unaffected.

Is this confirmed law or still a proposal?

This is confirmed government policy, implemented through secondary legislation amending the VAT Regulations 1995, with an operative date of 29 July 2026 set out in HMRC’s published policy paper. It is not a consultation or draft proposal at this stage, though businesses should always check GOV.UK for the final statutory instrument reference nearer the commencement date.

Do I need an accountant for Capital Goods Scheme calculations?

Most businesses benefit from professional support, particularly where a project sits close to the £600,000 threshold or where partial exemption percentages fluctuate year to year. Getting the baseline interval wrong, or missing a change-of-use trigger, can lead to VAT assessments and penalties several years after the original purchase.

What if my capital expenditure is close to the £600,000 threshold?

Where spend is close to the threshold, timing and contract structuring can determine whether the Capital Goods Scheme applies at all. It’s worth taking advice before committing to a build contract, since expenditure incurred just before 29 July 2026 is tested against the old £250,000 limit even if the wider project completes later.

Next steps

If you’re planning capital expenditure on property, refurbishment or equipment in the run-up to this change, it’s worth reviewing the VAT treatment before contracts are signed rather than after. Apex Accountants & Tax Advisors works with property owners, developers and partly exempt businesses across the UK to assess Capital Goods Scheme exposure, structure capital projects efficiently and manage existing CGS adjustment schedules. Book a consultation with our VAT team to review your position ahead of the 29 July 2026 change.

Scottish Tax Advice for High Earners and the 67.5% Tax Trap

Posted on by Farazia Gillani

Scottish tax advice for high earners has become more important as Scottish taxpayers earning above £100,000 face one of the highest effective marginal income tax rates in the developed world. The figure is 67.5%. It does not appear in any legislation. It is not an official rate. But it is real; it is unavoidable unless planned around, and it is growing more relevant every year as frozen thresholds drag more earners into its range. 

What Is the 67.5% Tax Trap and Where Does It Come From?

The trap is the product of two policies colliding.

The first is a UK-wide rule. The Personal Allowance, currently £12,570, begins to taper once income exceeds £100,000. For every £2 earned above that threshold, £1 of the allowance is withdrawn. By £125,140, the allowance is gone entirely. This taper has long created a 60% effective marginal rate for higher earners in England and Wales because they pay 40% tax on the extra income and 40% on the allowance that disappears.

The second is Scotland-specific. Scotland has its own income tax rates, set by the Scottish Parliament under powers devolved through the Scotland Act 2016. In Scotland, the income between £75,001 and £125,140 falls within the Advanced Rate band, which is taxed at 45%.

The Scottish Government’s own tax-ready reckoners confirm the outcome directly: “Taxpayers earning more than £125,140 do not benefit from the Personal Allowance. These taxpayers face a marginal rate of Income taxation of 67.5% on earnings between £100,000 and £125,140.”

The arithmetic works like this. On each £2 earned in this range, the Scottish taxpayer pays 45% income tax on that £2 and separately loses £1 of Personal Allowance, which is then also taxed at 45%. The result is a combined rate of 67.5% on each additional pound.

Scotland’s Six-Band System in 2026/27

To understand where the trap sits, it helps to see the full rate structure. The Scottish Government confirmed the following bands for 2026/27 at the Scottish Budget on 13 January 2026:

BandGross Income RangeRate
Starter£12,571 to £16,53719%
Basic£16,538 to £29,52620%
Intermediate£29,527 to £43,66221%
Higher£43,663 to £75,00042%
Advanced£75,001 to £125,14045%
TopAbove £125,14048%

Source: gov.scot — Scottish Income Tax rates and bands 2026/27

In this Budget, the Higher, Advanced, and Top rate thresholds all remained unchanged. Only the Starter and Basic rate thresholds were raised, by 7.4%.

Two things stand out. Scotland’s Higher Rate begins at £43,663, compared with £50,271 in England. Scottish earners, therefore, enter the 42% band nearly £7,000 earlier. The Advanced Rate of 45% interacts with the Personal Allowance taper to create the 67.5% trap, and it has no equivalent in England’s three-band structure.

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Why Scottish tax advice for high earners matters more now 

Three years ago, the trap caught a narrower group of earners. Frozen thresholds have changed that.

The UK government confirmed in the 2025 Autumn Statement that the personal allowance will remain frozen at £12,570 until at least 2030/31, as confirmed by the Scottish Government’s technical factsheet. The higher, advanced, and top-rate thresholds in Scotland will also remain frozen for the current Parliament.

As wages rise with inflation, more workers are crossing £100,000 for the first time. Professionals in medicine, law, and financial services, as well as senior public sector employees and business owners drawing salary and dividends, are increasingly being pulled into the taper range without any change in the value of what they earn in real terms.

The Institute for Fiscal Studies noted that Scotland’s marginal rate structure is “significantly more complex” than the rest of the UK, with seven effective rates once the taper is counted, and that the 67.5% rate in the £100,000 to £125,140 range exceeds England’s equivalent 60% by 7.5 percentage points.

Who Is Caught

The trap affects Scottish residents whose non-savings, non-dividend income falls between £100,000 and £125,140. This category includes:

  • Employed professionals on salaries in this range
  • Company directors drawing salary above £100,000
  • Self-employed individuals whose taxable profits cross the threshold
  • Earners who receive a bonus that pushes them over £100,000 in a single year
  • Those with combined income sources — salary, rental income, or self-employment — that together exceed the threshold

It is worth noting that National Insurance and dividend income are reserved matters and do not follow Scottish income tax rates. The trap is specific to non-savings employment and self-employment income.

Scottish income tax planning and adjusted net income 

The good news is that the 67.5% rate is avoidable. The mechanism is straightforward.

Tax advice for Scottish taxpayers often starts with adjusted net income, the figure used to calculate the personal allowance taper. This is broadly gross income minus pension contributions and Gift Aid donations. If adjusted net income can be brought below £100,000, the full personal allowance is restored, and the 67.5% rate does not apply. 

Pension contributions are the most commonly used tool for achieving this. Contributing enough to bring adjusted net income to £100,000 avoids the taper entirely. For a Scottish taxpayer at £110,000, a £10,000 pension contribution achieves this goal. Because the contribution attracts 45% tax relief and restores the personal allowance, the effective rate of relief for a Scottish advanced rate taxpayer in this band is the 67.5% rate itself.

Salary sacrifice is more efficient still. Contributions made through a salary sacrifice arrangement reduce gross pay before tax and National Insurance are calculated. This means both income tax and National Insurance are saved, rather than income tax alone. The employer will typically also save on employer National Insurance, and some employers pass this saving back into the employee’s pension.

Carry-forward allows unused pension annual allowances from the three previous tax years to be used in the current year. This option can be valuable for an earner who has received an unusually large bonus or has seen income spike above £100,000 for the first time.

Gift Aid donations also reduce adjusted net income. A qualifying donation of £10,000 under Gift Aid has the same effect as a pension contribution of the same amount in reducing the taper exposure.

The current pension Annual Allowance is £60,000 for most taxpayers in 2026/27, as confirmed by HMRC’s pension scheme rates guidance. High earners with adjusted income above £260,000 face a tapered reduction in their allowance, which is relevant for those looking to use huge contributions to navigate the taper.

What Happens If Nothing Is Done

For an earner with no planning who moves from £99,999 to £125,140 of income, the effective rate on that entire additional slice is 67.5%. A pay rise of £25,141 yields just £8,171 in additional take-home pay. The remaining £16,970 goes to HMRC.

This is not an avoidance scheme. It is the intended consequence of the Personal Allowance taper combined with Scotland’s Advanced Rate. Planning to reduce adjusted net income below £100,000 is lawful, HMRC-acknowledged, and widely recommended by professional bodies.

How tax advice from Apex Accountants for Scottish taxpayers can help 

The 67.5% trap often creates demand for Scottish tax advice for high earners among people who are unaware of it until they receive their tax bill. It also catches earners who believe they have planned around it but have miscalculated their adjusted net income. 

Apex Accountants & Tax Advisors works with Scottish residents, professionals, and business owners to:

  • Calculate adjusted net income accurately, including all relevant income sources and deductions
  • Model pension contribution strategies to bring income below £100,000 efficiently
  • Advise on salary sacrifice arrangements, including the interaction with employer National Insurance
  • Review carry-forward positions from previous years to identify additional headroom
  • Assess the impact of bonuses or one-off income events and plan for them in advance
  • Structure dividend and salary remuneration for Scottish company directors to minimise exposure to the taper
  • Advise on Gift Aid and other legitimate deductions that reduce adjusted net income

Scottish income tax planning is most effective earlier in the tax year, when more options are available. If you review your position after the year has ended, you will limit what you can do. 

Contact Apex Accountants today for tax advice for Scottish taxpayers and a review of your Scottish income tax position. Book a free consultation with one of our specialist tax advisers. 

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Frequently Asked Questions

What is the 67.5% tax trap in Scotland? 

It is the effective marginal income tax rate that applies to Scottish taxpayers earning between £100,000 and £125,140. It arises from the combination of Scotland’s 45% Advanced Rate of income tax and the UK-wide Personal Allowance taper, which withdraws £1 of the £12,570 allowance for every £2 earned above £100,000. The Scottish Government’s own ready reckoners confirm this rate. See gov.scot: Scottish Budget 2026/27 Tax Ready Reckoners.

Does the 67.5% rate apply if I earn dividends or savings income above £100,000? 

No. The Scottish income tax rates apply only to non-savings, non-dividend income such as employment income, self-employment profits, and rental income. Dividend income and savings interest are taxed at UK-wide rates regardless of where you live. However, dividend income does count toward your adjusted net income, which determines whether the Personal Allowance taper applies. See GOV.UK: Scottish Income Tax.

How do pension contributions help avoid the tax trap? 

Pension contributions reduce your adjusted net income, which is the figure HMRC uses to calculate the Personal Allowance taper. If a contribution brings your adjusted net income below £100,000, your full personal allowance of £12,570 is restored. The effective tax relief on contributions made within the taper range is 67.5% for Scottish Advanced Rate taxpayers, because the contribution both avoids the 45% charge and restores the tax-free allowance.

What is the pension annual allowance in 2026/27? 

The standard annual allowance for most taxpayers is £60,000 for 2026/27, or 100% of earnings if lower. This figure covers contributions from all sources, including employer contributions. High earners with threshold income above £200,000 and adjusted income above £260,000 face a tapered reduction in their allowance. Unused allowance from the three previous tax years can be carried forward. See HMRC: Pension Scheme Rates.

Does the trap affect Scottish taxpayers who work in England? 

Yes. Scottish taxpayer status is determined by where you live, not where you work. If your main residence is in Scotland, you pay Scottish income tax rates regardless of where your employer is based or where you work each day. Your employer should apply an S-prefix tax code to your PAYE. 

Were there any changes to the £100,000 threshold in the 2026/27 Scottish Budget? 

No. The Scottish Government confirmed at the Scottish Budget on 13 January 2026 that the higher, advanced, and top-rate thresholds would remain unchanged. Only the starter and basic rate thresholds increased. The UK government, not the Scottish Parliament, sets the £100,000 personal allowance taper threshold, which remains frozen.

VAT on Online Marketplace Sales: What UK Sellers Need to Know About the New HMRC Consultation

Posted on by Farazia Gillani

UK-based sellers trading on Amazon, eBay, Etsy and similar platforms could soon find themselves subject to a very different VAT system. A new joint consultation from HM Treasury and HMRC is looking at whether online marketplaces should become liable for VAT on domestic seller sales, not just on sales made by overseas traders.

If this goes ahead, it would be one of the biggest shifts in UK marketplace VAT since the 2021 reforms. Here’s what’s actually being proposed, who it affects, and what sellers should be doing about it now.

What Is the Online Marketplace VAT Liability Consultation?

The consultation, titled Extending VAT Online Marketplace Liability to Combat Non-Compliance, opened on 23 June 2026 and runs for eight weeks, closing at 11:59pm on 18 August 2026. It’s a joint project between HMRC and HM Treasury, and it sits within a wider package of 40 tax measures announced by the Exchequer Secretary to the Treasury on the same date.

At its core, the proposal would extend online marketplace VAT liability rules beyond overseas sellers and low-value imports, making platforms responsible for accounting for VAT on certain sales made by UK-established businesses too.

No implementation date has been set. If the government decides to proceed, a further technical consultation on draft legislation would follow before anything becomes law.

Why Is the Government Doing This?

The short answer: money and fairness.

HMRC estimates that tens of thousands of UK-based businesses trading through online marketplaces aren’t meeting their VAT obligations, with the resulting non-compliance running into the hundreds of millions of pounds each year.

The concern isn’t really about VAT rates or new taxes. It’s about levelling the playing field. Sellers who dodge VAT can undercut competitors who charge it correctly, whether those competitors trade online or from a high street shop. The government has said any additional revenue raised would be channelled back into support for high street businesses through changes to the business rates system.

This builds on the 2021 reforms, which made marketplaces liable for VAT on:

  • sales by overseas sellers with goods already in the UK at the point of sale
  • low-value imports of £135 or less, where the goods are outside the UK when sold

Those changes worked well for overseas non-compliance. What they didn’t fix was VAT leakage among UK-based sellers, and that’s the gap this new consultation is trying to close.

Read: The Complete Tax Guide for Online Sellers in the UK – Amazon, Vinted, eBay, and Etsy

How Does Marketplace VAT Work Right Now?

Before looking at what might change, it helps to understand the current rules.

ScenarioWho accounts for VAT today
Overseas seller, goods already in the UK at saleThe marketplace
Goods outside the UK, consignment value £135 or lessThe marketplace
Goods outside the UK, consignment value over £135Normal import VAT and customs rules apply
UK-established seller, goods in the UK at saleThe seller
Sale to a UK VAT-registered business customer with a valid VAT numberThe business customer accounts for VAT in the relevant low-value import scenario

A platform only counts as an “online marketplace” for VAT purposes if it does all three of the following:

  • sets the terms of sale
  • processes or enables payment
  • is involved in ordering, delivery, or facilitating delivery

Platforms that simply run adverts, process payments only, or redirect buyers elsewhere aren’t caught by these rules.

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What Would Actually Change for UK Sellers?

This is the part that matters most to domestic sellers. Under the proposal, marketplaces would become liable for VAT on business-to-consumer sales made by UK-established sellers, where the goods are already in the UK at the point of sale.

Technically, this would work through a deemed supply structure: the seller would make a zero-rated supply to the marketplace, and the marketplace would then charge VAT to the end customer and account for it on its own VAT return.

A few things the proposal makes clear:

  • It’s aimed at B2C sales only — business-to-business transactions are out of scope.
  • It would not change VAT rates on any goods. Zero-rated items stay zero-rated.
  • Sales through a seller’s own website or physical shop would be unaffected — the seller would keep accounting for VAT on those as normal.
  • Input tax recovery would continue under the usual rules.

For information on the trading allowance, do read: How to Use the £1,000 Trading Allowance When Selling on Vinted, eBay & Other Platforms

Who Would Be Protected? The Threshold Question

HMRC faces one of the trickiest challenges in this proposal: preventing the rules from affecting small sellers who do not need to register for VAT. HMRC is consulting on two main options:

Option 1: A Minimum Platform Threshold 

A marketplace would only become liable for a seller’s VAT once that seller’s sales on that specific platform pass a set value. The lead suggestion is £90,000 — the same as the standard UK VAT registration threshold — though a lower figure is also being considered, since £90,000 per platform could still leave gaps for sellers who spread sales across several marketplaces.

Option 2: A VAT rate relief 

Instead of a threshold, smaller UK businesses below the VAT registration threshold could get some form of rate relief on their marketplace sales.

Neither option is confirmed. The consultation is genuinely asking for input on which approach works better in practice, and it’s a question sellers close to the threshold should watch closely.

It’s also worth being clear about what stays the same: the standard UK VAT registration threshold remains more than £90,000 of taxable turnover across all sales channels combined. A platform-specific threshold, if introduced, wouldn’t replace that underlying obligation.

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Who’s Excluded From the Proposed Rules?

  • Private and casual sellers: Individuals selling personal possessions, not operating as a business, aren’t intended to be caught by any of this.
  • Second-hand goods sellers — possibly: This one is still unresolved. UK businesses using the Second-hand Margin Scheme calculate VAT on the margin between purchase and sale price, which doesn’t fit neatly into a marketplace deemed-supply model. HMRC is weighing up whether to exclude second-hand sales entirely or find another way to handle them.

Takeaway and Food Delivery Platforms Are Explicitly in Scope

This isn’t just an e-commerce goods story. The consultation specifically names takeaway food delivery platforms, restaurants, fast food kitchens and takeaway outlets as relevant businesses.

For platforms that only operate within the UK and haven’t previously had to deal with the overseas-seller marketplace rules, this could be a much bigger operational shift than for the likes of Amazon or eBay, which already run complex VAT logic for international sellers.

What About the Flat Rate Scheme?

The consultation directly asks about the impact on businesses using the VAT Flat Rate Scheme. If marketplace sales move to a deemed-supply model where the platform accounts for VAT, sellers on the Flat Rate Scheme could effectively lose the ability to apply their flat rate percentage to that portion of turnover.

Businesses using the Flat Rate Scheme with a significant share of marketplace sales should review the impact early, as this remains an open issue rather than a confirmed rule.

A detailed tax guide for eBay sellers: eBay HMRC UK Tax Rules Every Seller Should Know

What Should Sellers and Their Accountants Do Now?

There’s no new law yet — this is still a consultation, and the response period runs until 18 August 2026. But that’s exactly why now is the sensible time to check exposure, rather than waiting for the outcome.

A practical short-term checklist:

  • List every marketplace the business sells through
  • Break down turnover by platform, not just as a single total
  • Separate B2C sales from B2B sales
  • Check how close turnover is to the £90,000 VAT threshold
  • Review whether the business uses the Flat Rate Scheme
  • Flag any second-hand goods activity
  • Note which sales come through the business’s own website, since these stay outside the marketplace model
  • Prepare for more marketplace onboarding checks and data requests going forward
Review AreaWhy It Matters
VAT registration statusBoth the standard threshold and the proposed platform threshold sit at £90,000
Marketplace turnover by platformThe lead proposal is based on sales per platform, not combined turnover
Sales channel splitWebsite and shop sales stay under the current model; marketplace sales could shift
B2C vs B2B splitOnly B2C marketplace sales are in scope of the proposal
Second-hand goodsTreatment is still undecided because of the Margin Scheme
Flat Rate Scheme useDirectly flagged as an area HMRC wants evidence on

How We Help You Deal With the VAT on Online Marketplace Sales and the Proposed Changes

At Apex Accountants, we work with online sellers, e-commerce businesses and marketplace traders across Amazon, eBay, Etsy and food delivery platforms to keep their VAT position under control — including ahead of policy changes like this one.

Our support covers:

  • VAT registration reviews for e-commerce and marketplace sellers
  • Turnover analysis broken down by platform and sales channel
  • B2C and B2B VAT mapping for mixed-channel businesses
  • Flat Rate Scheme impact reviews
  • Second-hand goods and Margin Scheme reviews
  • Marketplace VAT compliance checks for Amazon, eBay, Etsy and similar platforms
  • Support with preparing and submitting responses to the HMRC consultation

If you sell through an online marketplace, the sensible move isn’t to wait for the final rules — it’s to understand exactly where your VAT exposure sits today.

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Conclusion

This is still a consultation, not a finished piece of legislation, and the final shape of any changes won’t be clear until after 18 August 2026. But the direction of travel is unmistakable: HMRC wants marketplaces to take on more VAT responsibility for UK-based sellers, not just overseas ones and low-value imports.

VAT-registered sellers may find that platforms, rather than sellers themselves, account for VAT on marketplace sales. Smaller sellers need to assess whether the final rules introduce a suitable threshold or relief. Sellers can strengthen their position by reviewing VAT registration status, platform-by-platform turnover, sales channel mix and Flat Rate Scheme use before the rules take effect.

Common Questions From UK Marketplace Sellers

Will this affect my Amazon, eBay or Etsy account?

Potentially, yes. The proposal applies to qualifying online marketplaces that facilitate B2C goods sales. It is not limited to specific platforms and could affect sellers using major marketplace channels.

Does this affect sales through my own website?

No. The proposal currently focuses on marketplace sales only. VAT obligations for sales made through your own website, physical shop or direct channels would continue under existing rules.

What if my turnover is under £90,000?

This remains an important area under consultation. Possible protections include a Minimum Platform Threshold or VAT rate relief, but the final approach has not been confirmed.

Will marketplaces ask for more information from sellers?

Yes, sellers may need to provide more details. Platforms could review business location, marketplace turnover, seller status, and whether goods are new or second-hand.

Are business-to-business sales included?

No. The proposed changes focus on business-to-consumer sales of goods. B2B transactions are outside the main scope of the proposed marketplace VAT liability rules.

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