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Changes to Lower Value Tax Debts: HMRC Bank Deduction Plans

Posted on by Talha Zubair

A business can fall behind with a relatively modest VAT or PAYE liability after one difficult trading quarter. Because the amount is not substantial enough to trigger immediate court action, some directors assume HMRC will give it less attention.

That assumption may become increasingly dangerous. The government is consulting on a new automated process for recovering lower value tax debts through monthly deductions from UK bank and building society accounts.

The proposals are not yet law. However, they show that HMRC wants a practical enforcement tool for taxpayers who can make payments but repeatedly ignore collection letters, calls and other contact attempts.

Quick Answer

  • The proposals are currently at the consultation stage and are not confirmed law.
  • HMRC does not presently expect the measure to cover total debts above £5,000 for individuals or £10,000 for companies, although the final limits remain undecided.
  • It would apply only after HMRC’s standard collection process had been exhausted and the taxpayer had persistently failed to engage.
  • HMRC is considering a 14-day Pre-Deduction Notice before the first monthly deduction.
  • Taxpayers could object because of an HMRC error, financial hardship, additional support needs or third-party ownership of funds.

What Are Lower Value Tax Debts Under HMRC’s Proposal?

Lower value tax debts would be established HMRC liabilities that fall within proposed upper limits and remain unpaid after repeated collection attempts. The indicative limits are £5,000 for individuals and £10,000 for companies, including accrued penalties and interest at the point HMRC considers taking action.

These figures are not final thresholds. The consultation states that the upper limits have not yet been decided and seeks views on what would be proportionate.

HMRC would consider a taxpayer’s total debt across different tax regimes rather than examining each liability separately. The measure could therefore cover a combination of:

  • Self Assessment Income Tax
  • VAT
  • PAYE and National Insurance
  • Corporation Tax
  • Stamp taxes
  • Tax penalties
  • Accrued interest

For example, a company owing £2,000 in VAT and £1,500 in PAYE would have a combined tax debt of £3,500 for the proposed eligibility test. Splitting liabilities across different taxes would not prevent them from being considered together.

Read: Employing Family Members in a UK Business: Why HMRC Is Asking Tougher Payroll Questions

Why Is HMRC Targeting Smaller Tax Debts?

HMRC is targeting smaller tax debts because many remain unresolved after letters, calls and referrals to debt collection agencies. Traditional enforcement methods can also cost too much to use efficiently against modest liabilities.

Official analysis indicates that approximately 4.8 million individuals and companies hold debts within the indicative limits. These represent around 11.5 million separate debts, with a combined value of about £4 billion.

Each year, more than 750,000 lower-value debts worth over £2 billion are returned to HMRC after debt collection agencies have been unable to secure payment. HMRC believes the absence of a scalable enforcement process may encourage some taxpayers to assume that smaller liabilities will not be pursued.

HMRC already resolves more than 95% of tax debt by value each year. Its concern is the remaining population of older debts where the taxpayer has repeatedly declined to communicate.

How Would HMRC Tackle Lower Value Tax Debts?

HMRC would tackle lower value tax debts by instructing a bank or other deposit-taking institution to make fixed monthly deductions from a taxpayer’s account. The proposed process would begin only after normal collection activity and opportunities to agree a voluntary payment plan had failed.

The likely process would be:

  1. A tax liability becomes final and remains unpaid.
  2. HMRC sends reminders and attempts to contact the taxpayer.
  3. The case may be referred to a debt collection agency.
  4. HMRC confirms that standard collection routes have been exhausted.
  5. HMRC issues a formal Pre-Deduction Notice.
  6. The taxpayer receives a final opportunity to pay, arrange Time to Pay or object.
  7. If no action is taken, HMRC instructs the bank to begin monthly deductions.

The Pre-Deduction Notice would state the debt amount, penalties and interest, proposed monthly payment, deduction date and planned payment period. HMRC is considering allowing 14 days between issuing the notice and making the first deduction.

The 14-day period is only a consultation proposal. It is not yet a statutory deadline.

Which Debts and Taxpayers Would Be Within Scope?

The proposed power would cover individuals and companies with final, legally enforceable HMRC debts who have persistently failed to engage. It would not be a first response to a recently missed payment.

The following cases would be expected to fall outside the proposed process:

  • Debts subject to an active appeal
  • Liabilities under an ongoing enquiry or compliance review
  • Recent debts still within HMRC’s standard collection cycle
  • Debts covered by an agreed Time to Pay arrangement
  • Cases already subject to another enforcement arrangement
  • Taxpayers without an identifiable UK bank or building society account
  • Overseas bank accounts

A disputed liability should not qualify merely because HMRC has issued an assessment. The amount would need to be final and legally enforceable, with the normal appeal process completed or expired.

This distinction matters. A taxpayer who disagrees with an assessment must challenge the underlying liability through the correct appeal route. Ignoring collection correspondence is not an effective way to preserve appeal rights.

What Safeguards Would Apply Before Bank Deductions?

HMRC proposes safeguards covering notice, affordability, additional support needs, objections, independent review and possible tribunal oversight. Automation would be paused where the available information suggests that human judgement is required.

The proposed safeguards include:

  • More than 10 attempts to contact the taxpayer before using the power
  • A formal notice before deductions begin
  • Opportunities to disclose financial hardship or support needs
  • Manual review by trained HMRC staff
  • The right to object before or during the payment schedule
  • An independent HMRC review of an objection
  • A possible external appeal to a tribunal or court
  • Refunds and compensation for charges caused by HMRC errors

HMRC proposes allowing objections where:

  • HMRC has made a factual or procedural error
  • The deductions would cause financial hardship
  • The taxpayer requires additional support
  • Funds in the account belong to another person
  • A joint account holder has a beneficial interest in the money

An objection would pause deductions while HMRC reviewed the case. The proposed appeal route has not been finalised, although HMRC is considering a timeframe similar to the usual 30-day tax appeal deadline.

A complaint would be different from an objection. Complaining about HMRC’s service would not automatically stop deductions, although HMRC could intervene where its investigation identified an error or serious procedural failure.

Also Read: HMRC Automatic Bank Deductions: What Beneficiaries Must Know Now

How Would HMRC Decide Whether Monthly Deductions Are Affordable?

HMRC is considering using tax records, business information and credit reference data to estimate affordable monthly payments. The final methodology has not been decided and forms a significant part of the consultation.

For individuals, HMRC might consider PAYE information, Self Assessment returns and other income records. For businesses, it could consider VAT turnover figures or recently filed accounts.

The consultation also considers applying HMRC’s existing Time to Pay affordability principle. This generally means that debt repayments should not exceed 50% of the taxpayer’s disposable income.

However, an automated assessment may not reflect current circumstances. Historical profits, turnover or PAYE data may give an inaccurate picture after redundancy, illness, loss of a customer or a sudden decline in trading.

Taxpayers would therefore need to contact HMRC promptly where the suggested payment creates hardship. Financial difficulty would not automatically exclude someone from the process if they continued to ignore HMRC.

Under the current proposal:

  • There would be no standard payment-plan length.
  • Payment periods could vary according to debt and affordability.
  • Penalties associated with the debt would stop accruing once deductions began.
  • Interest could continue until the balance was cleared.
  • HMRC is not currently proposing a fixed minimum balance that must remain in the account.

These details remain subject to consultation and could change before legislation is drafted.

How Is the Proposal Different From Existing Direct Recovery of Debts?

The proposed system would collect smaller liabilities through recurring instalments, while existing Direct Recovery of Debts normally involves holding and removing a lump sum. Existing DRD also has different thresholds and safeguards.

Under current DRD rules, HMRC can use bank information to recover established debts of more than £1,000. It must leave at least £5,000 available across the taxpayer’s accounts after placing the hold.

Existing DRD is largely manual. It involves obtaining bank information, placing money on hold and allowing the taxpayer 30 calendar days to object before funds are transferred.

The proposed lower-value system would instead:

  • Operate through regular monthly deductions
  • Be designed for high-volume use
  • Use automated eligibility and affordability checks
  • Potentially have a 14-day initial notice period
  • Apply without the existing £5,000 protected account balance, provided the instalments pass affordability checks

HMRC restarted existing DRD through a controlled test phase in September 2025 and began a wider rollout from April 2026. The new monthly instalment proposal is separate and would require legislation before HMRC could use it.

What Should You Do If You Owe Smaller Tax Debts Now?

You should contact HMRC as soon as you know that a tax payment cannot be made in full. Early engagement provides more options than waiting for the debt to move into enforcement.

HMRC may agree to a Time to Pay arrangement where the proposed payments are realistic and affordable. Taxpayers setting up a plan should prepare details of their income, regular spending, assets, savings and other tax liabilities.

Companies may also be asked how they can reduce the debt by releasing assets, obtaining finance or introducing funds. HMRC will expect a company’s proposal to address both the overdue balance and its ability to meet future tax payments.

As at 16 July 2026, the main HMRC late-payment interest rate is 7.75%, applying from 9 January 2026. The rate is linked to the Bank of England base rate and can change, so it should be checked again before publication.

Ignoring the debt can lead to:

  • Referral to a debt collection agency
  • Recovery through PAYE or pension income
  • Taking Control of Goods
  • Direct recovery from bank accounts
  • Court proceedings
  • Bankruptcy or company winding-up action in serious cases

HMRC should provide notice before taking enforcement action, but continued non-engagement substantially reduces the opportunity to agree a voluntary solution.

Where an HMRC letter appears incorrect, retain the correspondence and supporting records. Consider obtaining advice before making admissions or agreeing to a payment schedule. 

FAQs About Lower Value Tax Debts

Can HMRC Take Money From My Bank Account Now?

Yes, HMRC already has Direct Recovery of Debts powers in limited circumstances. Existing DRD normally applies where more than £1,000 is owed and at least £5,000 would remain available across the taxpayer’s accounts. The proposed automated monthly deductions for lower-value debts are separate and are not yet law.

Could HMRC Use a Joint Bank Account?

Under the proposal, HMRC would consider a joint account only where no suitable sole account existed or a sole account held insufficient funds. A non-debtor joint account holder would be able to object where the money belonged to them. The final joint-account rules have not yet been legislated.

Would a Time to Pay Agreement Prevent Automatic Deductions?

An active and agreed Time to Pay arrangement would be outside the proposed automated deduction process. Taxpayers must maintain the agreed payments and keep up with new tax liabilities. A failed arrangement could lead HMRC to reconsider enforcement options.

Would Interest Stop Once Monthly Deductions Begin?

The consultation proposes stopping further penalties associated with the debt when instalment deductions begin. It does not propose stopping late-payment interest, which may continue until the balance is cleared. The precise interest treatment should be confirmed in any final legislation.

Can I Object Because I Cannot Afford the Proposed Payment?

Yes. Financial hardship is one of the proposed grounds for objection, and an objection would pause deductions while HMRC reviewed the case. You should provide current evidence of income, essential expenditure, cash flow and other debts rather than relying on a general statement that the payment is unaffordable.

Do I Need an Accountant to Deal With an HMRC Tax Debt?

An accountant is not legally required, but professional support can help verify the liability, correct returns, prepare affordability evidence and negotiate a realistic payment proposal. Advice is particularly valuable where the debt covers several taxes, the amount is disputed or HMRC is considering enforcement action.

How Can Apex Accountants Help With HMRC Tax Debt?

Apex Accountants can review how the liability arose, reconcile HMRC’s figures, identify errors and prepare a practical proposal for payment. Where the matter involves disputed assessments or formal enforcement, our HMRC tax investigation services can support communication and representation.

The sensible next step is to address the debt before HMRC exhausts its standard collection process. Book a consultation to discuss the liability, available payment options and any urgent HMRC correspondence.

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.

Inheritance Tax Calculation UK: How It Works in 2026

Posted on by Maliha Javaid

A client came to Apex Accountants earlier this year after inheriting her late father’s house and modest savings. She was convinced the estate was far too small to attract any tax. It turned out her father had also gifted a large sum to her brother four years before he died, something she knew nothing about until the executors began pulling the paperwork together. That gift changed the whole calculation. It is a scenario we see often, and it is why inheritance tax calculation UK guidance matters before families assume an estate is too small to attract tax. 

With thresholds frozen for years and property values still climbing, the inheritance tax has quietly become one of the most talked about taxes in the country. Below, we answer the questions clients ask us most, in the order the calculation actually follows.

What is the basic tax-free allowance?

Every individual has a nil rate band of £325,000. The nil rate band has been fixed at that level since 2009 and, following Budget 2025, will remain frozen until 5 April 2031. Anything left within this threshold passes free of tax.

Is there anything else?

Yes. Where a main home is left to children, grandchildren or other direct descendants, an additional residence nil rate band of £175,000 can apply, taking a single person’s threshold to £500,000. This allowance is not automatic. It only applies to the value of a qualifying home passing to direct descendants and does not extend to lifetime gifts.

What about married couples?

Any part of the nil rate band or residence nil rate band that is left unused on the first death can be transferred to the surviving spouse or civil partner. In practice, this means a couple can often pass on up to £1 million between them before tax becomes due, provided the family home goes to children or grandchildren.

Does the residence allowance taper away for larger estates?

It does. For estates worth more than £2 million, the residence nil rate band is reduced by £1 for every £2 above that threshold. Once an estate reaches £2.35 million, the residence allowance disappears completely, leaving only the standard £325,000 threshold.

What rate do inheritance tax accountants UK apply above the thresholds? 

The standard rate is 40%, charged only on the portion of the estate above the available allowances. If at least 10% of the net estate is left to charity, the rate on the taxable remainder drops to 36%, which is worth factoring in at the will drafting stage rather than after the event.

How did the gift affect the inheritance tax calculation UK families had to make? 

This is the part people underestimate most. Gifts made in the seven years before death are generally pulled back into the estate for tax purposes. This is often called the seven-year rule. If a person survives seven years after making a gift, it falls outside the estate entirely. If they do not, the gift is added back, using up the nil rate band before the rest of the estate is assessed.

Where gifts made in that seven-year window exceed the nil rate band, taper relief can reduce the rate charged, but only on the portion of tax due, not on the value of the gift itself. The reduction runs on a sliding scale: full tax applies to gifts made within three years of death, then the effective rate steps down the longer the person survived afterwards, reaching its lowest point for gifts made between six and seven years before death.

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Are any gifts exempt from the start?

Several are, and they sit outside the seven-year rule altogether, as set out in GOV.UK’s guidance on gifts:

  • An annual exemption of £3,000 per tax year, which can be carried forward one year if unused
  • Small gifts of up to £250 per person, provided no other exemption was used on that person in the same year
  • Wedding gifts, with limits depending on the relationship to the giver
  • Regular gifts made from surplus income, provided the giver’s standard of living is unaffected
  • Gifts between spouses or civil partners, and gifts to UK-registered charities

Is there anything on the horizon that could change these calculations?

Yes, and it is significant. From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of a person’s estate for inheritance tax purposes, following legislation confirmed in the Finance Act 2026. Pensions have historically sat outside the estate altogether, so this change will bring a meaningful number of estates into scope for the first time and increase the liability for others. Anyone relying on their pension as a tax-efficient way to pass on wealth should review that plan with accountants for inheritance tax planning well before the change takes effect. 

Where do we come in? 

For a reliable inheritance tax calculation UK families can act on, work out the full picture before assuming an estate is too small to matter. Add together the value of the home, savings, investments, and any gifts made in the past seven years, then apply the allowances in the right order. Getting the sequence wrong, or missing a lifetime gift, is one of the most common reasons families are caught out, and it is exactly the kind of detail inheritance tax accountants UK are asked to unpick once HMRC has already raised a question. 

The better approach is to work through the calculation properly before that happens. If you are unsure how your estate would be assessed, get in touch with Apex Accountants, accountants for inheritance tax planning, for a clear, professional review. It is a straightforward conversation now, rather than a complicated one later.

UK VAT Group Advice After Barclays Ruling Raises Concerns

Posted on by Rida Ahmed

A recent Upper Tribunal ruling has increased demand for UK VAT group advice by casting doubt over the terms on which international businesses can access UK VAT grouping, raising concerns that a structural advantage the UK has long promoted to attract overseas investment may be quietly eroding. 

The decision, handed down on 8 June 2026 in Barclays Services Corporation & Anor v HMRC [2026] UKUT 211 (TCC), dismissed an appeal by a US-incorporated company that sought to join its UK affiliate’s existing VAT group. The judgement turned primarily on whether the company’s UK branch qualified as a “fixed establishment” at the time of the application. The tribunal concluded it did not.

Tax advisers say the implications reach well beyond one bank’s corporate structure.

Why UK VAT group advice matters after Barclays 

Before examining the ruling, it is important to understand the implications.

Under section 43 of the Value Added Tax Act 1994, two or more commonly controlled corporate bodies can apply to be treated as a single taxable entity for VAT purposes. The immediate benefit is straightforward: supplies between members of the group are disregarded for VAT. No VAT is charged on intra-group transactions, and no compliance is required on those supplies.

For businesses that make largely exempt supplies, such as financial services and insurance firms, this matters significantly. Because they cannot recover the VAT they incur on services they receive, any VAT charged on intra-group services becomes a permanent, irrecoverable cost. VAT grouping eliminates this.

The UK’s approach has historically been described as relatively permissive compared to EU member states. For overseas companies wishing to join a UK VAT group, the key condition is that the company must have a “fixed establishment” in the UK — meaning a genuine operational presence with sufficient human and technical resources available to it.

What the Barclays Case Was About

Barclays Services Corporation (BSC) is a Delaware-incorporated company that provides shared services to other Barclays entities worldwide, including Barclays Execution Services Limited (BESL) in the UK. BESL is the representative member of the Barclays UK VAT group.

As part of a broader regulatory restructuring, BSC registered a UK branch in July 2017. VAT planning was openly identified as a key driver. BESL applied for BSC to join the VAT group on 1 December 2017, with internal documentation indicating a one-off benefit of £21 million was available if the branch was operational before year-end.

HMRC refused the application on two grounds. First, it said BSC had no fixed establishment in the UK at the date of the application. Second, and in the alternative, it argued that refusing admission was “necessary for the protection of the revenue”, a power HMRC holds under the legislation.

The First-tier Tribunal upheld HMRC’s refusal in August 2024. The Upper Tribunal, after hearing the case in March 2026, issued its judgement on 8 June 2026 and dismissed the appeal. The full decision is published on GOV.UK.

Why BSC failed the VAT group fixed establishment test 

The Upper Tribunal found that BSC’s UK branch was, in the tribunal’s own word, “skeletal” at the time of the application.

The key findings were the following:

  • UK-based staff were not employed by BSC directly
  • The branch lacked ownership or comparable control over those employees
  • The branch did not control the premises or technical systems it used
  • The resources associated with the branch had initially been attributed to BESL, not to BSC

A fixed establishment, the tribunal confirmed, requires more than a registered address or a Companies House filing. It requires the permanent presence of both human and technical resources that are genuinely controlled by and available to the overseas entity. Having costs attributed to a UK affiliate while the branch itself is being set up does not satisfy that test.

The Upper Tribunal added obiter comments — observations that were not strictly necessary for the outcome — that the bar for what qualifies as a fixed establishment may have been set too low in earlier cases. These remarks are not binding, but they are significant.

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The ‘Protection of the Revenue’ Question

The second ground raises a broader concern.

HMRC can refuse a VAT grouping application where it considers the refusal “necessary for the protection of the revenue”. The Upper Tribunal, while not required to decide the point given its conclusion on fixed establishment, indicated that HMRC could reasonably have refused the application on this ground as well.

The reasoning was that the anticipated VAT savings were very considerable, the branch’s substance on the application date was minimal, and the timing of the application had been expressly driven by the opportunity to capture a one-off pre-year-end tax saving that was described internally as a “financial imperative”.

This is the part of the judgement that has attracted most concern from advisers. Abigail McGregor, a tax lawyer at Pinsent Masons, said the obiter comments on the protection of revenue would concern businesses. “The suggestion that there might be a test weighing substance against the amount of savings is especially concerning, as it introduces a level of uncertainty that will no doubt impact the entire industry,” she said.

What This Means in Practice

The immediate effect is clear. Overseas companies looking to join a UK VAT group must demonstrate real, controlled presence in the UK. A branch registration alone is insufficient. The substance must exist at the time of the application — not merely be anticipated.

The wider concern is different. If HMRC can refuse a grouping application on the basis that the VAT savings are large relative to the branch’s substance, even where a fixed establishment technically exists, the protection of the revenue power becomes a more significant constraint on VAT group planning than many businesses had previously assumed.

Several other cases are currently stayed behind the Barclays appeal. Their outcome will depend on their individual facts, but the Barclays decision provides the framework against which they will be assessed.

The potential business impact falls into three categories:

For existing cross-border VAT groups:

 Businesses should review whether their overseas member entities continue to satisfy the fixed establishment test. Circumstances change. A branch that was adequate when the group was formed may not meet the standard today, and HMRC has the power to direct that a company leave a group.

For businesses planning to restructure:

 The Barclays case illustrates the risk of applying for VAT grouping before the operational substance is fully in place. HMRC can scrutinise the timing of an application and the documented rationale for it. Internal communications that describe the purpose of a restructuring will be relevant.

For partially exempt businesses: 

Financial services firms, insurers, and others that cannot fully recover input VAT face the greatest practical exposure. For these businesses, the irrecoverability of VAT on intra-group services is a real cash cost. The ability to form a VAT group is not a planning luxury but a commercial necessity.

Cross-border VAT group advice after Barclays 

The ruling comes against a backdrop of shifting HMRC policy on international VAT grouping.

In November 2025, HMRC reversed its position on cross-border VAT grouping related to EU branches, restoring what is known as the “whole establishment” principle. That change, announced at the 2025 Autumn Budget, meant that services between a UK head office and an overseas branch are once again disregarded for VAT purposes under the intra-entity rules, even if the branch belongs to a VAT group in a different country. The ICAEW confirmed this in its Budget commentary.

That was a positive development for many international groups. The Barclays decision represents a countervailing pressure, tightening the conditions on which foreign subsidiaries and group service entities can be admitted to UK VAT groups in the first place.

How Apex Accountants & Tax Advisors Can Help

The Barclays decision is a practical reminder that VAT grouping, often treated as a one-time administrative matter, requires ongoing review. Eligibility conditions can change. HMRC’s approach to those conditions is evolving. And the consequences of getting it wrong can be significant.

Apex Accountants & Tax Advisors works with businesses, including multinational groups and partially exempt organizations, to:

  • Review the fixed establishment position of overseas entities currently within or seeking to join a UK VAT group
  • Assess the protection of the revenue risk for applications where anticipated savings are substantial relative to the branch’s operational substance
  • Advise on VAT group structuring ahead of corporate restructuring, M&A, or regulatory change
  • Support responses to HMRC enquiries into existing VAT group arrangements
  • Review intra-group service contracts for VAT treatment, including where deferred payments or performance-based fees are involved
  • Provide cross-border VAT group advice on the interaction between the whole establishment rules and domestic VAT grouping 

The VAT grouping rules are among the more complex areas of indirect tax. Early UK VAT group advice, before a restructuring or application proceeds, avoids the difficulties created when operational and tax planning run on different timelines. 

Contact Apex Accountants today to review your VAT group position. Book a free consultation with one of our specialist indirect tax advisers.

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Frequently Asked Questions

What is a UK VAT group and who can join one?

 A UK VAT group allows two or more commonly controlled corporate bodies to be treated as a single taxable entity. Supplies between group members are disregarded for VAT. To join, each company must be established or have a fixed establishment in the UK and must be under common control with the other members. The rules are set out in section 43 of the Value Added Tax Act 1994. HMRC guidance is available at GOV.UK: VAT registration groups.

What is the VAT group fixed establishment test? 

A fixed establishment requires a genuine operational presence in the UK, with sufficient human and technical resources that are controlled by and available to the overseas entity. A registered branch, a Companies House filing, or premises used by a related UK company do not in themselves constitute a fixed establishment. The test is highly fact-sensitive. The Barclays ruling confirmed that resources attributed to a UK affiliate, rather than directly to the overseas branch itself, do not satisfy the requirement.

Can HMRC refuse a VAT grouping application even if conditions are met? 

Yes. Under the Value Added Tax Act 1994, HMRC has the power to refuse an application if it considers that refusal is “necessary for the protection of the revenue”. The Upper Tribunal in Barclays indicated this power could be exercised where anticipated VAT savings are large relative to the substance of the entity seeking to join and where the application appears primarily driven by tax savings rather than commercial reorganisation. This power is exercised on a reasonableness standard, meaning HMRC’s decision can be challenged but only where it could not reasonably have been satisfied that the grounds existed.

Does the Barclays ruling affect existing VAT groups? 

Not directly. The case concerned a refusal to admit a new member. However, HMRC also has powers to direct that a body leave a VAT group and can terminate grouping where it considers this necessary. Businesses with overseas entities in their VAT groups should review whether those entities continue to meet the fixed establishment test, particularly if the operational circumstances of the branch have changed since the group was formed.

What is the “protection of the revenue” power, and how far does it extend?

The protection of the revenue power allows HMRC to refuse or terminate VAT grouping where it believes a significant revenue loss would otherwise result. The Upper Tribunal’s comments in Barclays suggest that where the scale of anticipated savings is disproportionate to the substance of the applicant, this power could be exercised even where the fixed establishment test is technically met. These comments were obiter and are not legally binding, but they indicate the direction in which HMRC’s approach may develop.

What should businesses do now?

Businesses with cross-border VAT group arrangements should carry out a structured review of the fixed establishment position of any overseas members, check that operational substance is adequate and documented, and review the rationale for current grouping arrangements in light of the Barclays decision. Where a VAT group application is planned, the substance of the applicant entity should be established before the application is made, not as an anticipated future development.

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.

Tax Rules for Hair and Beauty Businesses in the UK

Posted on by Farazia Gillani

Hair and beauty businesses often use flexible working models. A salon may have employees, chair renters, mobile stylists, freelance beauty therapists, and room renters working under one roof.

That flexibility can work well, but it also creates tax risk.

The key issue is not just what a contract says. The real working arrangement matters too. As per the hair and beauty tax rules, workers in this industry are either employed or self-employed, and that status affects income tax, national insurance, and VAT responsibilities.

For salon owners, barbers, nail technicians, beauty therapists, and chair renters, this is now a good time to review contracts, payment flows, client ownership, and VAT treatment.

At Apex Accountants, we help hair and beauty businesses get these areas right before small issues become expensive problems.

What the new tax guidance for hair and beauty services

The latest focus is on how people actually work in salons, barbershops, and beauty studios.

There is no special new tax rate for hair and beauty services. The real change is clearer guidance on employment status and VAT treatment.

This matters because the wrong setup can affect the following:

AreaWhy it matters
Employment statusIt affects who pays Income Tax and National Insurance.
Chair rentalIt can create VATable income for the salon.
Client paymentsIt affects who reports sales and VAT.
Self-AssessmentFreelancers may need to file tax returns.
Making Tax DigitalSome sole traders now need digital records.

The main lesson is simple. A business model must match daily working practice.

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HMRC employment status guidance for the hair and beauty industry – employment or self-employed

Employment status is one of the biggest tax issues in hair and beauty.

A person may be called ‘freelance’, ‘self-employed’ or a ‘chair renter.’ That label is not enough. The actual working pattern must support it.

The contract and the daily setup both matter.

Working pointMore like employedMore like self-employed
HoursSalon sets hoursWorker chooses hours
Days workedSalon decidesWorker decides
ClientsSalon provides clientsWorker finds own clients
ProductsSalon provides productsWorker buys or chooses products
TasksSalon controls dutiesWorker manages own work
PayFixed wage or rateWorker sets own prices
Time offSalon controls leaveWorker chooses leave

When a worker is likely to be employed

A worker is more likely to be employed if the salon controls their working day.

This may include:

  • setting start and finish times
  • deciding which days they work
  • booking clients for them
  • setting prices
  • providing products
  • assigning tasks
  • monitoring performance
  • paying a fixed hourly rate or salary

Employees have income tax and national insurance deducted through PAYE. Apprentices in salons will normally fall into this employed category.

When a worker is likely to be self-employed

A worker is more likely to be self-employed if they run their work like their own business.

This may include:

  • choosing when and where they work
  • finding their own clients
  • keeping their own client records
  • buying products and equipment
  • setting their own prices
  • taking payments from clients
  • paying rent or commission to the salon
  • working at more than one salon
  • only earning money when they have appointments

Chair renters, mobile stylists, and beauty therapists who visit clients at home can fall into this category, but only where the facts support it.

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Mixed work is common

Some people work in more than one way.

For example, a stylist may be employed by a salon during the week and also have private clients outside those hours. In that case, they may have employment income and self-employed income.

This means the tax treatment may be split.

The PAYE income is handled by the employer. The private client income may need to be reported through self-assessment.

Why getting employment status wrong is risky

Wrong status can lead to unpaid tax, National Insurance, interest, and penalties.

The risk is higher where a salon treats someone as self-employed but still controls their work like an employee.

Salon owners should review:

  • contracts
  • rotas
  • pricing control
  • client ownership
  • product supply
  • booking systems
  • payment handling
  • rent or commission agreements

The aim of the HMRC employment status guidance for the hair and beauty industry is to make the paperwork match the business model.

VAT rules for chair rental

Chair rental is one of the most important VAT areas for salons.

Where a salon rents chair space to self-employed stylists, the supply to those stylists is subject to VAT. This rule can apply even if the stylist has a licence to occupy the chair space.

This is because chair rental often includes more than space. It may include access to washbasins, reception areas, waiting areas, and other salon facilities.

A VAT-registered salon must treat this income correctly on its VAT return.

Read: Zero-Rated VAT on Hair Loss Treatments: Mark Glenn Ltd v HMRC Explained

Who accounts for VAT on client takings

VAT treatment depends on who supplies the service to the client.

Business modelVAT treatment
Stylists are employeesThe salon supplies the service and accounts for VAT on gross takings.
Self-employed stylists supply services to the salonThe salon accounts for VAT on gross takings. The stylist may also have VAT duties if registered or required to register.
Stylists supply services direct to their own clientsVAT depends on the stylist’s own takings and VAT position. Payments passed to the salon are payment for the salon’s own supplies, such as chair rent.

This is why the payment flow matters. The answer changes depending on whether the client belongs to the salon or the self-employed worker.

Signs that a stylist supplies clients directly

A self-employed model is stronger when the stylist is genuinely trading on their own account.

Useful indicators include:

  • Stylists keep their own books and records
  • they set their own prices
  • they have their own clients
  • client pays the stylist
  • stylist handles complaints
  • the stylist controls bookings
  • stylist carries business risk
  • salon charges rent or commission
  • the written agreement reflects the real setup

If the salon controls the client relationship, prices, and payments, the tax position may be different.

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VAT registration for salons and beauty businesses

A beauty and hair business must register for VAT if taxable turnover goes over £90,000 in the last 12 months.

Registration is also needed if taxable turnover is expected to go over £90,000 in the next 30 days.

For salons and beauty businesses, taxable turnover may include:

  • hair services
  • beauty treatments
  • nail services
  • barbering
  • product sales
  • chair rental income
  • room rental income
  • commission from self-employed workers

A business can also register voluntarily if turnover is below £90,000. Once registered, VAT must be charged on taxable supplies from the date of registration.

Also Read: Do Hairdressers Charge VAT in the UK?

Flat Rate Scheme for hair and beauty

Some smaller VAT-registered businesses may use the Flat Rate Scheme.

For hairdressing or other beauty treatment services, the flat rate percentage is 13%. A business may pay 16.5% if it is classed as a limited-cost business. This scheme can be useful, but it is not always the best choice.

Before using it, salon owners should check:

  • expected turnover
  • product costs
  • equipment costs
  • VAT on purchases
  • chair rental income
  • whether the limited cost business rule applies

A quick VAT review can help avoid choosing a scheme that costs more than expected.

Self-Assessment for freelancers

Self-employed stylists, barbers, nail technicians, and beauty therapists may need to file a tax return.

A sole trader must usually send a self-assessment tax return if they earn more than £1,000 before deducting expenses. Untaxed tips and commission can also create a filing requirement.

Self-employed workers should keep records of:

  • client payments
  • chair rent
  • room rent
  • stock and product costs
  • equipment costs
  • travel costs
  • training costs
  • insurance
  • phone and booking software costs
  • business bank transactions

Tax is paid on profit, not sales. Good records help show the real profit figure.

Tips in hair and beauty

Tips need careful handling. Income tax applies to tips. Whether National Insurance applies depends on how the tips are paid and managed.

Tip typeTax treatment
Direct tip kept by the workerThe worker must report it. Income Tax applies. National Insurance is not usually due.
Tip paid through the employerTax is deducted through wages. National Insurance may apply depending on the setup.
Tips paid through a troncTax is handled through the Tronc system. National Insurance depends on employer involvement.
Compulsory service chargeTreated like wages if paid to the worker.

Cash tips should not be ignored. They still form part of taxable income.

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Making Tax Digital for Income Tax

As making tax digital for income tax now affects some sole traders.

It applies in stages based on qualifying income from self-employment and property:

Qualifying incomeStart date
Over £50,000 in 2024 to 20256 April 2026
Over £30,000 in 2025 to 20266 April 2027
Over £20,000 in 2026 to 20276 April 2028

This can affect freelance stylists, mobile beauty therapists, nail technicians, and barbers who trade as sole traders.

Those in scope need compatible software and digital records.

This is important because many hair and beauty businesses still use notebooks, spreadsheets, or booking apps that are not linked to tax records.

Business rates for salon premises

Physical salons in England may also need to review business rates.

Retail, hospitality, and leisure relief can no longer be newly claimed. From 1 April 2026, business rates are calculated using rate multipliers.

Hair and beauty salons are listed among service businesses that can fall within the retail, hospitality, and leisure multiplier rules, where the property meets the conditions.

This can affect:

  • hair salons
  • nail bars
  • beauty salons
  • tanning shops
  • salons offering non-surgical cosmetic procedures
  • piercing salons

This applies to England only.

Common mistakes to avoid

Hair and beauty businesses should avoid these errors:

  • treating all freelancers as self-employed without checking the facts
  • using chair rental agreements that do not match daily practice
  • missing VAT on chair or room rental
  • counting only profit when checking VAT registration
  • ignoring cash tips
  • mixing personal and business payments
  • failing to keep client payment records
  • waiting too long to prepare for Making Tax Digital
  • assuming a contract is enough on its own

Good tax compliance in this sector starts with clear records and a working model that makes sense.

How We Help Businesses Stay Compliant with HMRC’s New Tax Guidance for Hair and Beauty Services

At Apex Accountants, we support hair and beauty businesses with practical tax and accounting advice.

Our services include:

  • employment status reviews for salons and barbershops
  • chair rental and room rental tax checks
  • VAT registration advice
  • VAT return support
  • Self-assessment for stylists and beauty therapists
  • bookkeeping for salons and freelancers
  • payroll for salon employees
  • Making Tax Digital setup
  • year-end accounts
  • business structure advice

We help salon owners and freelancers build a tax setup that reflects how they actually work.

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Conclusion

Hair and beauty tax rules are not just about filing returns on time. The real risk sits in the business model.

Salon owners need to know whether workers are employed or self-employed. They also need to check VAT on chair rental, client takings, tips, self-assessment, and digital reporting.

Freelancers need to know when to register, what records to keep, and how their income should be reported.

Apex Accountants can help hair and beauty businesses review their contracts, VAT position, payment flows, and tax records so the business stays compliant and is easier to manage.

FAQs About Tax Rules for Hair and Beauty Businesses 

Am I self-employed if I rent a chair?

Renting a chair does not automatically make you self-employed for UK tax purposes. Your status depends on whether you control clients, prices, hours, bookings, and payments and operate independently. HMRC’s CEST tool and hair-and-beauty guidance should be used to confirm status.

Does chair rental include VAT?

If the salon is VAT-registered, chair rental to self-employed stylists is normally standard-rated for VAT, especially when facilities like reception, washing, or bookings are included. Pure land/property rent can be exempt, but most salon “chair rentals” are included as taxable.

Do beauty therapists need to register for VAT?

Beauty therapists must register for UK VAT if their taxable turnover exceeds £90,000 in any rolling 12-month period or if they expect to exceed it. Voluntary registration is allowed below the threshold and may help a month-long period reclaim input VAT on business costs.

Do mobile hairdressers need a tax return?

Self-employed mobile hairdressers must file a self-assessment tax return if their gross trading income exceeds £1,000 in a tax year, after using the £1,000 trading allowance. Below this, no return is needed unless they have other reportable income or gains.

Are tips taxable?

All tips and gratuities are subject to UK Income Tax. How they are reported depends on whether customers pay you directly or via the salon; National Insurance may also be due where the employer allocates or manages the tips under PAYE or a tronc.

Does Making Tax Digital apply to beauticians?

MTD for Income Tax applies to self-employed beauticians with qualifying business or property income over £50,000 from April 2026, with the threshold falling to £30,000 in 2027 and £20,000 in 2028. They must use compatible software and send quarterly updates to HMRC.

UK Supreme Court Confirms Income Tax on Deferred Trader Profits

Posted on by Farazia Gillani

A landmark ruling by the UK Supreme Court in June 2026 has ended a long-running tax dispute involving Alex Gerko and other members of a forex trading partnership. The Court found that profits held back by a corporate member and later paid out to traders were taxable income, despite the elaborate deferral scheme. In essence, the scheme could not escape income tax on deferred trader profits through clever structuring.

High-Profile Trader Tax Appeal Outcome and What It Means

Partnership structure: 

HFFX LLP was a foreign exchange trading partnership with both individual and corporate members. An internal Capital Allocation Plan (CAP) allowed part of each trader’s bonus to be paid to the corporate member (GSAM) instead. GSAM invested the funds and later returned proceeds as “Special Capital” to the traders.

Intended tax result: 

The arrangement aimed to have GSAM pay corporation tax on the retained amounts and to make the eventual payments to individuals appear as non-taxable capital, avoiding income tax. The traders argued they only received capital, not income.

HMRC’s challenge: 

HMRC argued the deferred amounts were still income and should be taxed. It raised two legal claims:

Section 850 ITTOIA (profit-sharing arrangements): 

HMRC said the partnership’s profit-sharing rules meant these amounts were effectively the individual partners’ profit shares and should be taxed in the year earned.

Section 687 ITTOIA (miscellaneous income): 

Alternatively, HMRC said the payments were income “not otherwise charged” and thus still taxable when actually paid.

The Supreme Court unanimously dismissed both appeals, siding with HMRC on the core points. Its reasoning, explained below, clarifies how deferred bonuses are taxed in the UK.

Read: ‘Widespread Non-Compliance’: Three-Quarters of Landlords and Sole Traders Miss Deadlines for Making Tax Digital for Income Tax

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How Deferred Bonuses are Taxed in UK

1. Profit-sharing rule (Section 850): 

Section 850 of the Income Tax (Trading and Other Income) Act 2005 requires that a partner’s share of a firm’s profits be determined “in accordance with the firm’s profit-sharing arrangements” in each accounting period. The key is legal entitlement during that period.

The court held that for s850 to apply, the partners must have a contractual right during the period to receive a specific share of profit. In this case, the “indicative allocation letters” to traders did not give any enforceable right to payment in that period. The actual payments occurred later and were at GSAM’s discretion. Therefore, the deferred amounts were not regarded as partners’ profit shares under s850.

“Profits are translated into income only to the extent a partner had a contractual right in that period to share in those profits… The amounts in the indicative allocation letters were therefore not profit shares… because the individual member had no contractual right… to receive that sum of money.”

2. Miscellaneous income (Section 687): 

Section 687 ITTOIA is a catch-all tax charge on income “from any source not charged under any other provision.” HMRC argued that when GSAM finally paid out the Special Capital, it was taxable income because it came from trading profits and was not covered by any other rule.

The individual members contended that GSAM’s payouts were purely voluntary (since GSAM had discretion) and so had no “source” for s687. The Supreme Court disagreed. It found that the decision-making process under the CAP was a sufficient source linking the payments to the recipients’ trading earnings. In other words, there was a clear economic connection: the payments rewarded the traders for their work. Thus, the special capital was income in their hands when paid and taxable under s687.

“The decision-making process of Mr Gerko and GSAM in implementing the CAP… is the source of the deferred income received by the individual members… The special capital received… under the CAP is therefore income charged to income tax under section 687 ITTOIA.”

Outcome: 

The Supreme Court dismissed the traders’ tax appeal and HMRC’s cross-appeal. In practical terms, the traders (including Alex Gerko) must pay income tax on the deferred amounts just as if they had been paid in the year earned. The scheme’s structure could not convert taxable earnings into tax-free capital.

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Key Insights and Lessons From Income Tax on Deferred Trader Profits Case

Economic substance matters: 

The courts looked at the real nature of the payments, not just how they were labeled. Even though the CAP branded the payments as “Special Capital,” the substance was deferred compensation for trading profits. UK tax law will tax the substance of income, not the form.

A contractual right is essential: 

To use Section 850, a partner must have had a clear right in that accounting period to part of the profit. In this case, the partners had no contractual entitlement to the deferred sums during the relevant years, so s850 did not apply. In any profit-sharing scheme, ensure that profit rights are clearly defined and enforceable if you want them to trigger tax reliefs in real time.

Deferred payments can still be taxed later: 

The ruling confirms that postponing payment does not sidestep taxation. If the income is clearly linked to your work (through contracts, decisions, or incentives), it will be taxed under the catch-all rules like s.687 when it is received. Timing alone doesn’t eliminate tax liability.

Plan with tax in mind: 

Complex structures often attract scrutiny. Taxpayers should design arrangements in alignment with both the letter and purpose of the law. Overly aggressive schemes risk being recharacterised by HMRC and the courts.

Precedent matters: 

This case followed similar lines to earlier decisions (e.g. the BlueCrest cases) about deferred partnership payments. It underlines that legal discretion given to a corporate partner (like GSAM) is still governed by implied duties (per Braganza rules) and can create taxable sources of income.

Also Read: How the Income Tax Threshold Freeze 2030–31 Could Affect Your Tax Bill

What Went Wrong in the Scheme

The heart of the problem was that the profit-sharing and deferral plan tried to separate profit generation from profit receipt:

  • The incentivisation plan (CAP) gave GSAM absolute discretion to allocate retained profits later. Legally, individual traders had no vested right to those profits until GSAM actually paid them.
  • Because of that discretion, in the eyes of law no part of HFFX’s profits was definitively theirs in the year it was earned. The partnership deed’s profit-sharing rules never guaranteed those deferred sums to the individuals.
  • The traders hoped that labelling the payouts as a capital allocation (rather than salary) would exempt them from income tax. The Court focused on the actual link: GSAM paid the money as a reward for trading performance, which made it income to the traders.
  • In short, the scheme lacked a binding profit-sharing right up front, so it failed to meet the conditions of section 850. And when the payments were finally made, they were caught by the residual tax rule (s687).

Avoiding these pitfalls: 

Make sure that any bonus or profit share you defer still meets legal tests if you want to claim favourable tax treatment. If you intend for a deferred arrangement to count as partnership profit, build in a firm entitlement and document it clearly. Alternatively, if you treat it as genuinely separate capital, be prepared to argue on sources – but be aware that tax authorities can still reclassify it as taxable income.

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IssueSupreme Court Conclusion
Deferred profit share under s850 ITTOIAThe traders had no contractual right to the profits in the original year, so s.850 does not apply. The profits held by the corporate member (GSAM) were not deemed the individuals’ shares for tax purposes.
Later payments (Special Capital)The final payments were taxable. The decision-making and contractual rights in the CAP were a sufficient source to make the payouts income under s687. In effect, the sums ended up taxed as ordinary income when received by each trader.

How to Handle Deferred Payments and Partnerships

  • Clear entitlements: If using a partnership or LLP structure, ensure each member’s right to profits is well-defined. Section 850 requires a clear sharing arrangement so the tax position is known per year.
  • Documentation: Keep thorough records of any bonus or deferral agreements. If payments are discretionary, be aware they may be seen as voluntary. If not truly voluntary (e.g. governed by contract and duties), they can be treated as taxable income.
  • Tax advice: Before implementing a deferral scheme, consult specialists on how UK law views your plan. Small changes in contract terms can change the tax outcome.
  • Proactive review: Regularly review partnership deeds and remuneration policies to catch any unintended tax traps. For example, consider whether payments could fall under “employment income” or the sales of earnings rules (Chapter 4, ITA 2007) if structured differently.
  • HMRC compliance: If there is uncertainty about past arrangements, consider making a disclosure. Voluntarily correcting tax affairs can reduce penalties and interest compared to waiting for an enquiry.

Penalties and Disclosure

If income should have been declared but was not, HMRC may charge interest and penalties on the unpaid tax. The severity depends on factors like intent:

  • Reasonable care: If you can show you took care but still underpaid, penalties may be limited (review of 4–6 years back taxes).
  • Careless behaviour: Failing to take reasonable care can extend look-back periods (up to 6 years) and increase penalties.
  • Deliberate non-disclosure: If HMRC proves you knowingly hid income, you could face penalties on up to 20 years of tax owed. In severe cases, criminal charges are possible.
  • Offshore elements: Hidden offshore income triggers a longer disclosure period (up to 12 years).

It’s crucial to get professional help if your tax position is challenged. An enquiry into a complex partnership scheme can be costly and time-consuming, so early resolution or disclosure is often wise.

How We Help Businesses Manage Income Tax on Deferred Payments 

Apex Accountants helps businesses and individuals navigate complex tax matters. We offer:

  • Partnership tax planning: Structuring LLPs and profit-sharing to meet tax requirements.
  • Remuneration advice: Guidance on bonus and deferred pay schemes, ensuring tax efficiency within the law.
  • HMRC enquiry support: Representation during tax investigations and appeals.
  • Compliance reviews: Review company and partnership tax filings to identify any past exposures.
  • Tax disclosure assistance: Helping clients make voluntary disclosures and manage potential penalties.

Our experts stay up-to-date with UK tax cases and legislation, ensuring advice reflects the latest legal standards.

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FAQs About Alexander Gerko’s UK Supreme Court Tax Ruling

Were Alex Gerko and colleagues “double taxed” by this decision?

No. The court found no double taxation. Originally, part of the profits was taxed at corporate rates in GSAM, and later the same amounts were taxed as personal income in the traders’ hands. The Supreme Court’s view is that this reflects the economic reality: the traders had not already been taxed on their entitlement, so tax was due on the later payment.

Can any deferred bonus scheme avoid income tax in the UK?

Generally, simply delaying payment won’t avoid tax if the payments are linked to your work. UK law taxes based on substance. If a scheme is genuine capital (rare), it might escape income tax. But if it effectively rewards services, it will usually be taxed, either via partnership rules or the catch-all provision.

What is the significance of having “no contractual right” to the profit?

Section 850 requires that, in the year profits are earned, each partner has a specific right to a part of them. In this case, the traders only had a hope (discretionary claim) and no legal entitlement until GSAM decided. Because of that, the partnership’s profit-sharing rules never assigned those amounts to them in that year, and so s850 did not apply.

What is a “source” of income under s.687?

A “source” means the activity or relationship from which income arises. The Supreme Court said the source here was the traders’ own work and the contractual framework (CAP/LLP deed). The payments were linked to the trading profits and the CAP decisions, which made them taxable income.

What should a trader or partner do to avoid these issues?

Make sure any deferred payments are properly accounted for tax-wise. If you want to defer legitimately, build in enforceable rights and document them. If using a corporate vehicle, get clear advice on tax timing. And always review whether HMRC might view any payments as income anyway. 

Conclusion

The Supreme Court’s decision underscores that creative tax structures must align with the law’s substance. For high-earning individuals and partnerships, this means ensuring clear legal entitlements and transparent reporting. If you have complex profit-sharing arrangements, proactive tax planning and review are essential to avoid costly adjustments and penalties.

EPC Tax Relief for Landlords as Agents Call for Tax Breaks

Posted on by Farazia Gillani

Letting agents and landlord bodies are pressing the government to make EPC tax relief for landlords available as private landlords face significant upfront costs under the confirmed 2030 Energy Performance Certificate (EPC) upgrade requirements. Without fiscal support, they warn, rental supply could shrink further at a time when housing demand is already outstripping availability. 

What the Government Has Confirmed

Following its January 2026 consultation response, the government’s position is now settled. The key rules are:

RequirementDetail
Minimum EPC standardBand C for all privately rented homes in England and Wales
Compliance deadline1 October 2030 — applies to new and existing tenancies
Spending cap£10,000 per property (reduced from the proposed £15,000)
Qualifying spend start dateOctober 2025 — expenditure from this date counts toward the cap
Non-compliance penaltyUp to £30,000 per property per breach
Cost-cap exemptionAvailable where band C cannot be reached after £10,000 is spent; valid for 10 years

The government is also introducing a new assessment framework under the reformed Home Energy Model, covering fabric performance, heating system efficiency, and smart readiness. This change means the compliance target itself is evolving—EPCs assessed under the new methodology, expected from late 2026, may produce different ratings than those issued today.

Industry Pushes Back on Fiscal Imbalance

At the centre of current industry pressure is a structural inequity that agents’ bodies argue the government has not yet resolved: landlords bear the full cost of retrofit works but do not directly benefit. Once improvements are made, tenants see lower energy bills, while property owners do not benefit from the funding.

Propertymark, the professional body for letting and estate agents, has set this out directly in its response to the Warm Homes Fund consultation. The body is calling for:

  • An updated Landlord Energy Saving Allowance that allows retrofit costs to be offset against rental profits
  • Recognition of energy efficiency works for Capital Gains Tax (CGT) purposes
  • Stamp Duty and Council Tax incentives linked to verified EPC improvements
  • Low-interest or government-backed loans for smaller landlords, with repayment terms that reflect the lifespan of retrofit works
  • Eligibility for Warm Homes Fund support to be linked to the property’s EPC rating, rather than the income of the current tenant, so improvements benefit successive occupants

Propertymark warns that without accessible and tailored support, the requirements risk pushing landlords toward selling rather than upgrading, reducing the supply of rental homes and increasing pressure on tenants.

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Who Carries the Greatest Risk

The compliance burden is not falling evenly across the sector. Larger portfolio landlords can spread costs across multiple properties and manage cash flow disruption more readily. Smaller operators, particularly those with one or two properties, have far less room to absorb the outlay.

According to NRLA research, there are currently around 2.5 million rental homes in England that require improvements to meet the new standard. Smaller landlords are experiencing an accelerated exit due to the cumulative weight of Section 24 mortgage interest restrictions, rising income tax rates, and now mandatory retrofit costs. These are precisely the operators who supply housing in lower-demand markets where build-to-rent alternatives do not reach.

The 2030 deadline also presents a practical delivery challenge. The government’s own response references a growing shortfall of skilled retrofit tradespeople, meaning landlords who delay risk being unable to source qualified contractors in time, regardless of their willingness to invest.

What support exists for private landlord retrofit tax relief 

Available support is means-tested and variable in reach. The table below summarises the main routes currently open to private landlords:

SchemeWhat It OffersWho Qualifies
Warm Homes: Local GrantUp to £30,000 per property for energy upgrades and low-carbon heatingTenants in EPC D to G properties with household income below £36,000 or on qualifying benefits; landlords receive full funding for one property and 50% thereafter
Boiler Upgrade Scheme (BUS)£7,500 toward an air source or ground source heat pump; £5,000 for biomass boilersProperty owners in England and Wales replacing fossil fuel heating; it is not means-tested
Zero-rated VAT on qualifying measures20% saving on eligible energy-saving materials including insulation and heat pumpsAll landlords undertaking qualifying works

A notable point from the GOV.UK government response: third-party grant funding counts toward the £10,000 MEES cost cap. Landlords who secure grant support may reach the cap before spending their money to the ceiling, potentially unlocking the cost-cap exemption route sooner.

The Landlord Energy Saving Allowance, which once permitted deductions for cavity wall and loft insulation against rental income, was abolished in 2007. No equivalent has been introduced. Its reinstatement, in a form covering a broader range of qualifying measures, is central to demands for tax relief for private landlords undertaking retrofits. 

The Tax Treatment Trap Behind EPC Tax Relief for Landlords 

The absence of a dedicated allowance sits at the heart of the industry’s concern. Under current HMRC rules, how retrofit expenditure is treated for tax depends on the nature of the works:

  • Revenue expenditure (like-for-like repairs or replacements) can be deducted against rental profits in the year of spend, reducing income tax
  • Capital expenditure (improvements that enhance a property beyond its original condition) cannot be deducted against income; instead, it is added to the property’s base cost and reduces CGT only on eventual disposal

Most EPC-qualifying works, including heat pumps, solid wall insulation, and solar panels, are capital in character. They provide no in-year income tax relief. A basic-rate landlord funding a heat pump installation receives no direct tax saving until they sell the property, which may be many years away.

Propertymark’s proposal would treat qualifying energy efficiency expenditure as a deductible revenue expense, regardless of its capital character. This would provide immediate tax relief in the year costs are incurred and materially improve landlord cash flow. This is why EPC tax relief for landlords has become a central issue in the wider debate on funding retrofit works. The NRLA has gone further, calling for finance models that combine private investment with grants and tax incentives, allowing landlords to draw on multiple funding sources at the same time. 

The Supply Consequence

The stakes extend beyond individual landlord finances. The private rented sector provides housing for a substantial proportion of UK households, and the current tax environment is already discouraging new investment. A further contraction, driven by landlords choosing to sell rather than retrofit, would compound an already acute housing shortage.

This is not simply a financial matter. The Warm Homes Plan targets up to five million home upgrades by 2030. If private landlords exit the market rather than upgrade, the government’s own targets become harder to meet, and the households in poorest-quality rented accommodation, often those most vulnerable to fuel poverty, lose out.

Propertymark’s recommendation that eligibility for Warm Homes Fund support be linked to the property rather than the tenant’s income would allow improvements to remain in the housing stock for successive tenancies. Under the current means-tested model, a qualifying upgrade in one tenancy provides no guaranteed benefit to the next occupant.

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How landlord EPC upgrade tax advice can help 

The intersection of EPC compliance and UK tax law is more complex than many landlords appreciate. Landlord EPC upgrade tax advice can help clarify whether retrofit expenditure is deductible in the year it is incurred or whether it must be capitalised and set against future gains. Getting the classification wrong can be costly. 

Apex Accountants & Tax Advisors works with private landlords, portfolio investors, and property companies to:

  • Classify retrofit expenditure correctly under HMRC guidelines to maximise available tax relief
  • Structure compliance costs in line with your overall portfolio strategy and cash flow position
  • Advise on the interaction between grant funding, the £10,000 MEES cap, and your income tax position
  • Plan for Making Tax Digital, which from April 2026 applies to landlords with qualifying rental income
  • Review CGT implications where EPC improvements affect the base cost of a property on disposal
  • Monitor legislative developments, including any reinstatement of retrofit allowances or new HMRC guidance

With the 2030 deadline approaching and government support still evolving, proactive tax planning is essential rather than optional.

Contact Apex Accountants today to review your EPC compliance position and ensure your retrofit strategy is as tax-efficient as possible. Book a free consultation with one of our specialist property tax advisers.

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