Newsletter Oct/Nov 2025
| This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. The newsletter represents our understanding of law and HM Revenue & Customs practice. |
Beware scams in self-assessment season
HMRC routinely sends reminders and other information to self-assessment taxpayers in the run-up to the tax return filing deadline. But this is also high season for scam messages masquerading as instructions from HMRC.
These scam emails, voicemails and texts want you to click on links or otherwise persuade you to give out personal information, with the aim of defrauding you of your money. HMRC has issued guidance on what you can expect to see, and not see, in various types of genuine communications from the department.
Refunds, demands and benefit applications
A common ploy by scammers is to tell you about a tax refund you are supposedly due or to demand an urgent tax payment. What they want is to steal your bank details. HMRC will never ask you for passwords, usernames or access codes – these are private and should never be shared with anyone. HMRC will never threaten legal action or arrest if you don’t respond to a payment request. HMRC will never try to rush you into taking any action – a common tactic of scammers to prevent people from stopping and thinking first.
HMRC will also never ask you to claim a tax rebate via a link. If you are owed anything, you can find out how much and reclaim it securely via your online personal tax account or via the free HMRC app. The only links, or occasionally QR codes, that might appear in HMRC messages will lead to guidance on the HMRC website.
Other common scam messages remind you to apply for child benefit, or for winter fuel payment – this one claiming to come from the Department for Work and Pensions. HMRC will send messages acknowledging a claim you have made, or a communication received, but they will not contain a link to your personal tax affairs. And HMRC will never ask for payment by gift vouchers.
Check emails
Emails that say you have a new message from HMRC should, however, not be ignored. Genuine emails will not include a link but will ask you to sign in to your online account. If you have agreed to receive messages from HMRC electronically – which you might have done without realising when signing up for an online tax account – you will not get notices by post but only in your online account. Failing to read these messages will not excuse you from a penalty for missing a tax deadline.
Are you ready to manage inheritance tax changes?
Inheritance tax (IHT) is expected to raise £9.1 billion in the current tax year, nearly double its revenue of ten years ago, with some £14.3 billion forecast by 2029/30. Even though most of the IHT measures announced in the Autumn 2024 Budget have yet to be introduced, still more changes are possible come this November’s Budget.
The IHT changes announced at the October 2024 Budget include:
- Nil rate bands frozen for a further two years up to, and including, 2029/30;
- Restrictions on 100% relief for business and agricultural property to a combined £1 million will be introduced from 6 April 2026, with just 50% relief thereafter; and
- Most unused pension death benefits will be brought into charge for IHT purposes from 6 April 2027.
In response, many people have started to make, or think about making, lifetime gifts as a way to mitigate future IHT liabilities. This is likely to be effective as long as the donor survives for seven years after making the gift, but it’s not always quite that straightforward.
Drawbacks to gifting
One major problem is that most people simply do not have sufficient assets to be making substantial lifetime gifts.
| Example: Simon and Miranda, a married couple, feel quite well off with assets of £2.5 million. They are considering a lifetime gift to their children of £500,000 as this would cut their potential IHT liability on second death by £200,000. However, if only £1.5 million of assets are income producing, the gift would reduce investment income by a third. |
One way that someone may try to circumvent the problem of not having sufficient assets is to not make the gift absolute.
| Example: Sofia, a widow, is thinking of making a gift of her house, valued at £850,000, to her daughter. However, Sofia will continue to live in the house rent-free. Such a gift is not effective for IHT purposes, and it will still be included as part of Sofia’s estate. The situation would be different if Sofia paid a market rent for her continuing use, but this rent would then be taxable income for the daughter. |
Of course, real life may not conform to your expectations, and you could be left regretting decisions if future circumstances do not match your intentions. Making gifts within the family could save IHT, but once the money has been given there is no reversing the gift. The gifted assets could be lost outside the family as a result of a divorce settlement, while a transfer made to an unmarried partner to equalise the value of respective estates will not be recoverable if the relationship subsequently breaks down.
Death-bed marriages
One final chance to carry out some IHT planning is through late, even death-bed marriage. As IHT impacts on ever more estates, the number of such marriages has increased. Assets bequeathed to an unmarried partner are not automatically exempt from IHT, so a death-bed marriage can rectify this. The general rule is that marriage or the formation of a civil partnership will revoke any will that has been made, so care needs to be taken to avoid dying intestate.
Next Budget
One area that might be targeted in the November Budget is the seven-year gifting rule. The Chancellor could introduce a lifetime cap on the amount that can be gifted tax free during a donor’s lifetime, the seven-year rule could be removed completely (with all lifetime gifts taken into account on death), or the seven years could be extended so that the donor has to live for, say, ten years before a gift is outside the scope of IHT.
Take expert tax advice before making any decisions around your IHT planning.
Reform of business rates
The report was the result of a consultation with stakeholders that started with a discussion paper published after the 2024 Budget.
The consultation revealed that business rates is one of the most influential factors in investment decision-making. The report set out several aspects of the existing system as priority areas for further exploration to improve their operation.
Moving from ‘slab’ to ‘slice’
The existing ‘slab’ system (a single multiplier paid on a property’s full rateable value (RV)) could change to one where successive bands of value are taxed at increasing rates – a ‘slice’ system. Currently the standard multiplier is 55.5p and a small multiplier of 49.9p is applied to properties with an RV below £51,000. The 2024 Autumn Budget proposed the introduction of two new lower multipliers for retail, hospitality and leisure business properties with an RV below £500,000, funded by a new, high value multiplier for properties with an RV of £500,000 or above. These rates are to be announced in the coming Budget.
Adjustments to reliefs
Small Business Rates Relief (SBRR) could be enhanced to support business growth and investment. Currently SBRR provides 100% relief for businesses occupying a single property with an RV of £12,000 or less, and tapered relief for properties valued between £12,000 and £15,000. Businesses have called for uprating of the RV threshold and removal of the single property condition to allow small businesses to expand into additional properties. Improvement Relief is designed to encourage investments in property by providing a 12-month relief for qualifying property improvements, but it may not be providing sufficient incentive because of its conditions. Research investigating how it is currently used could help to make it more effective.
Changes to valuation and structure
The ‘receipts and expenditure’ methodology used to assess particular property types could be reviewed ahead of the 2029 revaluation. Many respondents highlighted the uncertainty over outcomes of a revaluation and its consequences, and called for greater transparency over the valuation methods used and how the methodology is applied. Several businesses called for a streamlining of the process of appealing against a valuation, which can be lengthy, resulting in businesses paying rates on contested properties for a long time, thereby delaying investment.
A future shortening of the two-year Antecedent Valuation Date (AVD) is another potential area for change. The current rules mean that by the end of a rating list, five years have passed since the time at which the properties were last valued and so valuations do not reflect the current economic conditions.
Finally, the report highlighted the merger of the Valuation Office Agency with HMRC as an opportunity to make administrative changes that help ratepayers.
Not all proposals will progress
The government says that they will not be implementing all the recommendations and that “final decisions will be taken in the context of the government’s objectives for the business rates system and its wider objectives, to ensure the sustainability of the public finances”. The impact on local government funding will also have to be considered.
HMRC enhances lifestyle scrutiny
Be warned that HMRC is deploying artificial intelligence (AI) to scan social media accounts for signs that taxpayers’ lifestyles do not match their declared income. HMRC’s covert surveillance team has doubled in size over the past two years as part of its mission to recover lost funds.
Lifestyle inconsistencies
Tax authorities around the world have jumped on the AI bandwagon as they attempt to keep a lid on tax fraud, with HMRC no exception. HMRC is using AI to search across major social media platforms such as Facebook, Instagram and TikTok for lifestyle inconsistencies. A typical example would be where a person posts about a luxury holiday which obviously costs way more than they could afford based on the level of income reported on their tax returns.
HMRC is at pains to point out that the use of AI is currently restricted to suspected tax fraud, rather than aimed at taxpayers generally, and is only used as a first filter before the information is subject to human review.
It’s unrealistic to believe, however, that HMRC will not increase its reliance on AI in the future as it attempts to collect the more than £46 billion in taxes which go uncollected each year, known as the tax gap.
The vast majority of taxpayers should have nothing to worry about given their tax affairs are in order. Nevertheless, they should still be careful when it comes to social media posts. An expensive holiday may have been a treat paid for by parents, so the last thing you want is it leading to an enquiry from HMRC. This will be both time consuming and stressful to deal with.
Compliance
AI is the ideal tool for HMRC to unearth unusual financial patterns because it can easily cross reference billions of items of data. One example is where databases – including the land registry, listing websites and various tenants’ deposit schemes – are searched to establish whether landlords are correctly declaring property income.
Covert surveillance
More than 330 HMRC staff are now trained in covert surveillance, with these officers having a wide range of powers including:
Physical monitoring of premises: An HMRC officer will covertly visit business premises to check on, for example, the number of staff, the number of customers and how cash is handled. Maybe a business has five staff working when only three are being declared on the payroll.
Test purchases: An HMRC officer will undertake test purchases of goods or services to establish if a business is declaring all of its income. Maybe a large cash payment will be made to see if this amount is then banked and/or included in takings for the period in question.
Drive-bys: Venturing even further into secret agent territory, HMRC officers will drive-by, walk past, or stake out business premises to conduct surveillance, such as who enters and leaves the property. Perhaps a business has said that it’s no longer trading, so HMRC will attempt to establish if this is in fact the case.
HMRC has the power to request data about phone calls when conducting a tax investigation (although it cannot normally eavesdrop on the actual call), obtain copies of text messages, and track a person’s web browsing.
Further sacrifices possible on employee benefits
Tax changes introduced back in 2017 severely curtailed the use of salary sacrifice arrangements. In the lead up to November’s Budget, concerns are circulating that the Chancellor could further restrict relief.
Salary sacrifice can currently mean generous tax advantages when an employee forgoes part of their salary in exchange for employer pension contributions or a low emission company car.
Pension contributions
If the arrangement involves employer pension contributions, both employee and employer NICs are saved on the amount of salary sacrificed.
- This is particularly attractive for employers since the rate of employer NICs was increased to 15% from April 2025.
- The employee will also save income tax on the salary sacrificed, and this could mean a 60% saving if they’re one of the more than 600,000 taxpayers now caught in the personal allowance tax trap. Note, however, that there will be the same tax saving if the employee makes the pension contributions personally.
- Pension holders can take 25% of the pension fund tax free from age 55 (increasing to 57 from April 2028), with total withdrawal flexibility for the remainder of the fund, enhancing the arrangement.
The principle can work equally well for directors of owner-managed companies, with pension contributions being made rather than the director drawing profits as remuneration or dividends – both costly in terms of tax.
Company cars
The tax saving on company cars is a bit more complicated because although there will be a salary reduction, the employee will then have a taxable car benefit. Nevertheless, with fully electric cars and low emission hybrids, the taxable benefit will be relatively low even for an expensive car.
The employee saves employee NICs on the salary reduction, and there will be a saving of income tax and employer NICs on the difference between the salary reduction and the amount of taxable benefit.
Potential changes
Salary sacrificed pensions, in particular, could be in the Chancellor’s sights, with HMRC examining various scenarios to gauge employer reaction to potential changes. The scenarios included setting a threshold of £2,000 beyond which no NIC exemption for salary sacrificed pensions would be available.
No one knows whether any changes will impact on existing salary sacrifice arrangements, and it’s never a good idea to make changes based simply on speculation. However, anyone considering a salary sacrifice arrangement might be advised to have everything in place by 26 November.
Covid support repayment scheme opens
The government has opened a voluntary scheme to allow recipients of the various Covid-19 support measures a ‘no questions asked’ chance to repay any help they received but were not entitled to.
The scheme runs until December 2025 and is a final opportunity to make amends before tougher sanctions start to be imposed from next year. The voluntary repayment scheme is relevant for individuals and businesses who may have misunderstood the eligibility criteria at the time support was claimed.
Support measures
Covid support measures included:
- The Self-Employed Income Support Scheme (SEISS) which made up to five grants to individuals whose self-employment activities had been adversely affected by Covid.
- The Coronavirus Job Retention Scheme (CJRS) which helped employers retain employees by covering a proportion of their wages while furloughed.
- Bounce Back Loans which made arrangements for a business to borrow up to £50,000, with the loans 100% guaranteed by the government; no personal guarantees required.
In some cases, the eligibility criteria could be quite complicated. With the SEISS, for example, criteria differed significantly across the five grants.
What to do
Individuals and businesses who received any type of support during the Covid pandemic should revisit the eligibility criteria and ensure each claim was valid at the time it was made.
If a mistake has been made, then work out how much needs to be repaid. At this point, it would be a very good idea to contact us for advice and help with the disclosure process.
Use of the voluntary repayment scheme avoids any type of sanction. Someone who is subsequently found to have wrongly claimed could face prosecution, disqualification, or even prison. A director who fraudulently inflated his company’s income to obtain two Bounce Back Loans was recently banned from being a director for 11 years.
For more details on repayment see the gov.uk site here. (Link opens in a new tab)
Voluntary VAT registration
Businesses with taxable turnover below the £90,000 VAT registration threshold can register for VAT voluntarily.
The usual reason for doing so is to claim repayment of VAT paid on purchases of goods or services where the amount is more than the VAT the business is able to charge customers. This may occur if the business activities are largely zero-rated, or in early days of trading before reaching the turnover threshold.
Backdating registration
A voluntary registration may be backdated by up to four years. It’s important to consider carefully whether, and by how much, to do so because recent updated guidance from HMRC makes it clear that once submitted you cannot alter the date. Backdating registration will allow you to reclaim input tax on goods and services supplied to you from then, and even pre-registration VAT for up to four years before the specified date. You will also have to account for VAT on any standard-rate or zero-rate supplies you have made since your registration date.
Getting the date wrong may result in a business unintentionally becoming liable to VAT on past sales or being unable to reclaim input tax on earlier supplies to it. HMRC will very rarely allow a request to change the registration date under its collection and management powers where it would be unreasonable not to do so, but there is no right of appeal against an HMRC refusal.
News round up
January tax bill planning
With the rate of late tax payment interest currently standing at 8.00%, self-assessment taxpayers should be planning for their 31 January tax payment, making sure sufficient funds will be available. Missing the deadline can lead to expensive charges, especially if penalties are also incurred.
CGT annual exempt amount
Although just £3,000, it’s worth making use of the exemption given a potential tax saving of £720. If you’re planning to dispose of investments or chattels standing at a profit, do so by 5 April to make use of this year’s exemption.
Electric car charging rates
The advisory fuel rate for electric company cars was previously 7p per mile. Rates are now 8p for home charging, with 14p for public charging, although you can make a claim using the actual cost instead if you’re charging with a more expensive, ultra-fast charger.