From 1 April 2029, all VAT-registered businesses will need to change the way that invoices are handled.
Author Archive: Muhammad Zia
What happens when you underpay tax?
The new tax year has recently begun and it is a time when businesses and individuals will need to review their position to ensure that they are not caught out by shifting rules and fiscal drag.
It is also the time to look back on how taxes were handled in the previous year and this might come with a sinking feeling that something is not quite right.
If you spot an error in how you calculated your tax and fear that you may have underpaid, then it is vital you understand what to do now.
What should I do if I have underpaid tax?
Underpaying tax is an issue that can affect both businesses and individuals alike.
Larger businesses tend to be more compliant as they utilise accounting experts to ensure that they keep pace with new tax regulations as they get introduced and have dedicated teams crunching the numbers. SMEs historically struggle to keep up with tax requirements, with HMRC noting that the tax gap for small businesses Corporation Tax is 40.1 per cent of the small businesses theoretical Corporation Tax liability, or £14.7 billion in absolute terms, in the 2023 to 2024 tax year.
For individuals, dividend tax and stamp duty land tax seem to be areas that frequently make the news for their seeming difficulty in paying accurately.
In both instances, the errors are often attributed to a lack of understanding of how the tax system works or the reliance on dubious advice.
Where you become aware of having underpaid tax, you should not view this as a victory over HMRC, as they will discover the error on their own terms eventually.
Instead, it is vital that you make a voluntary disclosure at the earliest possible opportunity.
By owning up to your mistake, you will show honesty and integrity that HMRC appreciate and they will be less likely to pursue severe action against you.
HMRC’s Digital Disclosure Service (DDS) will generally be the best course of action to manage any reports of underpaid tax, but if you are a business owner who suspects that fraud may have occurred, then it may be better to use HMRC’s Contractual Disclosure Facility (CDF).
The CDF will allow you to alert HMRC to the crime without implicating yourself – unless it comes to light that you were directly involved in it.
How can I stay compliant with tax this year?
The new tax year is a chance for a fresh start as you get another chance to submit all of your annual requirements.
Seeking professional financial support is imperative in ensuring accuracy, particularly if your estate or business is complex.
Small businesses and individuals often try to power through without expert help and this results in the situations we have discussed here.
Instead of rolling the dice and hoping that you get things right, our expert team can review your tax obligations so that you can pay what you owe when you owe it.
Beyond this, seeking professional support may help you to lower your tax bill as you become aware of reliefs and more tax-efficient structures that may otherwise have passed you by.
Tax does not need to be difficult and should not cause you to become stressed about the accuracy of your bills.
Speak to our team for confidence in managing your tax obligations.
What do the new FRS 102 rules mean for your lending strategy?
The new changes to FRS 102 are in full force for accounting periods beginning on or after 1 January 2026.
These changes will affect how your financial performance appears on paper and this is a crucial consideration for lenders and stakeholders who are assessing your business.
Businesses need to understand how the changes to revenue recognition and lease accounting impact their finances so that their lending strategy can remain robust.
What has changed under the new FRS 102 rules?
The new FRS 102 rules introduced changes to how businesses report revenue and leases.
Revenue recognition now follows a detailed five-step model, which may change the timing of when income and profit are recorded.
The model is based on when control of goods or services passes to the customer and increases the analysis and documentation needed for complex contracts.
Lease accounting has also changed and most leases will now need to recognise right-of-use assets and lease liabilities on the balance sheet.
This will affect how leases are treated in your financial statements and impact your financial metrics, including EBITDA.
How will the FRS 102 changes affect lenders?
The FRS 102 changes can affect your financial statements and the perception of your financial health, which is particularly important for lenders, investors and other stakeholders.
Businesses will need to reassess their contracts, leases and reporting processes to ensure they are remaining compliant and maintaining financial transparency with all parties.
Your financial ratios may look different and you may see:
- Higher reported EBITDA
- Increased net debt and leverage
- Changes to interest cover ratios
- Reduced capital ratios
For businesses with covenant-based borrowing, this could create technical breaches even if your operational performance is stable.
How will the FRS 102 changes affect covenants?
Lease liabilities may push leverage above agreed thresholds and revenue timing changes could impact EBITDA-linked covenants.
Some loan agreements include frozen GAAP clauses and allow covenants to be calculated under previous accounting standards.
While lease adjustments may be easier to reverse out, revenue recognition changes are often more complex to isolate.
What should you do now?
Companies need to be proactive, as waiting to assess how the rules affect them could create unnecessary tension with lenders.
With the changes in effect, you should:
- Model the impact – Assess how FRS 102 changes affect profit and loss, balance sheet and financial ratios such as EBITDA and net debt.
- Check covenant compliance – Recalculate financial covenants under the new standards to spot any potential breaches before they occur.
- Review loan agreements – Look for frozen GAAP clauses or other provisions that could affect how covenants are calculated.
- Engage with lenders early – Discuss potential covenant impacts and show that changes are accounting-driven.
- Discuss with auditors – Involve auditors early to confirm interpretations, ensure correct disclosures and validate assumptions.
- Update internal controls – Make sure reporting systems show the new lease and revenue recognition requirements accurately.
- Communicate transparently – Provide lenders with clear explanations and support models to show that your business remains financially stable.
How can we support you with the FRS 102 changes?
The amended FRS 102 requirements can be technical and robust modelling and contract analysis requires time and expertise.
Our professional financial advisers can help you assess the impact on EBITDA, net debts and covenants and prepare your finances for lenders.
We can also help implement lease accounting models and ensure your financial statements include the correct disclosures.
For expert financial advice and support on the new FRS 102 rules, contact our team today.
As energy costs rise, is now the time for your business to go green?
As the conflict in the Middle East disrupts the global economy, many businesses are eyeing their energy bills with dread.
Do you know how to manage the increased director’s loan tax charge?
We are officially a few days into the 2026/27 tax year and directors need to be positive on how the latest reforms affect them.
Company tax returns and accounts have gone digital
HMRC and Companies House have confirmed that from 1 April, all businesses must use compliant, commercial software to file their company’s tax returns.
As of 31 March, the free joint online service, commonly known as the CATO portal, from these two Government bodies has been removed and you must now use software to file company tax returns to HMRC.
For the time being, you will still be able to file annual accounts at Companies House using third-party software, WebFiling services or paper filing.
The decision has been made to end this service as it is “outdated and no longer aligns with modern digital standards”, according to Companies House.
This change is in line with the introduction of the Economic Crime and Corporate Transparency Act, which implemented “enhanced corporation tax requirements and changes to UK company law.”
It also follows on from a major IT security breach at Companies House, identified in March 2026, that exposed the WebFiling system and allowed some users to potentially access and amend the details of other companies.
Although the breach has now been resolved and security strengthened, it has raised concerns about the reliability of GOV.UK One Login service.
Can you still amend previous returns using the free service?
HMRC and Companies House have confirmed that now that the free filing service has closed, company directors will have to use commercial tax software if they need to make changes to a previously submitted Corporation Tax return or refile a rejected return.
From now onwards, any previously filed financial information will no longer be available in the system, as it has not been retained and will need to be entered again.
HMRC has said that, for amendments, it will also be acceptable to send a paper return to the Corporation Tax Services office.
If you have previously filed financial accounts with Companies House and you want to make changes or corrections, this will also need to be done via commercial software or by sending paper accounts to Companies House via post.
Are there any exceptions to this new rule?
Companies can file a paper Corporation Tax return only in limited circumstances, such as if they wish to submit it in Welsh or can demonstrate a valid, reasonable excuse to HMRC. Otherwise, returns must be filed online using commercial software.
Capital allowances – New rules for a new tax year
Capital allowances continue to provide an effective method for businesses to reduce their tax bills, by providing incentives for investment in eligible expenditure – typically plant and machinery.
Historically, these reliefs have been subject to change and the 2026/27 tax year is no different, as the Government moves to alter two key reliefs – Writing Down Allowance (WDA) and a new First-Year Allowance (FYA).
Reduction of the Writing Down Allowance
The WDA will be reduced from 18 per cent to 14 per cent on the main pool of qualifying plant and machinery assets.
This change has been introduced on two different dates, starting with companies subject to Corporation Tax on 1 April and followed shortly thereafter by those subject to Income Tax, such as sole traders and partnerships, from 6 April.
Businesses with large brought forward main pool expenditures are expected to lose the most from the reduction in the main rate of WDA.
In the long-term, the change may also reduce incentives for investment in second-hand assets and cars, which benefited under the previous rules.
The new First-Year Allowance
To offset some of the impact of the reduction in WDA, a new 40 per cent FYA on main rate expenditure, primarily still covering plant and machinery, will now be available.
This new FYA is intended to encourage investment in areas where other FYAs don’t allow, in particular, assets bought by unincorporated businesses and leases.
Sole traders and partnerships will, for the first time, be able to get additional support at the point of investment, which means that more businesses will be able to reduce their tax bill in the same year as their investment.
This is expected to give a quick cashflow boost to those affected and provide additional support for future investments.
However, it is important to note that this FYA does not support investment in second-hand assets, cars or leased assets in other countries.
Finally, the Government has also confirmed that small business owners will continue to benefit from tax relief on electric vehicles, as the 100 per cent FYA for zero-emission vehicles and charge points has been extended until 31 March 2027 for Corporation Tax and 5 April 2027 for Income Tax.
This gives businesses greater certainty when planning ahead, while also providing a strong financial incentive to invest by reducing tax bills upfront.
Want to make more of capital allowances?
If you think you may be eligible for capital allowances, either due to the changes outlined in this article or more generally, then it is important that you claim the tax relief available to you.
Government abolishes work-from-home relief
Directors and employees claiming work-from-home tax relief will no longer be able to claim it from the start of the new tax year – 6 April 2026.
Why is this relief being taken away?
The Chancellor announced the removal of the work-from-home relief as part of her latest Autumn Budget.
The main reasoning given for the abolition is that it will support the nation’s deficit reduction.
HMRC has also said that it no longer believes it is fit for purpose or easy to police.
Who could claim work-from-home relief?
Work-from-home relief has been utilised by homeworkers since the early 2000s, helping them offset some of the costs of heating, lighting, broadband and other home-office expenses required to complete their jobs.
The relief allowed employees and directors to claim a flat rate of £6 per week or a deduction for actual costs.
However, those who do not claim the flat fee were required to provide evidence of the exact costs, such as an invoice or bill.
Eligibility for the relief only applied to individuals who had no other choice but to work from home.
For instance, where the business did not have an office or the daily commute was not feasible. Individuals who simply preferred to work from home did not qualify.
Is there any relief still available for home workers?
The only remaining tax-free support will be reimbursements made directly by employers.
This applies only where the payments relate to demonstrated additional household costs and where the costs are incurred wholly, exclusively and necessarily for employment duties.
For anyone still claiming work-from-home relief, it is worth reviewing your position now to understand how this abolishment will impact your take-home pay.
The dividend rules are changing – Disclosure rules on tax returns and new rates
From the end of the 2025/26 tax year, 5 April 2026, you must report your dividend income accurately as part of wider personal tax reforms.
Directors of close companies must disclose the company name, registration number, specific dividend amounts and their highest percentage shareholding on Self-Assessment returns.
Dividends from your own company must also be shown separately from other income.
Dividend tax rates for 2026/27
For the 2026/27 tax year, commencing 6 April 2026, two dividend tax rates will increase by two percentage points:
- Basic rate rises to 10.75 per cent
- Higher rate rises to 35.75 per cent
There is currently no increase for additional rate taxpayers, who will continue to pay dividend tax at a 39.35 per cent.
The annual dividend allowance also remains at £500 and applies to all rates.
Dividends continue to offer a tax advantage over salary in most cases, although the difference between the two is reducing.
Directors should review how profits are taken and consider whether the current mix of salary and dividends remains appropriate.
Who has to report dividend tax?
Dividend tax most commonly applies to shareholders and company directors.
Individuals receiving dividends outside of an ISA or pension over the £500 allowance threshold must report them to HMRC.
Anyone who receives more than £10,000 in dividends may be required to submit a Self-Assessment tax return.
Reviewing your position
If you have concerns about dividend taxation or wider financial pressures, we can review your tax position, explain the latest changes from HMRC and help you create a bespoke plan to meet your personal financial goals.
Looking to understand and protect your finances? Speak to our experts.
Making Tax Digital for Income Tax is now live – What next?
For landlords and sole traders bringing in qualifying annual income over £50,000 (not including profit or dividends), Making Tax Digital (MTD) for Income Tax is now mandatory.
For income to qualify, it must be earned from self-employment or property rental, exceed the threshold in a tax year and be subject to UK Income Tax.
Please note that the total income is calculated before deducting expenses, tax or allowances.
Important dates to remember
HMRC requires quarterly updates to be submitted one month after the end of each period.
For a standard tax year, the deadlines fall on:
- 7 August
- 7 November
- 7 February
- 7 May
How to stay compliant
To stay compliant, you should take each of the following steps:
- Check your income level to see if you exceed the £50,000 threshold.
- Choose which MTD compliant software to use.
- Test your reporting processes to identify any potential issues and resolve them accordingly.
- Submit quarterly updates of your income and expenses to HMRC.
- Keep digital records.
- Submit a final declaration by 31 January following the tax year end.
MTD for Income Tax will be compulsory for landlords and sole traders whose qualifying income exceeds £30,000 from April 2027 and will be expanded further to landlords and sole traders with qualifying income that exceeds £20,000 in April 2028.
