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Late payment penalties Late payment penalties for VAT and income tax selfassessment taxpayers (within Making Tax Digital only) increased from April 2025 onwards. Tax simplification Further measures are expected to be announced before the summer to simplify the tax and customs systems, and in the summer, HMRC will publish a digital transformation roadmap with an overall aim of collectively reducing the administrative burden on businesses and individual taxpayers. Worryingly, the Government has also said that it will continue to explore "how it can best bring the benefits of digitalisation to more of the around four million taxpayers who have income below the £20 000 threshold" The Government also announced further changes to MTD as set out in the technical note 'Modernising the tax system through Making Tax Digital', details of which are provided below. Finalising the policy framework for MTD and penalty reform The Government also announced several changes to the design of MTD/penalty reform including: * changes to enable taxpayers with an accounting date of 31 March to start their MTD obligations on 1 April in the first year, and * a power for HMRC to cancel/reset late submission penalty points and to cancel associated financial penalties - for instance in periods prior to insolvency MISCELLANEOUS From summer 2025, employees liable to the high-income child benefit charge (HICBC) will be able to report child benefit payments to HMRC via a new digital service.
The Chancellor of the Exchequer, Rachel Reeves, delivered the Spring Statement on Wednesday 26 March. As expected, this was mainly an economic update coupled with further spending and welfare cuts. No tax rises were announced. Effectively the Chancellor deferred any tax rises to the Autumn Budget later this year in line with the Government's policy of just one major fiscal event every year in the Autumn. Tax rises have already commenced in April when the Chancellor's Autumn Budget 2024 changes to employer's national insurance contributions began.
Although the Office for Budget Responsibility (OBR) Improved its forecasts for economic growth in 2026 and beyond, this was before the announcement the very next week by President Donald Trump of a range of sweeping tariffs on goods imported into the US from countries across the world. The OBR also halved ¡ts growth forecast to 1% in 2025.
With geopolitical uncertainty continuing, the impact of global trade policies on the UK economy needs to be carefully monitored ahead of the 2025 Spending Review and Autumn Budget. What is clear is that UK businesses have entered a time of economic slowdown.
On the tax front, a further package of measures to close the tax gap featured with the aim of raising over 1 billion in additional gross tax revenue per year by 2029/30. As part of this, it was announced that Making Tax Digital for Income tax is being extended to even smaller businesses from April 2028.
CLOSING THE TAX GAP
Building on the package of measures announced at the Autumn Budget, a further series of announcements were made.
Debt management and compliance investment
According to the Government, at the end of 2024, unpaid tax liabilities owed to His Majesty's Revenue and Customs (HMRC) was over £44 billion, more than double the level five years ago. To reduce this, the Government is further investing in HMRC's debt management capacity including "an innovative test and learn pilot to collect more aged debts whilst also moving towards more automated debt recovery" including for lower value tax debts.
The Government is also investing £87 million over five years in HMRC's existing partnerships with private sector debt collection agencies. An additional £114 million is being invested over the next five years to recruit an additional
600 debt management staff. Five hundred compliance staff will also be recruited via a £100 million investment.
Late payment penalties
Late payment penalties for VAT and income tax selfassessment taxpayers (within Making Tax Digital only) increased from April 2025 onwards. The new rates are 3% of the tax outstanding where tax is 15 days overdue, plus an additional 3% where the tax is 30 days overdue, plus an additional 10% per annum when 31 days or more overdue.
Consultations
The Government also published four new consultations as follows:
* how HMRC can make better use of third-party data to increase automation and close the tax gap
* proposals to strengthen HMRC's ability to take action against those tax advisers who facilitate non-compliance
* closing in on promoters of marketed tax avoidance whose contrived schemes leave their clients with unexpected tax bills, and
* options to simplify and strengthen HMRC's inaccuracy and failure to notify penalties.
Counter-fraud capability and investigations
Additional criminal investigations will focus on delivering a strong deterrent. This will include tackling those who undermine legitimate trade and small business, fraud committed by the wealthy, those in large corporations, and by individuals/companies who make it possible for others to hide money offshore. Investigations will also address organised criminal attacks, focusing on illicit finance and complex money laundering schemes.
HMRC is also overhauling its approach to offshore noncompliance by the wealthy and will recruit experts in private sector wealth management. Artificial Intelligence (Al) and advanced analytics will be deployed to help identify and challenge those who try to hide their wealth.
Over the next five years, the Government is also planning to increase HMRC's resources assigned to tackling wealthy offshore non-compliance by around 400 people.
New informant reward scheme
A new HMRC reward scheme for informants will be launched later this year, with the aim of targeting serious non-compliance in large corporates, wealthy individuals, offshore and avoidance schemes. The new scheme will take inspiration from models in the US and Canada and will reward informants with compensation linked to a percentage of any tax taken as a result of their actions.
Phoenixism
To tackle 'phoenixism', HMRC and several government bodies will deliver a joint plan to tackle those using contrived insolvencies to evade tax/debts owed to others. This includes increasing the use of upfront payment demands, making more directors personally liable for company taxes, and increasing the number of enforcement sanctions.
Change at HMRC
Change will be accelerated at HMRC, including through introducing voice biometrics, using Al in taxpayer services and compliance, and running a customs digitalisation pilot sharing trusted trader credentials with US Customs and Border Protection.
Tax simplification
Further measures are expected to be announced before the summer to simplify the tax and customs systems, and in the summer, HMRC will publish a digital transformation roadmap with an overall aim of collectively reducing the administrative burden on businesses and individual taxpayers.
Direct recovery of tax debts
HMRC is also to re-start using "direct recovery' of tax debts owed by individuals/companies who have the ability to pay but choose not to do so.
MAKING TAX DIGITAL FOR INCOME TAX
Making Tax Digital for income tax (MTD) will be extended to sole trades and landlords with qualifying income of more than £20 000 from April 2028. Worryingly, the Government has also said that it will continue to explore "how it can best bring the benefits of digitalisation to more of the around four million taxpayers who have income below the £20 000 threshold"
The Government also announced further changes to MTD as set out in the technical note 'Modernising the tax system through Making Tax Digital', details of which are provided below.
End-of-year tax reporting for MTD
Some users of MTD for income tax have other sources of income to be reported in their self-assessment (SA) return which must be reported alongside any tax and final accounting adjustments to their business/property income and expenses.
The Spring Statement announced that HMRC's online filing service will not be available to submit the final tax return for anyone within MTD. MTD taxpayers Will be required to file their tax return through MTD compatible software. One or more MTD-compatible software products will therefore be needed to meet SA filing obligation, making the choice of software used and its functionality of extreme importance.
Exempting/ deferring certain groups
Because some taxpayers will face disproportionate barriers to operating MTD, they will not be required to use it (subject to notifying and satisfying HMRC that they are exempt). This includes:
* taxpayers who have a power of attorney
* non-UK tax resident foreign entertainers/sportspeople who have no other income sources that count as qualifying income for MTD, and
* taxpayers for whom HMRC cannot provide a digital service
The following groups will also not be required to join MTD over the course of this Parliament:
* Ministers of religion
* Lloyd's Underwriters
* recipients of the married couples' allowance, and
* recipients of the blind persons' allowance
Taxpayers will not be required to use MTD until April 2027 if they have information that would need to be submitted using the SA109 schedule. HMRC will work with stakeholders to finalise the design of a one-year deferral for these groups to allow time to incorporate into MTD the Government's changes to the taxation of non-UK domiciled individuals into MTD.
Legislation will be introduced to defer/exempt these groups and the criteria for deferrals/exemptions will be set out in guidance.
Finalising the policy framework for MTD and penalty reform
The Government also announced several changes to the design of MTD/penalty reform including:
* changes to enable taxpayers with an accounting date of 31 March to start their MTD obligations on 1 April in the first year, and
* a power for HMRC to cancel/reset late submission penalty points and to cancel associated financial penalties - for instance in periods prior to insolvency
MISCELLANEOUS
From summer 2025, employees liable to the high-income child benefit charge (HICBC) will be able to report child benefit payments to HMRC via a new digital service. There Will also be an option to pay the charge via PAYE without the need to register and file a SA.
A consultation was also launched on a new process to provide increased tax certainty in advance for major projects which sets out thinking on how a new process could work to support investment decisions. As part of this, businesses will also be able to obtain certainty on the transfer pricing treatment of cost contribution arrangements through the UK's existing advance pricing agreement programme. The Government also published a consultation on widening the use of advance clearances in R&D tax relief.
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