Self-Assessment Tax Updates: Key Changes for the 2025/26 Tax Year
As the UK approaches the 2025/26 tax year, significant changes to the self-assessment tax system are set to take effect from April 6, 2025. These reforms aim to simplify tax reporting and enhance compliance. Here’s an overview of the key updates:
1. Increased Threshold for Filing Self-Assessment Tax Returns
The income threshold for mandatory self-assessment tax returns will rise from £1,000 to £3,000. This change is expected to exempt approximately 300,000 taxpayers from filing, particularly benefiting those with modest additional incomes from side activities such as online sales, freelancing, or content creation. Among these individuals, around 90,000 are anticipated to have no tax liability, while others can settle their dues via a new simplified online service. This initiative aims to reduce administrative burdens and support entrepreneurial endeavors.
2. Mandatory Reporting for New Business Commencements and Cessations
Taxpayers initiating or ceasing a trade during the tax year must now report the exact dates of commencement or cessation in their tax returns. Previously optional, this information is now compulsory and applies to personal, partnership, and trustee tax returns. The goal is to improve HMRC’s data accuracy regarding business activities.
3. Enhanced Disclosure Requirements for Company Directors
Directors of close companies are subject to new mandatory reporting obligations. They must provide:
- Company Details – Name and registered number of the close company.
- Dividend Information – Total dividends received from the company during the tax year.
- Shareholding Percentage – Their percentage shareholding in the company throughout the year; if this percentage varied, the highest percentage held must be reported.
These requirements aim to enhance transparency and ensure accurate tax assessments for company directors.
4. Adjustments to Capital Gains Tax (CGT) Rates
Changes to CGT rates will affect individuals claiming Business Asset Disposal Relief (BADR) or Investors’ Relief. The rate will increase from 10% to 14%, with a further rise to 18% planned for April 2026. Additionally, gains from carried interest will be taxed at a flat rate of 32%, replacing the previous tiered rates of 18% and 28%. From April 2026, carried interest will be taxed under the income tax framework with a 72.5% multiplier applied.
5. Stricter Penalties for Late Tax Payments
The government has announced a crackdown on tax evasion and avoidance, including increased penalties for late payments. For VAT taxpayers and self-employed individuals under the Making Tax Digital (MTD) program, late payment penalties will rise from 2% to 3%, with additional penalties for prolonged overdue payments. These measures are part of a broader effort to enhance compliance and are expected to generate an additional £1 billion over four years.
Preparing for the Changes
To navigate these developments effectively:
- Stay Informed – Regularly consult HMRC updates and official communications to remain aware of any further changes.
- Organize Records – Maintain accurate and up-to-date financial records to facilitate compliance with new reporting requirements.
- Seek Professional Advice – Engage with tax professionals to understand how these changes may impact your specific circumstances and to ensure compliance.
By proactively adapting to these reforms, taxpayers can ensure they meet their obligations efficiently and take advantage of any simplifications introduced in the self-assessment process.