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Please contact us for advice in your own specific circumstances. We’re here to help! August 2026
· ISA Reforms on the Way’
· State pensioners receiving new ‘earnings limit tax codes’
· Retirees reclaiming larger pension tax refunds’
· Making Tax Digital (MTD) uptake is far behind requirements’
· August Questions and Answers’
· August Key Dates’
The government is consulting on a new ISA to replace the Lifetime ISA (LISA). It will be available to anyone aged 18+, removing the LISA’s upper age limit of 40. This reflects the rising ages of first-time buyers.It still includes a 25% government bonus but will be paid only at the point of buying a property, not annually. There will be no 25% withdrawal penalty if funds are used for non-property purposes. The controversial £450,000 property price cap remains unchanged, despite rising house prices, and the Treasury suggests it is still appropriate.
As had been alluded to previously, HMRC has confirmed that it will tax all interest earned on cash held within a Stocks & Shares ISA at 22%. This closes the long-standing loophole where savers could hold cash inside an investment ISA and still receive tax-free interest.
Investors will no longer be able to hold 100% of a Stocks & Shares ISA in money market funds, which behave similarly to cash.
HMRC is sending updated tax codes to state pensioners who exceeded the earnings limit for the Winter Fuel Payment. These letters began going out in June.The Winter Fuel Payment (£200 – £300 depending on age) was paid to everyone, but around two million pensioners who earned above £35,000 must now repay it via tax adjustments.
Pensioners will receive a letter or HMRC app notification when their tax code changes. HMRC will review tax paid versus tax due, and if the full amount cannot be collected, they will issue a tax calculation afterwards.
HMRC will automatically reclaim the payment by adjusting PAYE tax codes for affected pensioners, unless they file Self-Assessment returns. Pensioners cannot repay early; they must wait for HMRC to collect it through future tax codes.
Repayment will occur in the 2026 – 27 tax year, recovering the payment made in 2025 – 26. As an example: a £200 payment will mean roughly £17 extra tax per month until repaid.
HMRC says most repayments will be handled automatically through tax codes, while Self-Assessment users will repay via their tax return.
If preferred, this repayment can be avoided by opting out of receiving winter fuel payments via an online form at www.gov.uk before 11.59 pm on 20th September 2026 or by calling the Winter Fuel Payment Centre helpline 0800 731 0160 before 6 pm on 18th September 2026.
New HMRC figures show large refunds reclaimed in early 2026. Thousands of retirees reclaimed money after being overtaxed on flexible pension withdrawals.HMRC repaid £44.1m between January and March, with 13,942 approved claims processed in that period. The average repayment exceeded £3,160, up nearly 10% from the previous year.
Emergency tax codes remain the core problem. When they are applied to initial flexible withdrawals, they then continue to cause unexpected and excessive deductions for retirees, taxing the withdrawal as if it were monthly income for the rest of the tax year.
Experts have highlighted a shift in the issue – while fewer people may be affected, those who are caught by the system are losing larger sums up front. The government’s plan to make pensions subject to inheritance tax could push more people to withdraw large lump sums which may increase emergency tax incidents even further.
HMRC has announced an overhaul of emergency pension tax processes, promising faster refunds, but higher-rate charges will still occur.
Fewer than half of sole traders required to join MTD have registered. Only 400,000 sign-ups have occurred since the start of the financial year, compared with 864,000 needed by 7th August. HMRC has been trying to implement MTD for a decade, but the programme has faced delays and criticism from business owners and accountants.Since 2019, MTD for VAT has been mandatory for all VAT-registered businesses above the £85,000 threshold, including voluntary registrants.
From April 2026, MTD applies to sole traders and landlords earning over £50,000. Those thresholds will fall further: £30,000 from April 2027 and then £20,000 from April 2028.
HMRC faces a significant challenge persuading smaller businesses and landlords to adopt digital record-keeping and quarterly reporting. The slow registration rate suggests many affected taxpayers may not be prepared for the upcoming mandatory deadlines. For now, customers who miss this deadline will be sent a reminder letter with no penalties for the 2026/27 tax year.
A: From April 2027, inherited pensions will be included when calculating inheritance tax (IHT) bills. Previously, pensions did not form part of an estate for IHT purposes, allowing many families to pass them on tax free. This change means people with large retirement savings must rethink estate planning to avoid higher tax exposure.
One option increasingly being considered is the Enterprise Investment Scheme (EIS). This is a government-backed scheme supporting small companies by offering tax incentives to investors who buy new shares. Companies must have fewer than 250 employees and gross assets under £30m at the time shares are issued, to be eligible.
Investors receive 30% income tax relief on any money they put into an EIS. There is no Capital Gains Tax on profits made from an EIS. Most importantly, EIS shares can qualify for IHT relief. They must be held in companies that meet business relief requirements (relief for IHT purposes is capped at £2.5m) and must be held for at least two years at the time of death. Anything above the £2.5m threshold is taxed at 20% rather than 40%.
A: Whether to pay yourself through salary or dividends remains one of the most important tax-planning decisions for SME owners. It can have a big impact on your tax bill and overall financial resilience.
Without knowing the details of your business set up, we can look at both options to help you decide which is best for you.
Salary is subject to income tax and national insurance; the amount taken determines whether you fall into the 20%, 40%, or 45% tax bands. Employer NICs have become more expensive: from April 2025, employers pay NICs at 15%, increasing the cost of higher PAYE salaries. Salary costs reduce your profit and thus corporation tax payable.
Dividends are paid after corporation tax on company profits, are not subject to national insurance and have lower tax rates than salary: 10.75% (basic rate), 35.75% (higher rate), 39.35% (additional rate). The dividend allowance has been reduced over recent years to just £500, making dividends less attractive than before.
A common approach is to use a hybrid of both options: Take a salary around the personal allowance (£12,570) and supplement the rest of your income with dividends. This aims to balance tax efficiency with access to state benefits and pension contributions.
1st
– Corporation Tax payments are due for companies with a year-end of 31st October.
19th
– For employers operating PAYE, this is the deadline to send an Employer Payment Summary (EPS) to claim any reduction on what you’ll owe HMRC.
– It is also the deadline for employers operating PAYE to pay HMRC by post, for July.
22nd
– Deadline for employers operating PAYE to pay HMRC electronically, for July.
31st
– Corporation Tax Returns (CT600 form) are due for companies with a year-end of 31st August.
Disclaimer
The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm
Disclaimer
The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm
