Tax E-News – May 2025

Making Tax Digital for Income Tax (MTD for IT): What You Need to Know

MTD for Income Tax is coming – starting 6 April 2026, HMRC will require certain individuals to comply with new digital tax reporting rules. Here’s a breakdown of the key facts for self-employed individuals and landlords.

Who Is Affected and When?

• From April 2026: Individuals with qualifying income over £50,000.
• From April 2027: Income over £30,000.
• From April 2028: Income over £20,000.

Qualifying income includes gross income from self-employment and property, before expenses. VAT-inclusive figures should be avoided when calculating this total.

Key MTD for IT Requirements

• Keep digital records using MTD-compatible software.
• Submit quarterly updates of income and expenses.
• Annual end-of-year submission still required for other income (e.g., dividends, employment).

MTD FAQs

• Quarterly payments? Not yet. Payment dates remain 31 January and 31 July.
• Low volume of transactions? Still mandated if your income exceeds thresholds.
• Joint property owners and those under the £90,000 turnover threshold may benefit from easements.
• Already VAT-registered? You may want to align your VAT quarters with your MTD reporting dates for simplicity.
• Penalties? Yes. Non-compliance can trigger penalties up to £3,000 per quarter for not keeping digital records.

Big Changes for Non-UK Domiciled Individuals from April 2025

From 6 April 2025, HMRC is abolishing the remittance basis for non-UK domiciled residents. All UK residents will now be taxed on the arising basis.

What This Means for You

• The remittance basis of taxation ends.
• A new Foreign Income & Gains (FIG) regime applies for new arrivals: no UK tax on FIG for the first 4 years of residence (after 10 years abroad).
• Pre-April 2025 FIGs are still taxable when remitted to the UK.

Inheritance Tax (IHT) Impact

• Non-UK assets will be within the scope of UK IHT if you’ve lived in the UK for 10 out of the last 20 years.
• If you leave the UK, you’ll still be within the IHT net for up to 10 years.

Abolition of Furnished Holiday Lettings (FHL) Regime – From April 2025

The FHL regime was abolished on 6 April 2025, affecting the tax treatment of holiday letting properties.

What Changes?

• Interest relief capped at basic rate (20%).
• No capital allowances for new furnishings.
• Loss of CGT reliefs like Business Asset Disposal Relief and Gift Relief.
• Holiday letting income no longer counts as relevant UK earnings for pension purposes.

Transitional Relief Available

• Carry forward pre-2025 FHL losses.
• Existing capital allowance pools can still receive writing-down allowances.
• You may still qualify for BADR if the disposal happens within 3 years of business cessation.

If your property was previously an FHL, you may still benefit from certain reliefs—speak to us to understand your options.

VAT Insight: Are Mega Marshmallows Food or Confectionery?

A new VAT case, HMRC v Innovative Bites Ltd ([2025] EWCA Civ 293), is testing the classification of Mega Marshmallows.

Key VAT Issue

• Food is generally zero-rated, but confectionery is standard-rated.
• The Court of Appeal ruled that how food is normally eaten (e.g., toasted on skewers) is critical in determining VAT treatment.
• The case has been remitted back to the First Tier Tribunal for reconsideration.

Stay tuned for the final decision—it could affect the VAT treatment of more food products.

Tax Diary: Key Dates for May & June 2025