The financial incentives for going green.

Greener operations can help control costs and reduce risk. Many organisations are upgrading fleets, equipment and buildings to cut energy use and improve resilience. Official figures show UK greenhouse gas emissions fell by around 4% in 2024, reflecting ongoing shifts in how we power and heat our economy. For smaller firms, practical efficiency steps can trim energy bills by 18-25%, which strengthens cashflow and shortens the payback on upgrades.

This guide outlines the tax reliefs, grants and rules that apply in 2025/26. It focuses on how incentives can support investments such as electric vehicles and charging, on-site renewables, energy-saving plant and machinery, and qualifying research and development (R&D). You’ll find clear thresholds and dates so you can plan projects with confidence, plus links to official sources for verification.

Why this matters for your bottom line

• Tax reliefs and incentives now cover a wide range of plant, vehicles and property improvements. Used well, they can accelerate payback and improve cashflow. The annual investment allowance (AIA) is permanently set at £1m, covering most plant and machinery purchases, new or second-hand.
• Full expensing for companies gives a 100% first-year deduction on qualifying new main-rate plant and machinery, plus a 50% first-year allowance for special-rate assets. This regime has been made permanent. Cars are excluded.
• Targeted incentives support low-emission fleets, workplace charging, energy-saving installations in residential and charity buildings, and on-site renewables that may be exempt from business rates.

The sections below explain each area, what you can claim and where to find the rules.

Capital allowances and full expensing

Annual investment allowance (AIA)

• What it is: 100% deduction on qualifying plant and machinery up to £1m per business per accounting period. Applies to most assets except cars. Available to companies and unincorporated businesses.
• Use case: Lighting upgrades, compressors, computer numerical control (CNC) machines, racking, IT equipment, certain heat pumps in commercial premises (as plant) and so on.

Tip: If your spend will exceed £1m, combine AIA with full expensing (applies to companies only, and only for the purchase of new assets) or standard writing-down allowances.

Full expensing and first-year allowances

• Full expensing (companies only): 100% first-year deduction for new main-rate plant and machinery. 50% FYA for new special-rate assets (e.g. integral features). Permanent policy. Cars are excluded.
• Zero-emission cars and charge-points: The government extended the 100% first-year allowance (FYA) for zero-emission cars and electric vehicle (EV) charge-points for expenditure on or after 1 April 2025, now ending 31 March 2026 (corporation tax)/5 April 2026 (income tax). If you plan to buy an electric car or install charge-points, timing matters.

Structures and buildings allowance (SBA)

• Rate: Straight-line 3% per year over 33⅓ years on qualifying non-residential construction or renovation. Enhanced 10% rate applies in designated Investment Zone special tax sites while available.

Planning notes

• Second-hand assets qualify for AIA and writing-down allowances but not full expensing.
• At the time of writing, full expensing does not generally apply to assets for leasing (with limited exceptions). Check contract terms before committing.

Fleets, company cars and charging

Benefit in kind (BiK) for electric cars (2025/26)

• BiK rate is 3% for zero-emission cars in 2025/26, rising by 1 percentage point per year (announced policy) in later years.
• Low BiK keeps salary sacrifice EV schemes and company-car provision attractive relative to petrol/diesel.

Vehicle excise duty (VED) changes from 1 April 2025

• New EVs registered on or after 1 April 2025: £10 first-year rate, then standard rate £195 from year two.
• EVs registered 1 April 2017 to 31 March 2025: Standard rate £195.
• Expensive car supplement: EVs over £40,000 now pay a supplement each year for five years (amount set in VED tables). Check current VED schedules for your vehicle.

Advisory electricity rate (AER) for EV mileage claims

From 1 September 2025, HMRC split the AER into:

• 8p per mile for home charging
• 14p per mile for public charging.

Employers can pay more if you can show a higher cost per mile.

First-year allowances for EV assets

100% FYA for zero-emission cars and EV charge-points runs until 31 March 2026 (corporation tax)/5 April 2026 (income tax) for expenditure incurred on or after 1 April 2025. If you intend to buy new, this window may be valuable.

Grants for workplace charge-points

The Workplace Charging Scheme (WCS) covers up to 75% of costs, capped at £350 per socket, up to 40 sockets per applicant across all sites. Eligibility includes businesses, charities and public sector bodies.

Action list for fleets

1. Refresh your car policy and salary sacrifice brochures with 3% BiK for EVs in 2025/26.
2. Review the VED impact for new deliveries after 1 April 2025, including the expensive car supplement where relevant.
3. Update expense and payroll systems to apply the 8p/14p AER split from 1 September 2025.
4. If you plan to install charge-points, consider claiming WCS and align orders to secure the 100% FYA window that runs to spring 2026.

VAT reliefs for energy-saving installations (residential and charity buildings)

If you install certain energy-saving materials (ESMs) in residential properties or charitable buildings, the VAT rate is 0% until 31 March 2027. The scope includes solar panels, heat pumps, insulation and, from 2024, some groundworks for heat pumps and certain batteries/smart diverters. The rate then reverts to 5% under current law. This can support employee accommodation, landlord-owned housing or charity projects in your group. Check notice 708/6 for the full list and conditions.

Note: This relief does not generally apply to commercial premises; most businesses pay the standard 20% VAT on energy and on commercial energy-saving works (subject to specific reduced-rate rules for low usage and charities).

Business rates: Reliefs for green investment

• On-site renewables and storage: Eligible plant and machinery used in on-site renewable energy generation and storage (including rooftop solar, wind turbines, battery storage and storage used with EV charging) is exempt from business rates in England from April 2022 until 31 March 2035.
• Heat networks: 100% relief for eligible low-carbon heat networks with their own rates bill, available to 2035.
• Improvement relief (from 1 April 2024): Where qualifying improvements increase your rateable value, you can get 12 months of relief from the higher bill once works are complete (certificate required).

Practical point: Installing rooftop solar for self-consumption is a common use case for the exemption. Confirm design and metering with your surveyor so that the correct elements are treated as exempt plant.

Grants and schemes for buildings

• Boiler upgrade scheme (BUS): Provides upfront grants (administered by installers, maximum £7500) for heat pumps and eligible biomass boilers in homes and small/medium non-domestic buildings in England and Wales. If you own qualifying non-domestic properties (up to 45kWth per system), you may be eligible.
• Industrial Energy Transformation Fund (IETF): This closed in July 2025. The planned second Phase 3 competition window will not go ahead, and there is no successor fund currently. Factor this into project plans if you were banking on grant support.

R&D tax relief and Patent Box for low-carbon innovation

R&D: Merged scheme and ERIS (from periods beginning on/after 1 April 2024)

• The UK now operates a merged R&D expenditure credit scheme (RDEC-style) at a headline 20% credit rate. The credit is taxable as trading income.
• Enhanced R&D intensive support (ERIS): For loss-making SMEs with R&D intensity of 30% or more (reduced from 40%), an 86% additional deduction plus a 14.5% payable credit on surrendered losses is available. A one-year grace period can protect eligibility if you dip below 30% after qualifying.

Where this helps: Process optimisation, electrification, novel storage, low-carbon materials, control systems and software often contain qualifying R&D. Good record-keeping and technical narratives are vital under current HMRC scrutiny. For businesses with qualifying intellectual property (IP) and sustained innovation, consider Patent Box alongside R&D.

Patent Box

• The Patent Box applies a 10% effective corporation tax rate to profits attributable to qualifying patents and specific IP. This remains available and can materially reduce tax on commercialised clean-tech.

Plastic packaging tax (PPT)

• PPT applies to plastic packaging manufactured in or imported into the UK that contains less than 30% recycled plastic.
• The rate from 1 April 2025 is £223.69 per tonne (up from £217.85 in 2024/25). Review supply chains and specifications to manage exposure.

UK Emissions Trading Scheme (UK ETS) and energy-intensive users

• If your site falls under the UK ETS, keep track of annual cap changes and pricing. Technical guidance was updated in August 2025; the 2025 cap is published by external trackers at 86.7 MtCO₂e. Recent official analysis notes a UK carbon price around £50/tonne at the end of May 2025 (lower than the EU ETS at the time). Policy work on linking the UK and EU systems is ongoing.
• The government has also signalled measures to support energy-intensive industries through levy reductions and network charge discounts under wider industrial strategy workstreams. Keep an eye on sector guidance as eligibility and timing can change.

Common questions

Do leased assets qualify for full expensing?

Not generally. The regime is designed for companies buying new assets to use in their trade, not to lease out (with limited exceptions, such as background plant in buildings). If you’re unsure how your contract is structured, seek advice before ordering.

Can I claim both ERIS and the merged R&D credit on the same expenditure?

No. You can choose to claim under the merged scheme or, if eligible, ERIS on the same spend, but not both.

Are EVs still tax-efficient after VED changes?

For company cars, the low BiK remains a strong incentive even with VED applying from April 2025. For owned vehicles, budget for £10 in year one then £195 from year two and the expensive car supplement where the list price is over £40,000.

Can I get VAT relief on energy-saving works in my office or factory?

General commercial energy-saving works are standard-rated for VAT, but input VAT may be recoverable if they relate to taxable business activities. The 0% VAT relief applies to residential properties and charitable buildings for specified technologies to 31 March 2027.

Closing thoughts

Sustainability projects work best when the numbers stack up, and the incentives set out here can help pay for upgrades faster. These reliefs can improve cashflow, shorten payback periods and support long-term planning for fleets, buildings and processes. Because schemes and rates can change, check the latest guidance before placing orders or finalising contracts, mainly where deadlines or phased rates apply. Good records, clear scopes of work and the right contract structures will make claims smoother.

Talk to us about your sustainability goals. We are here to help and advise.

Manufacturing leads and services have stalled as budget pressures build. The UK economy grew marginally in August, as official figures showed a 0.1% rise after a revision, following a 0.1% fall in July.

Manufacturing provided the uplift, expanding by 0.7%, while the much larger services sector was flat.

Growth was 0.3% on a rolling three-month basis in August. The Office for National Statistics said services held steady, and the drag from production eased.

Ministers have prioritised growth ahead of November’s Budget, yet most economists expect only subdued momentum in the months ahead. Many analysts also think tax rises or spending cuts will be necessary to meet the Chancellor’s borrowing rules. Momentum remains fragile overall.

The Institute for Fiscal Studies estimates a £22 billion gap in the public finances. It says Rachel Reeves will almost certainly have to raise taxes to fill it. The Chancellor said that she is considering further measures on tax and spending to ensure the numbers add up.

Internationally, the IMF expects the UK to be the second-fastest-growing advanced economy this year. However, it also forecasts the UK will have the highest inflation in the G7 in both 2025 and 2026, driven by higher energy and utility costs.

The Treasury said the UK has recorded the fastest growth in the G7 since the start of the year, while acknowledging that many people still feel the economy is “stuck”. It said the Budget will focus on helping businesses grow, investing in infrastructure and cutting red tape to get Britain building.

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HMRC’s online service to pay the High Income Child Benefit Charge (HICBC) through Pay As You Earn (PAYE) is now live.

HMRC’s online service to pay the High Income Child Benefit Charge (HICBC) through Pay As You Earn (PAYE) is now live. The service was announced at the Spring Statement 2025 and aims to reduce the need for some taxpayers to complete self assessment solely to settle the charge.

HICBC applies where the claimant or their partner has adjusted net income above the threshold. From the 2024/25 tax year, the threshold is £60,000, with child benefit fully withdrawn at £80,000. The clawback is 1% of the benefit for every £200 income over £60,000.

Previously, HICBC payers reported the charge via self assessment, with limited coding-out through PAYE for amounts under £2,000. Under the new approach, PAYE taxpayers who only file a return to pay HICBC can opt out of self assessment and pay via PAYE instead. To use the service, individuals must first de-register from self assessment; access should be available the following day.

HMRC plans to write to around 100,000 people who appear liable but are not in self assessment. In 2022/23, about 440,000 individuals were liable to HICBC. HMRC notes a risk of two HICBC amounts appearing in one year’s PAYE code where liabilities span 2024/25 and 2025/26, depending on timing.

Households can also opt out of receiving child benefit payments. Registration can still be beneficial, however, as it provides National Insurance credits for non-working parents and triggers a child’s NI number before age 16.

Talk to us about your claims.

HMRC has launched an online checker to help businesses judge whether their projects meet the definition of research and development for tax reliefs before they file a claim.

The tool aims to reduce errors, but it is not mandatory and does not guarantee acceptance.

It works like CEST for IR35: you answer a series of questions and receive a result indicating whether the project contains qualifying R&D. The process takes approximately 10 minutes.

The checker is aimed at first-time claimants and companies with limited experience. However, HMRC expects a ‘competent professional’ to supply or validate several answers. This means someone qualified or experienced in the relevant science or technology, usually involved in the project and aware of baseline knowledge at the start.

The questionnaire has three sections. Section one confirms the project details and whether you tried to solve a scientific or technological problem. Sections two and three require input from the competent professional. They test whether the work sought an advance in knowledge or capability, whether scientific or technological uncertainties existed, what was done to overcome them, and whether the work resolved the issue.

If any response shows the project is ineligible, the tool pauses and explains why. You can amend your answers and continue. At the end, you’ll see a statement that the project includes qualifying R&D or reasons it does not.

You can preview, save, and print the results. The tool does not assess costs or scheme choice, so check HMRC guidance on eligible expenditure separately.

Talk to us about tax reliefs.

Mid-market employers increasingly offer UK-based staff the option to work abroad for part of the year, provided tax and legal checks are in place.

“Workcations,” where employees choose to work remotely from another country for agreed-upon periods, are now firmly on the agenda.

According to a survey of business leaders, 77% of companies now have a formal international remote-working policy, up from 59% two years ago. That shift mirrors the normalisation of hybrid and remote working for office roles and a stronger focus on work-life balance as a retention driver.

Policies are not free-for-all. Nearly all organisations with a policy (99%) allow overseas working only with approval or within strict parameters, up seven points from 2023, when the figure was 92%. Typical guardrails include capped days, approved countries, pre-travel declarations, and clear tax guidance.

Compliance has moved up the priority list. Previously, workcations risked errors triggering local filings, penalties, or inadvertent permanent-establishment exposure. In 2025, the share of businesses reporting this as a high risk has fallen to 2%, suggesting greater investment in monitoring tools, payroll controls, cross-border advice, and employee training.

The direction is clear: employees want flexibility, and employers are responding. Businesses looking to refresh their approach should document parameters, map tax and social security triggers by country, and set approval workflows. Done well, workcations can support attraction and retention without inviting compliance headaches.

Talk to us about your business.

Filing your tax return with confidence

Self Assessment rarely sits at the top of anyone’s to-do list. Deadlines creep up, paperwork hides in inboxes and the rules change just enough to raise questions. This guide is here to make the job simpler. It sets out who needs to file, what to gather, how to complete the return and the steps to take to avoid penalties and interest.

You will find clear, practical checklists and straightforward explanations. We keep the focus on what you need to do, when you need to do it, and how to keep your bill accurate and on time. If anything in your situation has changed, such as new income, a property sale or pension contributions, this guide will help you work out what that means for your return and what to do next.

Who needs to file

You normally need to send a UK Self Assessment (SA) return if any of the following apply:

• you were self-employed or a partner in a partnership
• you received untaxed income, for example property income, significant savings interest, dividends above the allowance, foreign income or chargeable capital gains
• you, or your partner, received child benefit and either of you had adjusted net income over £60,000 in the year. The high-income child benefit charge (HICBC) applies on a taper and fully withdraws child benefit by £80,000.
  

PAYE-only high earners: For 2024/25 and later, HMRC has removed the income threshold that previously forced PAYE-only employees to file because of high income. If your affairs are simple and all income is taxed at source, you may not need to file, but other triggers (such as dividends, property income or gains) still apply. Always check HMRC’s tool if unsure.

What to gather before you start

Create a single folder (digital or paper) and collect the following:

• Employment: P60, P45 (if you left a job), P11D/P9D or employer statement of benefits.
• Self-employment: income and expense records, invoices, bank statements, mileage log and details of any capital items. From 2024/25, the cash basis is the default for unincorporated businesses unless you choose accruals.
• Property: rental statements, mortgage interest, repairs, agent fees and dates for any property purchases/sales.
• Savings and investments: bank and building society interest, dividend vouchers or statements.
• Capital gains: contract notes, costs, improvement records, pooling calculations and details for any 60-day UK property capital gains tax (CGT) reports already filed.
• Pensions: personal contributions (grossed-up amounts), annual statements and evidence of relief at source. Higher-rate or additional-rate relief needs to be claimed through SA.
• Charitable giving: Gift Aid totals — higher-rate or additional-rate relief is claimed on your SA return.
• Student loans: plan type and any postgraduate loan.
• Child benefit: amounts received, and each partner’s income where relevant to HICBC.
• Cryptoassets: dates, amounts, wallet/exchange records for disposals and income (staking/mining/airdrops). HMRC expects accurate reporting and is implementing new information reporting from 1 January 2026.

Keep paperwork for at least five years after the 31 January submission deadline for the relevant tax year.

Penalties, interest and how to avoid them

• Late filing: £100 fixed penalty; after three months, £10 per day up to £900; at six and 12 months, further penalties (5% or £300, whichever is higher).
• Late payment: penalties of 5% of tax unpaid at 30 days, six months and 12 months, plus interest.
• Current interest: HMRC’s late payment interest is 8.00% from 27 August 2025.

If you cannot pay in full, set up a Time to Pay plan online to limit penalties (interest still accrues).

Payments on account

Suppose you owe more than £1,000 and did not have 80% or more of your tax collected at source, i.e. collected through PAYE. In that case, HMRC will usually ask for two payments on account toward your next bill on 31 January and 31 July, each equal to half of last year’s tax (Class 4 NIC is included if applicable).

• You can claim to reduce payments on account if you reasonably expect lower income or higher reliefs. Use the online service or SA303. Be realistic — under-estimating causes interest and potential penalties.
• New filers often pay the full 2024/25 bill plus the first 2025/26 instalment by 31 January, which can feel like two bills at once. Plan for this early.

Current-year rates and allowances

These apply to decisions you make this year and to payments on account:

Income tax (England, Wales and Northern Ireland)

• Personal allowance: £12,570 (tapered by £1 for every £2 of income over £100,000, lost entirely at £125,140). Bands: 20% basic, 40% higher, 45% additional.
• Personal savings allowance: £1,000 (basic rate), £500 (higher rate), £0 (additional rate). The starting rate for savings remains a 0% £5,000 band where non-savings income is low enough (decreases as you exceed the personal allowance).
• Dividend allowance: £500. Dividend tax rates stay at 8.75%/33.75%/39.35% by band. Shelter dividends in ISAs where possible; the ISA annual limit remains £20,000 (Junior ISA £9,000).

Capital gains

• Annual exempt amount (individuals): £3,000.
• Rates (most assets): 18% (basic-rate band) and 24% (higher/additional).
• Residential property (not eligible for PRR): 18% / 24%.
  The rates changed part-way through 2024/25; for 2025/26 the above rates apply for the whole year.
  

Note on mid-year change (2024/25): gains realised on or after 30 October 2024 attracted the higher CGT rates introduced then. If you had disposals across that date, ensure your SA figures reflect the split correctly.

National Insurance (for context)

• Self Assessment calculates any Class 4 NIC due and will include it in your bill.
• For reference, HMRC confirms Class 2 is no longer payable by most self-employed people (you’re treated as having paid to protect your record if profits exceed the small profits threshold).

Allowances and reliefs people often miss

Trading and property allowances

You can use a £1,000 trading allowance and a separate £1,000 property allowance if your trading/property profits are less than this amount. You can’t use them and claim expenses on the same income — choose whichever gives the better result.

Rent-a-room scheme

If you rent a furnished room in your main home, the first £7,500 of gross receipts can be tax-free under the rent-a-room scheme (lower if you share the income). However, if using the scheme, you can’t also offset expenses.

Pension contributions

Relief at source gives 20% automatically; higher/additional-rate relief is claimed via SA or HMRC’s online service. Pension contributions can also reduce adjusted net income to help with HICBC or personal allowance taper.

Gift Aid

Gift Aid boosts donations by 25% for the charity. If you pay higher or additional-rate tax, claim the extra relief through SA. Ensure you’ve paid enough UK tax to cover the basic-rate uplift the charity claims.

Savings interest

Check whether your PSA or starting rate for savings (0% band) reduces or eliminates any tax on interest, especially if your earned income is below or near the personal allowance.

Self-employment: Expenses and records

Claim only allowable business costs. Typical categories include office costs, travel (excluding ordinary commuting), staff costs, stock, premises costs and financial charges. Keep receipts or reliable digital records.

If you use your own vehicle for business, you may claim approved mileage allowance payments instead of actual costs (cars/vans 45p per mile for the first 10,000 business miles in the year, then 25p; motorcycles 24p; bicycles 20p). Keep a mileage log.

From 2024/25, the cash basis is the default for unincorporated businesses unless you elect for accruals. Consider which method better reflects your business and allows the most suitable reliefs.

Property income: What to watch

• Finance costs on residential lets are restricted to a 20% tax credit, not a full deduction, but you can still deduct other allowable running costs and repairs.
• Keep deposit scheme and agent statements.
• Consider the property allowance (see above) for small amounts of income if it gives a better result than actual expenses.
  

Capital gains, including cryptoassets

For 2025/26, the annual exemption amount is £3,000. Report gains that exceed the exemption or where total proceeds exceed four times the exemption. If you sold crypto, shares or property, keep detailed records of dates, costs, fees and proceeds. HMRC has a dedicated cryptoassets guidance collection and will begin receiving third-party data under the Cryptoasset Reporting Framework from 1 January 2026.

Tip: If you sold assets in 2024/25, note the mid-year CGT rate change from 30 October 2024 for most assets. Check your return reflects the correct rates.

Child benefit and adjusted net income

If anyone in your household received child benefit and either partner had adjusted net income over £60,000 in the year, the HICBC applies on a taper until £80,000 when it fully withdraws the benefit. The charge is reported on SA. Pension contributions and Gift Aid can reduce adjusted net income.

Student loans and postgraduate loans

Your SA calculation will include repayments if applicable. Check you’ve selected the right plan and entered the amounts correctly to prevent under- or over-payment. Current thresholds for 2025/26 are published on gov.uk.

Making Tax Digital for income tax (MTD IT)

MTD IT is not yet mandatory for most individuals filing SA. Under the current timetable, from April 2026 it will apply to self-employed people and landlords with business/property income over £50,000. You will need to keep digital records and send quarterly updates.

Common pitfalls we see

• Missing interest and small dividends. Banks and platforms don’t always issue year-end summaries, download them. The PSA and £500 dividend allowance still require you to declare the income where a return is needed.
• Wrong student loan plan type. Double-check your plan to avoid incorrect deductions.
• Under-claiming pension or Gift Aid relief. Make sure you claim higher/additional-rate relief on contributions and Gift Aid.
• Payments on account surprises. New filers or those with rising income can be caught out in January. Review the figures and budget early; reduce them only when you have a sound basis.
• CGT rate split for 2024/25. If you sold assets around 30 October 2024, ensure you apply the correct rates now required.

Final thoughts

Filing early gives you time to check the numbers, claim reliefs correctly and plan for any payments on account. Use the checklist, keep your records in one place and review any items that often get missed, such as savings interest, small dividends, Gift Aid and pension top-ups. If you expect your income to fall, consider whether a payments-on-account reduction is sensible. If paying in full is difficult, look at Time to Pay before charges build up.

If you would like a review of your draft return, a second check on reliefs or help preparing and filing from start to finish, we can step in at any stage. Share what has changed for you this year and we will apply the rules in this guide to your situation so you can file with confidence.

Get in touch for help with your self assessment.

A Bank of England survey has shown that UK businesses cut jobs this summer at the fastest rate in four years, highlighting the strain of higher taxes on employers.

The monthly Decision Maker Panel survey of more than 2,000 chief financial officers found that employment fell by 0.5% in the three months to August, the steepest drop since 2021. Intentions for future hiring also weakened, with expectations for job growth slipping from 0.5% to just 0.2%.

Business leaders blamed the Government’s decision to raise employer national insurance contributions (NICs) by £25bn in April. Almost half of the respondents said the increase had forced them to cut staff numbers, while many others reported passing costs on through higher prices.

Two-thirds of firms said profit margins had been squeezed, 34% raised prices, and 20% said they paid lower wages than planned. Despite this, the Bank noted the impact was less severe than firms had feared before the NICs changes took effect.

Economists had warned the fall in employment could sway the Bank’s 18 September meeting. In the event, the MPC left the Bank Rate at 4% (a 7–2 vote, with two members favouring a 0.25 percentage point cut to 3.75%), in line with market expectations.

Chancellor Rachel Reeves, who has set 26 November for her second budget, has acknowledged that the economy is “not working well enough for working people”. The later budget date is expected to fuel speculation over further tax rises, but the Treasury says it will also be used to outline pro-growth reforms.

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Retail sales grew in August, helped by record warm weather and a Bank of England interest rate cut.

Retailers have, however, warned that speculation over potential tax rises could hit spending during the vital pre-Christmas trading season.

According to the latest British Retail Consortium (BRC) and KPMG survey, sales rose 3.1% yearly. Food and drink sales led the way, up 4.7%, although the BRC said price rises rather than higher volumes drove this. Inflation continued to push the cost of staples such as beef, chocolate and coffee.

Computing and gaming products also performed strongly, boosted by the back-to-school period. However, parents facing rising costs cut back on school uniforms and other essentials.

Non-food sales increased by 1.8%, the third monthly rise. Furniture sales grew for a second month, while household goods, DIY products and garden tools also improved. Demand was lifted further by the launch of new Samsung foldable phones and Google’s Pixel 10 in the late summer.

August followed growth of 2.5% in July, supported by warm weather and England’s Euros success, and 3.1% in June.

Despite the positive figures, shopper confidence fell for the third consecutive month, with many consumers expecting further food price rises and financial pressures. The BRC warned that businesses remain cautious about the “golden quarter”, the three months before Christmas that account for a significant share of annual revenues.

The Chancellor, Rachel Reeves, will deliver the budget on 26 November.

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Prime Minister Sir Keir Starmer has moved to strengthen Labour’s grip on economic policy by creating a new “Budget board” that links senior ministers, advisers, and business voices.

Meeting weekly, the board will coordinate policies ahead of the Budget on 26 November to boost growth while maintaining the confidence of businesses and the City.

The initiative follows Chancellor Rachel Reeves’s first Budget last October, which raised employer national insurance by £25 billion and increased the minimum wage, souring relations with business. Reeves is now under pressure as she faces a fiscal gap of at least £20bn and the likelihood of higher taxes.

Starmer’s economic adviser and former Bank of England deputy governor, Baroness Minouche Shafik, will co-chair the new board with Treasury minister Torsten Bell. Other members include Darren Jones, who has taken the role of chief secretary to the prime minister; Starmer’s adviser Varun Chandra; and communications chiefs Tim Allan and Ben Nunn. Chiefs of staff, Morgan McSweeney and Katie Martin, are also involved to improve political and media handling.

Officials said the board was designed to ensure closer cooperation between Number 10 and the Treasury while opening stronger lines of communication with business leaders. Starmer has also instructed ministers to prioritise growth by accelerating planning and infrastructure projects and reducing the number of regulators and civil servants.

Downing Street said the Government focuses on investment and reform to deliver higher output and an economy that works for working people.

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A small business guide to IR35

Many small businesses rely on specialist contractors for flexibility and skills. That remains a sound approach, but the tax position needs care. The UK’s IR35 and off-payroll working rules govern when a contractor should be taxed like an employee. Getting this right protects cashflow, avoids interest and penalties, and builds confidence with contractors and agencies.

This guide explains, in plain terms, how the rules apply in the 2025/26 tax year, what changed in April 2025, when those changes actually bite and how to set up simple, durable processes. It’s written for owner-managers and finance teams who want a practical reference they can use throughout the year.

What IR35 and off-payroll working cover

“IR35” is a shorthand for rules that ensure people who work like employees but through an intermediary (most commonly a personal service company (PSC)) pay broadly the same income tax and national insurance contributions (NICs) as employees. HMRC’s overview sets the scope and purpose of the rule.

There are two key frameworks.

• Chapter 8 (ITEPA 2003): often referred to as IR35, in this case the PSC is responsible for deciding status and paying any deemed employment taxes.
• Chapter 10 (ITEPA 2003): the off-payroll working rules mean the client (end-hirer) decides status and, if the engagement is “inside IR35”, the deemed employer in the supply chain runs PAYE.

Which framework applies depends mainly on your size (if you’re a private-sector client) and whether you are a public authority.

Who decides employment status in 2025/26

• Public sector clients: you must determine status and operate PAYE for “inside IR35” engagements.
• Medium and large private/voluntary sector clients: you must determine status and operate PAYE where required.
• Small private/voluntary sector clients: you are exempt from Chapter 10. The contractor’s intermediary (such as a PSC) decides status under Chapter 8. You must confirm your size if asked by the worker or the agency.

Where Chapter 10 applies, you must issue a status determination statement (SDS) to the worker and the next party in the chain, explaining the outcome and your reasons. You must also keep records and have a process to handle disagreements.

What counts as “small” — and what’s changing

Small company test used for off-payroll working in 2025/26

For the 2025/26 tax year, private companies are generally small for off-payroll purposes if they do not meet two or more of these conditions in the last relevant financial year:

• turnover more than £10.2m
• balance sheet total more than £5.1m
• more than 50 employees.

Where a simplified test applies to certain unincorporated clients, meeting a £10.2m annual turnover threshold brings you into scope. Group rules also apply: if the parent is medium/large, subsidiaries follow suit.

Important: The thresholds above are the ones that matter for off-payroll working assessments in 2025/26. See below for changes from 6 April 2025 and why they do not usually change your off-payroll position until 2027/28 at the earliest.

Threshold increases from financial years beginning on or after 6 April 2025 — timing for off-payroll

From financial years beginning on or after 6 April 2025, two of the Companies Act thresholds increase to: turnover £15m and balance sheet total £7.5m (employee limit remains 50). However, HMRC has confirmed how these increases flow through to the off-payroll rules using the last filed financial year and a two-year test. The upshot is that, for most clients, the earliest off-payroll impact is the 2027/28 tax year (and often later).

Why the delay? The off-payroll regime looks at the last financial year for which the filing period ended before the start of the tax year, and a company generally needs to meet the size test for two consecutive financial years. HMRC’s manual includes transitional rules and examples that lead to 2027/28 as the earliest practical effect.

What the latest HMRC data says

HMRC’s February 2025 update on the private-sector reforms (introduced 2021) estimates:

• around 120,000 workers were directly affected by the April 2021 reform
• about 45,000 fewer new PSCs formed around the time of the reform (vs trend, to March 2022)
• the reform generated about £4.2bn in additional tax, NICs and apprenticeship levy by March 2023
• those affected represent around 1% of the workforce (impacts vary by sector).

These figures help with resourcing decisions and what to expect if you change approach (for example, moving some roles onto payroll or re-scoping work to be genuinely outside IR35).

If you are small in 2025/26: Your obligations and good practice

If you are small (outside the public sector), Chapter 10 does not apply to you in 2025/26. The contractor’s intermediary decides status and accounts for tax/NICs under Chapter 8 (the “original IR35”).

You should still:

• confirm your size when asked by the contractor or agency. HMRC guidance for intermediaries explains the worker can request confirmation and the client must respond within 45 days. Keep a simple template reply ready.
• clarify working practices in contracts and onboarding packs (substitution, control, equipment, financial risk, integration into teams and so on).
• keep records: request and file the contractor’s company details, insurance certificates and engagement letter.
• re-check if your size will change in future years (see section 3.2). If you later become medium/large for off-payroll, you must switch to Chapter 10 from the relevant tax year.

Tip: If an agency or client in the chain asks for an SDS when you are small, explain that Chapter 10 doesn’t apply to you in 2025/26 and provide written confirmation of small status for the tax year in question.

If you are medium/large in 2025/26: The core steps

Where Chapter 10 applies, put these steps on a checklist.

1. Assess status for every engagement involving a PSC or other intermediary (contract-by-contract, based on actual working practices). You can use HMRC’s check employment status for tax (CEST) tool to assist.
2. Take reasonable care in your determination (gather facts from hiring managers, review contracts, consider substitution and control, and document the rationale).
3. Issue an SDS stating (a) the conclusion and (b) your reasons. Send it to the worker and the party you contract with before payment. Maintain version control.
4. Identify the deemed employer (fee-payer) in your supply chain (often the party that pays the PSC). Ensure the SDS reaches the qualifying person in the chain; until it does, you risk being treated as the deemed employer.
5. Operate PAYE for inside IR35 roles: deduct income tax and employee NICs, pay employer NICs and (if applicable) apprenticeship levy. Keep Real Time Information (RTI) flagged correctly for off-payroll payments.
6. Run a client-led disagreement process (CLDP). Respond within 45 days when a worker or the deemed employer challenges the outcome. If you fail to respond in time, the tax/NIC liability shifts to you.
7. Retain evidence: working-practice questionnaires, meeting notes, CEST outputs (PDF), SDS copies and any independent reviews.

Supply-chain risk: If the fee-payer fails to account for PAYE, HMRC can use transfer-of-debt rules to pursue another relevant party up the chain (for example, the end client), so due diligence on agencies matters.

Using CEST (and what’s changed in 2025)

HMRC updated CEST and related guidance on 30 April 2025. HMRC states it will stand by determinations the tool gives, provided the information entered is accurate and you follow HMRC guidance. You still need to keep evidence and revisit if the working practices change.

Independent reviews can be valuable where CEST returns “unable to determine” or where roles are borderline. If you use external tools or advisers, keep a clear audit trail showing how you reached the decision and that you took reasonable care.

Passing the SDS down the chain (and when you remain liable)

While the legislation focuses on you issuing the SDS to the worker and your counterparty, HMRC guidance explains you remain the deemed employer until the SDS is passed down the labour supply chain to the next qualifying person. Build this hand-off into your accounts-payable workflow so no invoices get paid before the correct party has the SDS.

Contracted-out services and overseas clients

• Contracted-out services: where you buy an outsourced service (rather than labour) from a supplier, that supplier assesses and, if necessary, operates off-payroll. Take care to ensure a staff-augmentation agreement is not simply relabelled as a deliverables-based contract to sidestep the rules.
• Overseas clients: if the client has no UK connection (for example, wholly overseas with no UK permanent establishment), Chapter 10 does not apply and the PSC decides status.

The 2024 set-off change (double-taxation mitigation)

From 6 April 2024, HMRC can offset certain taxes already paid by the worker or their PSC against the PAYE/NICs bill assessed on the deemed employer for past non-compliance. The mechanism applies to deemed direct payments made on or after 6 April 2017 (public sector) and 6 April 2021 (private sector), where the trigger event (such as settlement) is on or after 6 April 2024. This reduces the risk of double-collecting taxes across the chain.

Set-off does not erase interest or potential penalties for failures, and you still need robust processes to prevent errors in the first place.

Quick reference: Small vs medium/large

Planning for the threshold changes (now through to 2027)

1. Check your actual size for 2025/26 using the £10.2m/£5.1m/50 criteria. If you are medium/large, continue to apply Chapter 10.
2. For financial years beginning on or after 6 April 2025, monitor whether the new thresholds (£15m/£7.5m/50) change your size. Because of the two-year test and filing-date rule, the earliest off-payroll impact is tax year 2027/28 for most. Keep this on your risk register and revisit annually.
3. If you expect to fall outside Chapter 10 in a future year, plan your communications to agencies and contractors and update your onboarding packs to reflect the return to Chapter 8 responsibilities at the appropriate time.

FAQs

Does an “outside IR35” SDS affect employment rights?
No. The SDS concerns tax only. Employment law tests may give a different result for rights (holiday pay and so on). Keep tax and employment law analyses separate.

Is CEST mandatory?
No, but HMRC will stand by CEST determinations if you used it correctly and the facts are accurate. You can use other tools or advisers; just ensure you take reasonable care and keep records.

What if we buy a deliverables-based project from a supplier?
If it is a genuine outsourced service, the supplier assesses and accounts for off-payroll where needed. Guard against contracts that are essentially staff supply relabelled as outsourcing.

We’re part of a group — which size test applies?
Group rules can pull you into scope if the parent is medium/large (figures aggregated).

If HMRC later says our “outside” SDS was wrong, will we pay twice because the PSC also paid tax?
From 6 April 2024, HMRC can set off certain taxes already paid by the worker/PSC against the deemed employer’s assessed liabilities, reducing double taxation. Interest and penalties can still apply.

Conclusion

You can keep contractor hiring simple and compliant by focusing on three things: know whether Chapter 10 applies to you this tax year, make status decisions you can evidence, and embed SDS and payment controls in your workflow. For many small businesses, the off-payroll rules do not apply in 2025/26, but you still need clear documentation and a quick way to confirm your size when asked. For medium and large organisations, a short, well-run process beats ad hoc decisions every time.

If you’d like a light review of your current process, or a one-page policy and checklist tailored to your roles and supply chains, we can help you put that in place and reduce the admin burden.

Get in touch if you’d like tailored support in reviewing your contractor processes or setting up a clear off-payroll policy.