TaxMatters with James Milne – January 2025

Happy New Year and welcome to the January 2025 edition of TaxMatters with James Milne. In this issue we look back on the key tax announcements from last month’s Scottish Budget and provide an update on the introduction of Making Tax Digital for Income Tax. We also provide some useful updates on benefits in kind. With the 31 January self-assessment deadline almost upon us, HMRC provides a timely warning on scams and what to do if you suspect you’ve been targeted. As always, please contact us if you wish to discuss any matters in more detail.

SCOTTISH BUDGET

The key tax takeaways from the Scottish Budget, held on 4th December, concerned the Scottish Rate of Income Tax (SRIT) and Land & Buildings Transaction Tax (LBTT).

Scottish Rate of Income Tax
If a taxpayer’s main residence is in Scotland or they are otherwise classed as a ‘Scottish taxpayer’, their non-savings/non-dividend income is subject to the SRIT. Cabinet Secretary for Finance & Local Government, Shona Robinson, announced that the SRIT will not be increased, and no new bands will be introduced for the remainder of this parliament. From 6 April 2025, the basic and intermediate rate thresholds will however increase by 3.5%, meaning more income of a Scottish taxpayer can be taxed at the lower 20% and 21% rates, before moving into the higher 42% plus rates.

For 2025/26, after the personal allowance has been deducted, non-savings/non-dividend income will be taxed in bands as follows:

Land & Buildings Transaction Tax
Rates and bands of residential and non-residential LBTT will remain at their current levels, although the Additional Dwelling Supplement (ADS) increased from 6% to 8% from 5 December 2024. The increase does not apply to transactions for which legal missives were signed on or before 4 December.

GET READY FOR MAKING TAX DIGITAL FOR INCOME TAX

Prior to the Autumn Budget, there was hope that the new Labour Government might further delay the introduction of Making Tax Digital for Income Tax (MTD for IT). However, such hopes were dashed on Budget day, with confirmation of the previously announced timescales and an additional announcement that individuals with income from trading or property of over £20,000 will be mandated to comply with MTD for IT requirements in future. The mandate timescales are as follows:

At present, no mandate deadlines have been set for partnerships.

Complying with the requirements of MTD for IT will involve keeping business records in specialist compatible software and then using that software to submit the business results to HMRC on a quarterly basis.

The introduction of MTD for IT is just over one year away, so now is the time to start thinking about the changes it will bring to your business, if you are self-employed (but not in a partnership) or receive rental income. We are here to help, so please talk to us to find out how MTD for IT will affect you!

CORPORATE TAX ROADMAP

The Government published a ‘Corporate Tax Roadmap’ as part of Autumn Budget 2024. The roadmap is designed to give corporate businesses (and, in some areas, non-corporate businesses) certainty about the tax framework ahead to give confidence in business decisions being made now. The roadmap sets out the areas in which the Government intends to maintain the status quo for the duration of this parliament, as well as areas in which change is expected.

Starting with corporation tax rates, the Government have committed not to increase the rates of corporation tax paid by small or larger companies and to keep the rates under review to ensure they remain competitive. This means that small companies (those with profits below £50,000 a year) will continue to pay at 19% and larger companies (with profits above £250,000 a year) will continue to pay at 25%, with marginal relief given from the 25% rate for companies with profits between the two thresholds. No changes have been made to the ‘associated company’ regime so, to ensure the correct rate of corporate tax is applied, it remains crucial to fully identify group companies and those under the control of the same individual(s).

Turning to capital allowances and interest to unincorporated businesses as well as companies, the Government has committed to maintaining the rates of writing down allowances in the main and special rate plant and machinery pools, as well as the availability of the very valuable 100% annual investment allowance for up to £1 million of qualifying expenditure each year. For companies, the unlimited ‘full-expensing’ regime will also be maintained for expenditure on brand-new and otherwise qualifying plant and machinery, with a continued hope of seeing the qualification criteria expanded.

For companies, the two mechanisms for obtaining tax relief for revenue research and development (R&D) expenditure that have been in place since 1 April 2024 will also be maintained. This remains a complex area so please do reach out to us if you need support in this area or are considering whether you may be able to make a claim.

PAYROLLING BENEFITS IN KIND

‘Payrolling benefits in kind’ means that employee benefits in kind (e.g. company cars and medical insurance) are reported to HMRC through the employer’s payroll. Employees’ tax codes are amended so that any income tax due on these benefits is paid throughout the tax year. If a benefit has been payrolled, it does not need to be included on form P11D.

Payrolling is possible for all benefits in kind, except for employer-provided living accommodation and beneficial (interest-free or low-interest) loans; these must still be reported on the P11D.

If an employer wishes to payroll benefits, they must register with HMRC before the start of the tax year in which they plan to start.

Regardless of whether benefits are included in the payroll or on a P11D, the employer must still include them in summary form P11D(b) and pay Class 1A National Insurance Contributions on the total taxable benefit value across the workforce. The deadline for filing the P11D(b) and paying the Class 1A NIC due is 6 July following the end of the tax year.

From 6 April 2026, payrolling benefits in kind will become mandatory for all employers for all benefits except for beneficial loans and living accommodation, although these will be able to be included in the payroll on a voluntary basis. It is hoped that this will bring simplification and clarity for employers and employees. As mentioned above, it is possible to choose to enter the regime one year early, from 6 April 2025, on a voluntary basis. Please talk to us if you are considering this or otherwise have any questions about future obligations.

HMRC SCAM WARNING

With the 31 January self-assessment deadline fast approaching, HMRC has warned taxpayers to be alert to fraudsters. In the past year, there has been a 16.7% increase in scam referrals to HMRC, with almost 150,000 received in the year to November 2024. A significant proportion of those referrals were fake tax rebate claims. HMRC say that they never ask for personal or financial information via text message, nor will they leave voicemails threatening legal action or arrest. If you receive communication claiming to be from HMRC that asks for your personal information or is offering a tax rebate, check the advice on GOV.UK to help identify if it is scam activity (https://www.gov.uk/guidance/identify-hmrc-related-scam-phone-calls-emails-and-text-messages).

DIARY OF MAIN TAX EVENTS

JANUARY/FEBRUARY 2025