25, Issue 16 15 May 2025
TIPS & ADVICE Tax
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New PAYE procedure being overlooked
If you pay foreign employees or those who work abroad, you might need to take steps immediately because of new tax rules. What’s the full story?
What’s changed? Accountancy and tax organisations are warning employers that they are at risk of falling foul of HMRC if they don’t follow the new tax residency rules that took effect in April 2025. The changed rules are a side effect to the overhaul of the UK taxation of non-UK individuals, known at the “foreign income and gains” (FIGS) regime. The rules also affect UK individuals paid by UK employees for work they do abroad.
Tax only UK earnings. If one of your employees works both in and outside of the UK, before April 2025 you could have asked HMRC for permission to only apply PAYE to salary relating to their UK work. This was called “s.690 relief”. This relief came to an end with the introduction of FIGS.
New process. Since April 2025 employers should not assume that employees who qualified for s.690 relief will do so under the FIGS regime. Because of this there’s a new mandatory process for employers to follow if they want to limit PAYE to operate the new version of s.690 relief (see The next step).
Tip. The good news is that the new process is all online and can be completed by you or your accountant in very little time and it has immediate effect. This means that you don’t need to wait for HMRC’s permission before limiting PAYE to UK-generated earnings.
Trap. The new process must be followed for employees for whom you have previously received permission from HMRC under the old rules.
Tip. The new procedure only relates to PAYE tax. It doesn’t affect your or your employees’ NI contributions if they are foreign nationals. There are separate rules for these (see The next step).
The next step
For links to HMRC guidance on the new process and to PAYE for NI contributions, visit https://www.tips-and-advice.co.uk, Download Zone, year 25 issue 16.
› Since April 2025 if you want to exclude an employee’s earnings for work they do abroad from PAYE you must apply to HMRC online. HMRC approvals under the old rules are no longer valid. You must reapply.
Reducing tax on residential property gains
You and your spouse own a second home which your daughter uses while at university. You’re planning to sell it after her course ends this summer. As its value has risen you’re expecting a hefty capital gains tax bill. How might you reduce it?
Rising tax on gains
As you’ll be aware, if you sell a property for more than you paid for it the difference is liable to capital gains tax (CGT). This can result in a large tax bill especially in light of the recent hikes in the CGT rates. The good news is that there are a few tax breaks which you can use to mitigate the tax bill.
Trap. You must report and pay the CGT within 60 days of the sale of residential property or risk a penalty.
CGT rates
In 2025/26, you’ll be liable to 18% CGT when your combined income and gains fall in the basic rate band. Anything over this is charged at 24%. Where the gain takes you into the higher rate, you’ll pay a mixed rate, i.e. 18% and 24%. The difference in rates can be an important factor in reducing the CGT bill on the sale of assets, but first we need to consider what deductions are allowed before calculating CGT.
First deduction - capital losses
Before your CGT exemption is deducted from your gains, any capital losses you’ve made in the same year are deducted, plus any capital losses you made in earlier tax years which haven’t been used against gains (yr.22, iss.1, pg.5, see The next step).
Second deduction - annual exemption
The first £3,000 of any capital gain you make in 2025/26 is exempt. This allowance is per person and renews every tax year. Therefore, while it’s
nothing to shout about, if the asset that you’re selling is owned jointly with your spouse or civil partner, the exempt amount is £6,000.
Tip. Check if you need to change the proportion of the property you and your spouse/civil partner each own to ensure annual exemptions and capital losses are used fully, and that the tax rate bands are optimised. Special rules are helpful in tax planning here (see The next step).
Example. Tom and Barbara are married. Tom bought the next door property for £150,000 in 2010 and has since let it. He transfers a 30% interest in March 2025 to Barbara when it is worth £250,000. The tax rules deem Tom to have sold the 30% interest for £45,000 (£150,000 x 30%). This means Tom makes neither a gain nor a loss for CGT purposes.
Trap. Beware if the property is mortgaged, as a stamp duty land tax (SDLT) charge can arise if there is a transfer of the loan from one spouse/civil partner to the other (yr.18, iss.19, pg.3, see The next step).
In practice
If you want to split an asset it is advisable to allow at least a few months before the property is sold to a third party. For property, a deed of trust will be required and the new ownership must be registered.
The next step
For a previous article on capital losses, examples of saving tax by transferring a share of the property and a previous article about SDLT, visit https://www.tipsand-advice.co.uk, Download Zone, year 25 issue 16.
› Before the sale a married couple or civil partners can change the proportion of the property they each own. This means they can double up on annual exemptions, reduce tax rates and utilise available capital losses in order to minimise the tax payable on gains from the property.
Accounting reference dates that improve your cash flow
Large companies often choose certain dates on which to end their annual accounts, e.g. 31 March. However, for smaller companies there’s no reason to follow the trend. Is there an advantage to changing your company’s accounting period?
How are companies taxed?
A company pays tax on its profits arising in a corporation tax (CT) accounting period. If there’s a profit the CT payable is due nine months and one day following the end of a CT accounting period. A CT accounting period cannot be longer than twelve months. This rule prevents unfair deferral of tax by having a succession of long accounting periods.
A new date
You can change your company’s financial reporting period (accounting reference date (ARD)) by shortening it as often as you wish or lengthening it, but this can only be done once every five years. Also, you aren’t allowed to change the ARD to create an accounting period which is longer than 18 months. Trap. If the accounting period is longer than twelve months, it must be divided into two CT periods - the first for twelve months and the second covering the remainder.
Making a change
While chopping and changing your accounting dates is possible it can be a hassle and create extra admin. That said, there can be clear advantages. Tip. Changing a company’s ARD can delay when profits are taxed and so defer when CT is payable.
Example. Acom Ltd’s profits for its first year of trade to 31 March 2026 are £100,000 but for the first nine months of trade it was only £10,000. If Acom keeps its original accounting date it will have to pay tax on £100,000 by 1 January 2027. If Acom shortens its first accounting period to end on 31 December 2025, its first CT bill will be based on profits arising during that period, i.e. £10,000 on
1 October 2026. By changing its ARD it delays the tax on the higher profits until 1 October 2027. That gives Acom a useful cash-flow advantage.
Improved cash flow
The tables below show Acom’s CT payments with and without a change of ARD. We have assumed that profit for the second accounting period averages £15,000 per month.
31 March 2026
31 Dec 2025 (nine months) £10,000 1 Oct 2026 £1,900
31 Dec 2026 (twelve months)
1 Oct 2027
There’s a clear cash-flow advantage with the changed ARD.
Tip. The rule of thumb is that if profit is falling extend an accounting period and vice versa where profit is rising to bring in low tax liability sooner.
Tip. A company can change its ARD as often as it wants but it will pay CT on the same amount of profits no matter how often it shortens or lengthens its accounting periods. The advantage is solely improved cash flow, unless there’s a change in the CT rates (see The next step).
The next step
For an example of when changing an ARD can affect the amount of CT payable, visit https://www.tipsand-advice.co.uk, Download Zone, year 25 issue 16.
› Consider a change of your company’s accounting period end date if its profits are increasing or decreasing significantly. Broadly, if the profit is falling extend the accounting period and shorten it where profit is rising.
Benefit in kind payrolling deferred
Delayed implementation. In a recent government policy paper HMRC said that its ambitious plan to start mandatory payrolling of employee benefits in kind has been deferred from 2026/27 to 2027/28 (see The next step). The announcement doesn’t surprise us as some types of benefit are clearly not suited to payrolling. HMRC is working on solutions for these, but in the meantime it’s provided more information on what employers can expect when the new regime does arrive.
Software changes. Under the current regime if you provide employee benefits that aren’t payrolled you need to report them to HMRC on Form P11D. When payrolling benefits becomes mandatory your payroll software will include additional fields corresponding with those on Form P11D in which you’ll need to add details of the benefits. This information will form part of each PAYE full payment submission. Tip. Payrolling of cheap rate loans will not be mandatory, at least at first. Instead, you’ll have the option to payroll or report them on Form P11D
The next step
For a link to the government’s policy notice, visit https://www.tips-and-advice. co.uk, Download Zone, year 25 issue 16.
› Mandatory payrolling of benefits is delayed until 6 April 2027. Cheaprate loans to employees and directors will be excluded at first but can be reported voluntarily. Payroll software will be amended to require employers to provide in-depth information about payrolled benefits.
NEWS
PROPERTY
HMRC’s latest warning to landlords
Anti-avoidance rules. The property rental sector has recently been under HMRC’s microscope again. In its “Spotlight” guidance, which focuses on unfair tax avoidance, HMRC warns landlords of a scheme to save tax which it says doesn’t work (see The next step). The scheme has been marketed for some time but according to HMRC new and existing legislation prevents it from being effective. Using it will not save you tax and may result in penalty and interest charges.
LLP to company. So you know what to look for if you’re reading the sales pitch, the scheme involves transferring personally owned properties to a limited liability partnership (LLP) which is then dissolved and the properties sold to a company. The marketing suggests that capital gains tax, stamp duty land tax and possibly inheritance tax can be saved.
The next step
For a link to the HMRC guidance, visit https://www.tips-and-advice.co.uk, Download Zone, year 25 issue 16.
› Be wary of tax avoidance schemes which purport to save capital gains and other taxes, that involve transferring your let properties to a company via a limited liability partnership. Before getting involved check HMRC’s Spotlight guidance on avoidance schemes.
Editor-in-Chief:
Tony Court
Contributing Editors:
Andrew Rainford - BA(Hons) ACA CTA
Sarah Bradford - BA(Hons) ACA CTA
Roger Lawes - Tax Advisor
Graham Palmer - Inst. of Cert. Bookeepers
Nick Avis - FCA
Simon Louis Cooper - Senior Tax Manager
Neil Warren - CTA (Fellow) ATT
Pete Miller - CTA (Fellow)
Steve Kesby - FCA, CTA
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