Most individuals can earn interest from their savings without incurring a tax liability thanks to a number of allowances available each tax year (from 6 April to 5 April). These include your Personal Allowance, the starting rate for savings, and the Personal Savings Allowance, with the amount you receive depending on your other income.

Your Personal Allowance can cover tax-free interest if not fully used by wages, pension, or other income. You may also qualify for a starting rate for savings of up to £5,000, which is tax-free. This rate is reduced by £1 for every £1 of other income above your Personal Allowance, and you are ineligible if your other income is £17,570 or more.

The Personal Savings Allowance can also result in some or all of the interest you receive being tax-free. The amount covered by the allowance depends on your Income Tax band. For example, taxpayers can receive up to £1,000 of interest tax-free and higher rate taxpayers up to £500 tax-free, whilst additional rate taxpayers have no allowance. To determine your applicable band, add all interest received to your other income.

If your total savings interest exceeds these allowances, the excess is taxed at your usual Income Tax rate. For employed individuals or pensioners, HMRC typically adjusts your tax code based on previous year's interest. Self-employed individuals must report savings interest on their self-assessment tax return and should register for self-assessment if their income from savings and investments exceeds £10,000.

If you have overpaid tax on savings interest, you can reclaim it within 4 years of the relevant tax year-end, either via self-assessment or by claiming a refund if you do not file a return.

If you are self-employed, claiming all of your allowable business expenses can reduce your taxable profit and, in turn, the amount of Income Tax you pay. Allowable expenses are costs that are incurred wholly and exclusively for the purposes of your business.

Typical business expenses that can be claimed include office costs such as stationery and telephone bills, travel expenses, business insurance, advertising and marketing, staff costs, stock and raw materials, and the running costs of your business premises. You may also be able to claim the cost of training courses that help you maintain or improve the skills needed for your business.

Where an expense is used for both business and personal purposes, you can only claim the business element. For example, if you use your mobile phone for both work and personal calls, only the business proportion of the bill is allowable.

If you work from home, you may be able to claim a proportion of household costs such as heating, electricity, internet, rent or mortgage interest, provided they relate to business use. Simplified expense allowances allow qualifying claimants to use flat rates for certain expenses, including working from home and business mileage, instead of calculating the actual costs.

If you purchase equipment, machinery or business vehicles, the cost may qualify for tax relief through capital allowances, depending on the accounting method you use.

If you claim the £1,000 trading allowance, you cannot also claim allowable business expenses. Keeping accurate records throughout the year will help ensure you claim all the tax relief you are entitled to while making it easier to complete your tax return.

Carried interest is essentially a share of the profits from an investment fund that is paid to the fund managers. Unlike a fixed fee, its value depends directly on the fund's performance. This type of payment is considered carried interest if it is a profit-related return and meets a specific "no significant risk" condition.

A payment is considered a profit-related return if three conditions are met: (1) it only arises when the fund makes profits over the relevant period or investments; (2) the amount varies substantially in line with those profits rather than being fixed; and (3) it is based on the same profits used to determine returns for external investors, not a separate manager-only pool.

In addition to these three conditions, the arrangements must also pass a "no significant risk" test. This test assesses the likelihood that the payment will actually be made. Its purpose is to ensure that any fixed or guaranteed performance fees are appropriately charged to income tax, rather than being treated as carried interest.

For fund managers and their advisers, these criteria are central to determining tax treatment. Carried interest will generally be treated as such where it is dependent on fund profits, varies materially with those profits, and is calculated by reference to the same profit pool as external investors, provided the “no significant risk” condition is also met. Where these tests are satisfied, the return is brought within the carried interest tax rules, with corresponding implications for how and when it is taxed.

Understanding dividend tax is important for anyone who receives income from shares in a company. Dividends are taxed differently from salary, pensions and other forms of income, with their own allowances and tax rates.

For the 2026-27 tax year, individuals do not pay tax on dividend income that falls within their Personal Allowance of £12,570. In addition, there is a separate dividend allowance of £500. Dividend income received above these allowances is generally subject to tax.

The rate of tax payable depends on the individual's overall level of taxable income. For 2026-27, dividends falling within the basic rate band are taxed at 10.75%, those within the higher rate band at 35.75% and those within the additional rate band at 39.35%.

To determine the applicable rate, dividend income is added to other sources of taxable income. As a result, dividends can push an individual into a higher tax band, and different portions of the dividend income may be taxed at different rates.

Where total dividend income is £10,000 or less, an individual may ask HMRC to adjust their tax code so that any tax due is collected through their wages or pension. Alternatively, the income can be reported through a self-assessment tax return. There is normally no requirement to notify HMRC where dividend income is covered entirely by the dividend allowance.

Individuals who receive more than £10,000 in dividends must complete a self-assessment tax return. Those who do not normally file a return must register with HMRC by 5 October following the end of the tax year in which the dividend income was received.

When you donate money to a charity or Community Amateur Sports Club (CASC) under Gift Aid, the organisation can claim an extra 25p from HMRC for every £1 you give. This increases the value of your donation at no extra cost to you.

If you pay higher or additional rate tax, you can also claim further tax relief on your donation. This is based on the difference between the basic rate and your highest rate of tax. The relief can be claimed through your self-assessment tax return or by asking HMRC to adjust your tax code.

For example, a £1,000 donation becomes £1,250 once Gift Aid is added. A higher rate taxpayer can then claim additional relief of £250 if they pay tax at 40%, or £312.50 if they pay tax at 45%.

You must have paid enough tax in the relevant tax year for your donations to qualify. In general, the total value of Gift Aid donations cannot exceed four times the amount of tax you have paid. If too much relief is claimed, you must notify the charity and repay the excess to HMRC.

You can also donate directly from your wages or pension through a payroll giving scheme if your employer operates one. This allows donations to be taken before Income Tax is deducted, giving you immediate tax relief at your highest rate.
 

Your tax code tells your employer or pension provider how much Income Tax to deduct from your pay. It is set by HMRC, and you may have a different code for each job or pension.

Most people with one job (or pension) use the code 1257L, which reflects the standard Personal Allowance of £12,570. The numbers show how much tax-free income you are entitled to, while the letters explain your circumstances.

Your tax code can change if your situation changes. Common reasons include starting a new job, receiving a pension or taxable benefits, claiming Marriage Allowance, receiving company benefits, or having unpaid tax from a previous year. HMRC may also update your code if your income details are corrected.

The letters in your code provide further detail. For example, L means you receive the standard Personal Allowance, M or N relate to Marriage Allowance, and BR means income is taxed at the basic rate. Codes ending in W1, M1 or X are emergency tax codes, used when HMRC does not yet have full information.

Emergency codes tax each pay period (such as weekly or monthly) in isolation, which can temporarily lead to overpayments or underpayments of tax. These issues are usually corrected once HMRC updates your records.

A "K" prefix indicates that taxable income or deductions exceed your Personal Allowance. In these cases, your employer will apply the adjustment but cannot take more than half of your pay.

If your tax code looks wrong, you should check your details with HMRC online or through the HMRC app. Once updated, any tax difference will normally be adjusted through your next payslip.

If you are required to complete a self-assessment tax return, HMRC may charge penalties if you miss the deadline for making a filing or payment. 

There are also penalties if you fail to register on time for self-assessment. If you register late and do not pay your tax bill by the required deadline, you may receive a ‘failure to notify’ penalty. This is calculated based on the amount of tax still outstanding and is usually issued within 12 months of HMRC receiving your return.

If you submit your tax return after the deadline, you will typically receive an initial £100 penalty. This is followed by daily penalties of £10 per day after three months (up to £900), and further charges at six and twelve months based on a percentage of the tax due or a fixed amount, whichever is higher.

If you pay your tax late, additional penalties of 5% of the unpaid tax may be charged after 30 days, six months and twelve months. In addition, you will also be charged interest on the outstanding balance until it is paid.

Penalties must usually be paid within 30 days of the penalty notice date, and failure to do so may result in further enforcement action. If you believe a penalty has been issued incorrectly, you can appeal where you have a reasonable excuse, and HMRC will consider your circumstances before deciding whether to cancel or reduce penalties charged.

Families claiming Child Benefit should be aware of the High Income Child Benefit Charge (HICBC), which can apply when one member of the household has a higher income.

The charge applies where an individual has adjusted net income of more than £60,000 in a tax year and either they or their partner receives a Child Benefit payment. The amount payable increases gradually as income rises, with the charge set at 1% of the Child Benefit received for every £200 of income above £60,000.

As a result, the impact of the charge is phased in rather than applying all at once. However, once income reaches £80,000, the charge effectively claws back all of the Child Benefit received, removing the direct financial benefit of the payments.

Eligible taxpayers can elect to have the charge collected through their PAYE tax code rather than completing a self-assessment tax return. This measure is intended to reduce the administrative burden for employees whose only reason for filing a self-assessment tax return is to declare the HICBC.

Although some families choose to stop receiving Child Benefit to avoid the charge, it is often worthwhile to continue making a claim. Registering for Child Benefit can help protect entitlement to National Insurance credits for parents or carers and ensures children are automatically issued with a National Insurance number shortly before their 16th birthday.

Taxpayers with income approaching or exceeding £60,000 should review their position regularly to ensure they are complying with the rules and making the most appropriate choice for their circumstances.

Many married couples and civil partners could be missing out on valuable tax savings available by claiming the Marriage Allowance. If your circumstances are suitable, this is a reminder to consider the Marriage Allowance, as a simple claim could reduce your tax bill by up to £252 during the 2026-27 tax year.

The Marriage Allowance allows a spouse or civil partner with income below their Personal Allowance to transfer £1,260 of that allowance to their partner. The standard Personal Allowance is £12,570 for the 2026-27 tax year. To qualify, the person receiving the transfer must normally be a basic-rate taxpayer and the higher-earning partner must also be a basic rate taxpayer. This generally means they have income between £12,571 and £50,270 during 2026-27. Different limits apply for Scottish taxpayers because of Scotland's separate Income Tax bands.

Although the transfer reduces the lower earner's Personal Allowance, the overall effect is usually beneficial for the couple as a whole. For many households, it provides an easy way to reduce the amount of Income Tax paid without making any changes to their working arrangements or income levels.

It is also worth remembering that claims can be backdated where eligibility existed in earlier years. Eligible couples can currently backdate a claim to 6 April 2022, which could result in a useful lump-sum repayment from HMRC.

Once a successful claim has been made, the allowance will usually continue automatically in future tax years unless it is cancelled or a change in circumstances affects eligibility. Couples whose income levels have changed recently may therefore wish to review whether they qualify and ensure they are not overlooking this tax-saving opportunity.

Making Tax Digital (MTD) for Income Tax is now in force for many self-employed individuals and landlords. Since 6 April 2026, taxpayers with qualifying business or property income exceeding £50,000 are required to maintain digital records and submit quarterly updates to HMRC using compatible software.

The threshold is scheduled to reduce to £30,000 from April 2027 and to £20,000 from April 2028, bringing many more taxpayers within the scope of the rules. Although quarterly submissions are now required, taxpayers must still complete a final year-end declaration by the following 31 January.

Choosing which software to use for MTF is therefore an important decision. The software should be able to keep digital records, submit quarterly updates, support the final declaration process and link directly with HMRC systems. Some products are designed for more simple requirements, while others offer more advanced features such as invoicing, bank feeds, receipt capture and integration with existing accounting systems.

HMRC also recognises that some taxpayers may wish to continue using spreadsheets. This remains a possibility provided these are linked to HMRC through compatible ‘bridging’ software.

We would be happy to help recommend suitable software solutions that manage the MTD for Income Tax most appropriately for your circumstances.