HMRC's 2026 tax update

On 23 June 2026, the government made several tax policy announcements as part of HMRC's 'tax update 2026'. A number of consultations were launched, including ones exploring more timely payments for Self Assessment taxpayers, the company distributions rules, and a proposal to require payment of PAYE and VAT by Direct Debit.  

The simplification and modernisation measures announced are designed to simplify rules, improve taxpayer guidance, and ensure more taxpayers can benefit from high-quality digital services. 

The government says that the changes, consultations and proposals will help people and businesses to get their tax right first time, while reducing burdens and improving certainty.

Index to sections below

Income Tax

Consultation: more timely payments for Income Tax Self Assessment (ITSA) 

  • A consultation has been published seeking views on implementing more timely payments for Income Tax Self Assessment (ITSA), including reforms for ITSA customers with Pay as You Earn (PAYE) income who will be required to pay more of their forecasted Self Assessment liabilities in-year through PAYE from April 2029. 
  • The government is also consulting on the potential for more timely payments for other Self Assessment taxpayers by reforming payments on account.
  • The consultation closes on 4 August 2026.
  • Consultation: Timely Payments in income tax Self Assessment

 Consultation: modernising the distributions framework

  • A consultation has been published to explore modernising the rules that determine whether a payment to a company’s non-corporate shareholders falls within the distributions regime, to ensure the rules operate as intended and minimise distortions, without undermining commercial practice.
  • The government is consulting because of the complexity of this area of the tax system, which in many cases has not been reformed since 1965, and the need to have a clear view of potential impacts before deciding whether to proceed with modernisation.
  • The consultation closes on 14 September 2026.
  • Consultation: Modernising the distributions framework

Reviewing employment expenses within Income Tax Self Assessment (ITSA) 

  • The government will review the circumstances in which taxpayers can make claims for tax relief on non-reimbursed employment expenses in Income Tax Self Assessment (ITSA) to ensure requirements are effective and proportionate.
    • Currently, employees who incur more than £2,500 of allowable expenses not already reimbursed by their employer must submit a Self Assessment return to claim relief. 

Consultation: first-time buyer Individual Savings Accounts (ISAs)

  • A consultation has been published on the implementation of a new, simpler Individual Savings Account (ISA) product to support first-time buyers to buy a home. Once available, this new product will be offered in place of the Lifetime ISA.
  • The consultation closes on 17 August 2026.
  • Consultation: First Time Buyer ISA consultation

ISA reform update

  • The government has confirmed the anti-circumvention rules to support reforms to ISAs announced at Budget 2025 as part of the government’s wider strategy to develop a retail investment culture.
    • To prevent circumvention of the lower Cash ISA limit, the rules will introduce a 22% charge on interest paid on cash holdings held in Stocks & Shares and Innovative Finance ISAs (non-cash ISAs), prevent transfers from non-cash ISAs into cash ISAs for the under 65s, and prevent holding 100% Money Market Funds in non-cash ISAs.
  • Further details will be published in the next HMRC Tax Free Savings newsletter. 

 Help to Save update

  • The government has confirmed that the reformed Help to Save scheme will be delivered through a multi‑provider model.
  • Financial institutions, including banks, building societies and credit unions, will be able to offer Help to Save accounts directly to eligible customers, improving access and visibility by embedding the scheme within the mainstream savings market. 
  • The government has also published a Summary of responses to the delivery consultation published at Autumn Budget 2024, setting out stakeholder views and the rationale for this approach.

Capital Gains Tax (CGT)

Draft legislation: Capital Gains Tax (CGT) relief for gifts of business assets 

  • Draft legislation has been published to modernise CGT Gift Relief for business assets.
  • The measure will update the rules that restrict the amount of relief available when a company holds assets not used within its trade, restoring how they operated before the introduction of the Substantial Shareholding Exemption and the Intangibles Fixed Assets regime.
    • This will remove distortions that can otherwise arise in the calculation. 
  • Draft legislation: Capital Gains Tax relief on gifts of business assets

Employers 

Call for evidence: PAYE Settlement Agreements (PSAs)

  • A call for evidence on PAYE Settlement Agreements (PSAs) has been published, seeking to improve understanding of how PSAs operate in practice, including how employers interpret the rules and where there may be complexity or uncertainty.
  • The call for evidence closes on 15 September 2026.
  • Call for evidence: PAYE Settlement Agreements — call for evidence

Consultation: requiring payment of PAYE and VAT by Direct Debit 

  • A consultation has been published on making Direct Debit the mandatory payment method for VAT and PAYE return liabilities, subject to defined exceptions.
    • It also considers whether any enforcement arrangements or incentives would be appropriate. 
  • The consultation closes on 16 August 2026.
  • Consultation: Requiring payment of VAT and PAYE return liabilities by Direct Debit

Review and uprating of Benchmark Scale Rates (BSR) and Overseas Scale Rates (OSR) 

Benchmark Scale Rates (BSR) and Overseas Scale Rates (OSR) are optional flat rates that employers can use to reimburse employees for the cost of meals and other travel expenses when they travel for work in the UK (BSR), and for accommodation and meals when they travel overseas (OSR), without having to check every receipt. 

  • BSR and OSR will be reviewed. 
  • BSR will be reviewed with consideration to the current costs of travel, and the review will look to understand if there is scope to simplify OSR with more alignment between both BSR and OSR. 

National Insurance

Call for evidence: voluntary National Insurance Contributions (NICs) 

  • A call for evidence has been published on voluntary National Insurance Contributions (NICs) to better understand how the system operates in practice and where improvements could be made.
  • The call for evidence closes on 15 September 2026.
  • Call for evidence: Voluntary National Insurance contributions: call for evidence

Future consultation: removing National Insurance Contributions (NICs) debt from the scope of the Limitation Act 1980 and aligning processes with other forms of taxation 

  • The government will consult on proposals to remove National Insurance Contributions (NICs) debt from the scope of the Limitation Act 1980 and to align NICs recovery processes more closely with other forms of taxation.
  • The consultation, expected in summer 2026, will seek views on how best to modernise and streamline arrangements whilst maintaining appropriate safeguards. 

 Regularising certain existing National Insurance Contributions (NICs) easements for internationally mobile individuals

  • An existing National Insurance Contributions (NICs) practice for non-resident directors who attend a small number of board meetings in the UK but are based in countries without a social security agreement will be formalised.
    • Under this measure, non-resident directors will be able to carry out limited UK duties without incurring a NICs liability. 
  • There is currently a NICs easement that allows certain employees posted abroad by their employer to work in a country with no social security agreement to return to the UK for short periods without them needing to pay additional Class 1 NICs.
    • The government is considering its approach to this practice and will work with stakeholders on providing further clarity about this in due course.  

Companies 

Ignoring expenditure credit income from Corporation Tax Quarterly Instalment Payment (QIP) profit thresholds

From April 2027:

  • The government plans to introduce secondary legislation to amend the definition of augmented profits for Corporation Tax Quarterly Instalment Payments (QIPs).
  • From April 2027, Research & Development Expenditure Credits, Audio-Visual Expenditure Credits, and Video Games Expenditure Credits will no longer be included when determining whether a company is within the QIP regime.
    • This will prevent companies from being brought into QIP solely as a result of receiving these credits. 

Consultation outcome: Land Remediation Relief (LRR)

  • A summary of responses to the consultation on Land Remediation Relief (LRR) has been published. 
  • The government has identified a compelling case for reforming LRR and will consult with industry over the coming months to explore whether viable and cost-effective reforms can be made to improve LRR.
  • Further details will be provided in the coming months, and additional evidence and engagement from businesses on how to improve the effectiveness of LRR is welcomed in the interim.
  • Consultation outcome: Consultation on Land Remediation Relief

Inheritance Tax (IHT)

Inheritance Tax (IHT) reporting requirements for non-taxpaying trusts 

From 6 April 2027:

  • The Inheritance Tax (IHT) reporting requirements for certain non-taxpaying trust transfers and trust events will be simplified.
  • These changes will remove the requirement for some trustees and individuals to submit IHT accounts where no tax is due.
  • The government will lay regulations to make this change effective from 6 April 2027. 

Overseas & Residence

Consultation: tax treatment of members of US Limited Liability Companies (LLCs) and other reverse hybrids 

  • A consultation has been published on new proposals to remove double taxation from investments in certain types of overseas entity (including US Limited Liability Companies (LLCs)) which can result in effective tax rates above 75%.
  • The consultation closes on 31 July 2026.
  • Consultation: UK resident individual members of LLCs and other reverse hybrids 

VAT

Consultation: VAT treatment of land intended for social housing 

  • A consultation has been launched on the introduction of a new zero rate of VAT for the sale of land intended for the construction of social housing. 
  • The consultation seeks views on how the current VAT rules work and how a new zero rate would support the delivery of social housing, helping reduce barriers to building new homes and supporting more households into safe and decent homes. 
  • The consultation closes on 18 August 2026.
  • Consultation: VAT treatment of land for social housing

Consultation: online marketplace liability 

  • A consultation has been published seeking views on the proposed extension of the VAT online marketplace liability rules to UK-based businesses.
  • The proposed reforms intend to tackle VAT non-compliance from overseas and UK-based businesses which can distort competition and place compliant businesses, both online and on the high street, at a disadvantage.
  • The government intends to minimise impacts on genuine UK businesses not required to pay VAT, and is seeking views on options to do so.
  • The consultation closes on 18 August 2026.
  • Consultation: Extending online marketplace liability to combat non-compliance

Consultation: Electronic Sales Suppression (ESS) software standards 

  • A consultation has been launched on the introduction of software standards for the Electronic and Mobile Point of Sale (EPOS/MPOS) Sector to explore how best to embed standards across the latest products and innovations. 
  • Views are sought from businesses, software developers and wider stakeholders on measures designed to prevent electronic sales suppression and support fair competition on the high street. 
  • The government aims to ensure any future approach minimises burdens on compliant businesses, and believes that strengthened controls, such as modern encryption and record standardisation in the EPOS sector, have the potential to dramatically reduce the incidence of ESS or ‘till fraud’. 
  • The consultation closes on 18 August 2026.
  • Consultation: Electronic Sales Suppression: Introduction of software standards

Digitising the option to tax process

  • New digital channels will be introduced for submitting option to tax notifications and revocations, replacing existing paper-based processes.
  • This will incorporate industry requirements, including bulk uploads for option to tax notifications, revocations and VAT registration cancellations.
  • These channels will be live before the end of 2026. 

Supplementary data for VAT returns

  • The government will explore whether better use of VAT data that businesses already hold in their digital accounting systems could help HMRC work more efficiently.
  • This work will consider how data already held within the businesses’ digital accounting systems for audit purposes could be used to support compliance and improve the effectiveness of the tax system.
  • Engagement with stakeholders will inform any future decisions. 

E-invoicing: core interoperability network announcement 

  • The government has announced that the electronic procurement system Peppol will be the core interoperability network for e-invoicing in the UK. 
  • This will give software developers and taxpayers an indication of the direction of travel for work towards the e-invoicing mandate in 2029, enabling them to begin planning their product development and rollout of e-invoicing.
  • The government will continue to engage with stakeholders regarding the role of legacy systems which cannot interoperate in the future system. 

Compliance & Administration

Consultation: tackling lower-value debts

  • A consultation has been published seeking views on proposals to extend existing powers to enable recovery of lower-value tax debts.
  • This would apply to taxpayers who can pay but have not responded to multiple contact attempts from HMRC.
    • Each year, over 750,000 such debts, collectively worth more than £2 billion, remain uncollected after 9 months and more than 10 attempts to contact customers to pay what they owe.
  • The proposals would enable HMRC to collect debts directly from taxpayers’ accounts in regular instalments, supported by a comprehensive suite of safeguards to ensure the power is used fairly and proportionately.
  • The consultation closes on 28 August 2026.
  • Consultation: Tackling lower value tax debts

Consultation: introducing a criminal offence for making reckless untrue statements or declarations in direct tax 

  • A consultation has been published on the introduction of a criminal offence of reckless untrue declarations or reckless false statements for direct tax matters, aligning the legal framework with existing offences in indirect tax.
  • The aim is to ensure consistency across tax regimes, to ensure that those who engage in highly culpable serious non-compliance are fairly tried and properly brought to justice.
  • The consultation closes on 16 August 2026.
  • Consultation: Proposed offence for reckless untrue statements — Direct taxes

Changes reforming civil tax information and inspection powers (Schedule 36 Finance Act 2008) and modernising the definitions around computer records 

  • The government will bring forward a package of reforms to modernise HMRC’s information and inspection powers.
  • This includes updating provisions in Schedule 36 to Finance Act 2008 and the definitions about computer records in s.114 FA2008, ensuring HMRC can effectively access and process information in a modern, digital economy.
  • The reforms will improve HMRC’s ability to carry out compliance checks, meet OECD Global Forum standards on information exchange, and respond to technological changes. A planned technical consultation will help ensure safeguards remain proportionate. 

Publishing details of deliberate defaulters reform 

  • The government will reform the 'publishing details of deliberate defaulters' policy.
  • The changes will allow HMRC to publish more information about the deliberate non-compliance that leads to publication of the defaulter’s details and will increase the threshold for publication to £50,000 potential lost revenue.
  • The reforms will also enable the publication of details relating to Personal Liability Notices. 

Policy maintenance package to tackle promoters of tax avoidance 

  • The government will introduce a small package of measures to amend existing legislation aimed at tackling promoters of tax avoidance. 
  • This includes changes to the Promoters of Tax Avoidance Schemes legislation to extend it more fully to cover VAT avoidance schemes and to allow HMRC to publish the details of those subject to a Stop Notice more quickly.

Other announcements

Start a Small Business: Customer Journey review 

  • The government will undertake a comprehensive review of the end-to-end customer journey for small businesses.
  • This review will examine how businesses interact with HMRC across their lifecycle, from starting up to ongoing compliance, with the aim of identifying key pain points and opportunities to simplify guidance, improve services and support compliance. 

Note: announcements and consultations, etc., relating to Customs Duties are not covered above.

External links

HMRC: Summary of tax update 2026: simplification, modernisation and fairness

HMRC: Tax update 2026: simplification, modernisation and fairness

Written statement to Parliament: Tax Update 2026: simplification, modernisation and fairness