SME Tax Update 2 July 2026

Hello,

Following on from HMRC’s 2026 Tax Update last week, we take a closer look at several of the consultations and proposals. There are a lot of potential developments for tax agents and taxpayers to examine, including proposals that will require most VAT-registered businesses and employers to pay VAT and PAYE liabilities by Direct Debit. 

SME tax news 12

According to HMRC, around one in five Income Tax Self Assessment (ITSA) tax bills are paid late, and HMRC's consultation, ‘Timely Payments in ITSA’, examines the issue. There is a desire to bring the timing of payments forward so that tax is paid closer to when income is earned.

It proposes that, from April 2029, those with sufficient PAYE income will pay forecasted ITSA liabilities in-year through PAYE each payday, followed by a balancing payment where relevant. It is estimated that this will affect 2.1 million taxpayers.

The consultation also explores more frequent Payments on Account (POAs) for the wider population of 9.5 million ITSA taxpayers outside the PAYE reform, of whom around 2.5 million currently make twice-yearly POAs. Monthly or quarterly payments based on forecasts are suggested: it is also proposed that these are made in the same year as the underlying taxable activity, and followed by a balancing payment where relevant.

Company reorganisations, purchases of own shares and general succession planning remain among the hot topics we advise on via our sister service Virtual Tax Partner (VtaxP). HMRC’s wide-ranging consultation ‘Modernising the taxation of distributions and repayments of capital from companies’ proposes several major changes in these areas, including a proposal to freeze capital on shares, something that would remove the capital reduction non-statutory demerger route. Other suggested changes include relaxing the conditions for statutory demergers and adding new conditions for a company purchase of own shares.

There is a lot to digest in these and other proposals, so do check out our news items below. We also cover two cases this week and feature several topical guides for subscribers, including our guide to reporting benefits and expenses, particularly relevant as the P11D and P11D(b) deadline is now only days away. 

The rossmartin.co.uk tax team

Online PRACTICAL tax resources for accountants and tax advisers BY accountants and tax advisers.

Quick News 

Self Assessment in-year payment reform
The government is seeking views on bringing forward Income Tax Self Assessment (ITSA) payments so that more is paid in-year from April 2029. Proposals show how this may work for taxpayers both with and without PAYE income.

Mandatory Direct Debit proposed for VAT and PAYE payments
The government is consulting on proposals that will require most VAT-registered businesses and employers to pay VAT and PAYE liabilities by Direct Debit. The aim is to reduce late payment and simplify the payment process.

Consultation on modernising the taxation of distributions and repayments of capital from companies
HMRC have opened a consultation, ‘Modernising the taxation of distributions and repayments of capital from companies’. They are seeking views on the proposals to modernise the tax framework dealing with distributions made by companies to shareholders who are individuals or trusts.

Call for evidence on PAYE Settlement Agreements (PSAs)
HMRC have launched a call for evidence on how 'PAYE Settlement Agreements (PSAs)' operate in practice, to improve clarity, consistency and administrative efficiency. 

Call for evidence on voluntary National Insurance Contributions
HMRC have opened a call for evidence on the design, operation and future direction of voluntary National Insurance Contributions (NICs).

Land Remediation Relief consultation response
The government has published a response to its consultation 'Land Remediation Relief'. The review sought to understand whether the Corporation Tax relief continues to incentivise the redevelopment of brownfield land and whether reforms are needed to ensure it remains effective, accessible and aligned with modern remediation practices.

Tax Cases (subscription content)

Partnership allocations were miscellaneous income, not capital
In HMRC v HFFX LLP; Atkins & Ors v HMRC [2026] UKSC 17, the Supreme Court confirmed that allocations to individual members of a mixed-member partnership by a corporate member were chargeable to Income Tax as miscellaneous income under s.687 ITTOIA 2005. HMRC's argument that the amounts were taxable as profit shares under the profit-sharing arrangements rules in s.850 ITTOIA 2005 was rejected.

Discovery invalid - HMRC had information to open enquiry
In Rune Madsen v HMRC [2026] TC09854, the First Tier Tribunal (FTT) held that a Stamp Duty Land Tax (SDLT) discovery assessment was not valid as HMRC had enough information within the enquiry window to identify a loss of tax and had lost the taxpayer’s disclosure letter.

Editor's Choice

This week's Editor's Choice was selected by Andrew Symons. You can meet our team of editors and writers here: Meet the team.

Demergers: What are your options?
What are the different types of demergers that are available when you want to reorganise your business? In what situations are they typically used?

Leases in relation to land
What are the Capital Gains Tax (CGT) and Income Tax consequences of leases? What is the difference between a grant and an assignment? What is a premium and a reverse premium? What are the tax consequences of a lease extension and surrender?

Land Remediation Relief (LRR)
What is Land Remediation Relief (LRR)? Who can claim LRR and what are the conditions? What happens if LRR creates or enhances a loss?

Guides & Updates 

Self-employed  

Training and course fees (self-employed)
Can a self-employed trader claim tax relief on their costs of training and ongoing professional development? Are training fees capital by nature?

Directors & Companies

Distributions & striking off
What is the tax treatment of distributions made in the course of a company striking off? How much can a company distribute without it being treated as an income distribution?

Interest relief: Making a loan to a close company
Individuals can claim tax relief for interest paid on a loan where the funds are used by a close company or used to buy an interest in a close company. Which loans qualify? What is a business purpose?

Employers

Loans: Employment-related (beneficial loans)
What is a beneficial loan? What are the tax and Benefit In Kind implications? Which loans are exempt? How is the value of the benefit calculated? How is the beneficial loan reported? What happens if the loan is written off? 

P11D: Reporting benefits and expenses
How do you report benefits and expenses? What is the P11D deadline? 

Private Client & Estate Planning

PRR: Private Residence Relief
What is Private Residence Relief (PRR)? What are the qualifying conditions? Can you claim relief on two homes? How do you claim PRR? Can you claim PRR if you develop your garden? 

Pensions: Tax rules and planning
What tax rules apply to pensions? What tax relief is available? What tax charges can arise? What planning opportunities are there?

Capital Allowances

Short-life assets
What is a short-life asset? How to plan for short-life assets, what can be included and what are the exceptions? 

Land & Property

Profits from dealing in or developing UK land
These rules apply UK Income Tax or Corporation Tax to all profits from trading in and developing UK land, regardless of your country of residence. 

Penalties & Compliance

Grounds for Appeal: Insufficiency of Funds
When will insufficiency of funds be a reasonable excuse for late filing of a tax return or late payment of tax? 

Accelerated Payments & Follower Notices
What are Accelerated Payments and Follower Notices? What action is required? What are the penalties for non-compliance? Is there a right to appeal?

VAT

Land & Property: DIY Housebuilders scheme
It is possible to recover VAT on constructing a new residential dwelling, or dwellings, even where there is no planned sale of the property. This recovery can arise under the special refund scheme for DIY housebuilders.

Continuing Professional Development (CPD)

Recent and upcoming webinars include: 

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Missed the Last Tax Update?

Ross Martin Tax: SME Tax Update 25 June 2026

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  • Employer Bulletin: June 2026
  • HMRC announces phased roll-out of mandatory payrolling
  • Multi-Factor Authentication voluntary registration
  • HMRC tightens stance on sign-in details and automation tools
  • Agent Update 144: June 2026
  • HMRC tackling high street tax fraud
  • CoA upholds payment deferral on exit charge
  • Do I pay a salary or dividend? 2026-27
  • Running an LLP in tandem with a company 
  • MTD: Toolkit for accountants  ...More

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