If your business has transitional profits from basis period reform, spreading over five years may reduce the cash flow impact, but it is important to understand the deadlines.

The self-employed basis period reform has changed the way trading income is allocated to tax years. Under these reforms, the basis of assessment moved from a current year basis to a tax year basis.

As a result, all sole traders and partnership businesses are now required to report their profits on a tax year basis. This change fully came into effect from the self-assessment return due by 31 January 2025, covering the 2023–24 tax year.

Under the old rules, businesses could have overlapping basis periods. This sometimes resulted in profits being taxed twice, with corresponding overlap relief usually given when the business ceased. The move to a tax year basis removed the basis period rules and prevented the creation of any new overlap relief.

The spreading rules for the payment of transitional profits are still available. By default, transition profits are spread evenly over five tax years, from 2023–24 to 2027–28, helping to ease cash-flow pressures. Taxpayers can also elect to accelerate the taxation of transition profits if they wish, but spreading continues to apply automatically unless an election is made.

If your business ceases on or before 5 April 2027, any transition profit remaining after overlap relief that has not yet been taxed must be brought into charge in the final year of trading.

With the balancing payment and first payment on account both due on 31 January 2026, it is worth checking your options early if funds are tight.

The final balancing payment for the 2024–25 tax year is due by 31 January 2026, which is also the deadline for filing your self-assessment tax return. This payment will settle any remaining tax owed for the year after taking account of payments on account already made.

In addition to the balancing payment, many self-assessment taxpayers will also have a first payment on account for the 2025–26 tax year due on the same date, which can make January a particularly challenging month for cash flow.

If you are struggling to meet the tax payments due by 31 January 2026 deadline, it is important to take action early, as there are options available to help manage the payment.

Taxpayers with self-assessment liabilities of up to £30,000 can use HMRC’s online Time to Pay (TTP) service to set up instalment payments. This can be done without speaking directly to an HMRC adviser and is available up to 60 days after the payment deadline.

To use the online Time to Pay service, you must:

• Have no outstanding tax returns
• Have no other unpaid tax debts
• Have no existing HMRC payment plans

If you do not meet these criteria, it may still be possible to agree a bespoke Time to Pay arrangement by contacting HMRC directly. These arrangements are assessed on a case-by-case basis and are usually based on your personal or business financial position.

HMRC will generally agree to extended payment terms where they believe the tax can be paid in full over time. However, if HMRC considers that delaying payment will not resolve the issue, they may seek immediate payment and can take enforcement action if the debt remains unpaid.

If you anticipate difficulty in paying your January 2026 tax bill, please do not ignore the problem. Please let us know and we can help you understand what options are available to you.

If one partner earns under £12,570, you could transfer part of their unused personal allowance and cut your tax bill by up to £252 a year.

The Marriage Allowance applies to married couples and civil partners where one partner does not pay Income Tax, usually because their income is below the personal allowance. For the 2025–26 tax year, this means the lower-earning partner must earn less than £12,570.

The allowance means the lower-earning partner can transfer up to £1,260 of their unused personal allowance to their spouse or civil partner. This transfer is only permitted if the recipient is taxed at no more than the basic rate of Income Tax. This means the higher-earning partner must usually have an income between £12,571 and £50,270. For those living in Scotland, this generally applies where income does not exceed £43,662, which is the point at which the Scottish higher rate begins.

By using the allowance, up to £1,260 of unused personal allowance can be transferred, resulting in a tax saving of up to £252 per year for the higher-earning partner, calculated at 20% of the amount transferred.

If you meet the eligibility criteria and have not yet claimed the Marriage Allowance, you can backdate your claim for up to four previous tax years. At present, claims can be backdated to the 2021–22 tax year, meaning you may be able to claim for 2021–22, 2022–23, 2023–24, 2024–25 and the current 2025–26 tax year. This could result in a total tax saving of up to £1,260 across those years. Claims, including backdated claims and applications for the current year, can be made online via GOV.UK.

From April 2026, Making Tax Digital for Income Tax (MTD for IT) will become mandatory for many self-employed persons and landlords, marking a significant change in how they manage their tax affairs. The new regime is designed to modernise the tax system by requiring taxpayers to interact with HMRC through an online tax account, rather than relying solely on an annual self-assessment return.

Initially, MTD for IT will apply to individuals with qualifying income of more than £50,000 a year from self-employment and/or property. From 6 April 2027, the scope will widen to include those with income between £30,000 and £50,000. Alongside this, a new points-based penalty system will be introduced for the late filing and late payment of MTD for IT liabilities.

Under MTD for IT, affected taxpayers will need to keep digital records of their income and expenses using compatible software. Instead of reporting everything once a year, they will be required to send quarterly updates to HMRC, providing a summary of their business or property income and costs. These updates are not tax bills, but they are intended to give HMRC a clearer picture of income throughout the year. A final declaration will still be required after the end of the tax year, with any tax due payable by 31 January following the year end.

Qualifying income is a key concept under MTD for IT. It is broadly the total income earned in a tax year from self-employment and property income, including income from multiple trades or rental properties. Other sources of income reported on a tax return, such as employment income under PAYE, dividends, pensions or partnership income, does not count towards this threshold.

If you are unsure how MTD for IT will affect you, or would like any support preparing for the change, we would be happy to help.

HMRC’s figures show thousands of taxpayers are filing over the festive period, but leaving your return until late January risks penalties, stress and avoidable payment problems.

A new press release by HMRC has highlighted that 4,606 taxpayers took the time to file their tax return online on Christmas Day with a further 10,479 taxpayers completing their tax returns on Boxing Day. In total, 37,435 self-assessment returns were filed between 24 and 26 December and a further 54,053 returns between New Year’s Eve and New Year’s Day. HMRC even joked that festive filing has, for some, become as much a Christmas tradition as watching the King’s Speech or avoiding the washing up!

HMRC’s Chief Customer Officer, said:

‘Millions of customers have already completed their tax returns and can start 2026 with one less thing to worry about. For anyone yet to file, don’t leave it until the last minute. Filing now means you know exactly what you owe and have time to arrange payment. Search ‘Self-Assessment’ on GOV.UK to get started.’

If you are filing online for the first time you should ensure that you register to use HMRC’s self-assessment online service as soon as possible. Once registered an activation code will be sent by mail. This process can take up to 10 working days. 

We would encourage our readers to complete their tax return as early as possible to avoid the last-minute stress as the 31 January 2026 filing date looms. If you miss the filing deadline then you will be charged a £100 fixed penalty (unless you have a reasonable excuse) which applies even if there is no tax to pay, or if the tax due is paid on time. There are further penalties for late tax returns still outstanding 3 months, 6 months and 12 months after the deadline. There are also additional penalties for paying late of 5% of the tax unpaid at 30 days, 6 months and 12 months.