Income taxpayers in the UK are set to face significantly higher tax bills over the coming years, a local accountant has said.
Speaking in Plumbridge last week, Seamus McCaffrey said announcements about income tax bands in the 2024 Autumn Budget were largely overshadowed by controversial inheritance tax changes.
“We have a personal allowance of £12,570 which is the amount of money we can earn tax free every year. That figure will now be frozen until 5 April 2028,” he said. McCaffrey explained that the personal allowance has not changed since 2021 and would be worth around £15,000 now if it had moved in line with inflation.
“You can imagine the amount of income tax we will be paying by having £12,570 frozen until April 2028. No matter where you look, 2025 to 2028 are years of high tax with no escape,” he said.
McCaffrey pointed out that the band for paying the 20% basic rate of income tax has also been frozen until April 2028, with the 40% tax rate applying to income over £50,270.
The Omagh-based accountant suggested this could push more farm businesses into re-structuring from being sole traders or partnerships to becoming companies.
“A company pays tax for the first £50,000 at 19% and then the maximum rate that a company pays tax at is 25%, irrespective of how much money you make,” he said.
“Those rates of tax for companies are confirmed for the lifetime of this government, so we have some certainty there,” he told a meeting of the Mid-Tyrone Lamb Group.
Digital tax
Making Tax Digital (MTD) has applied to VAT since April 2021 and is set to be extended to income tax for sole trader businesses from April 2026.
“If you are a sole trader with turnover more than £50,000, then you must file quarterly returns about your income and expenses with HMRC.
“You don’t have to pay tax every quarter, but you must file returns. If you don’t file, you will be fined,” McCaffrey said
He explained that at the end of each financial year, MTD rules allow sole traders to file an adjusting statement to finalise calculations for income tax.
However, McCaffrey suggested there will be limited scope to adjust tax calculation at this point as any major changes to accounts at the end of the year “will stick out like a sore thumb”.
“You will need to speak to your accountant about what you need to do to comply with MTD from April 2026,” he said.
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