Bumper Year for HMRC
How Will Rachel Reeves
Spend the Tax Windfall?
I can tell you one thing for sure – there is never a dull moment in Tax. From the first day I started my career in personal tax, I was amazed by the continuing changes, interpretations, and announcements within the profession.
The last few months, or at least since the Budget of October 2024, seem to have been a turbulent period. I appreciate that you will be aware of the big announcement, from the employer National Insurance increase to the limitations on APR/BPR and even the inclusion of pensions falling into scope of the estate for Inheritance Tax. However, I’m not sure there has been a time in my career where there has been such a continued backlash to the announcements, and at the time of writing this, there is still little clarity on the future changes.
In recent days, it has been suggested that Rachel Reeves may make a U-turn on National Insurance in her announcement in March, due to pressure from business. Although, I anticipate there will not be any U-turns on this issue, there could be some right, or even left, turns depending on your political persuasion on pensions and Agricultural and Business Property Relief.
All will be revealed on Wednesday 26th March when the Spring Forecast is presented to parliament by the chancellor. Did you notice what I wrote there? The Spring Forecast, not the Spring Statement. Yes, a subtle change from the new government. Although interesting as this is, many commentators are already posing the question: will this forecast include additional tax increases, even though it has been suggested that this will occur in the autumn? The forecast is only supposed to announce fiscal policy and not tax policy. We will have to wait and see.
In recent weeks, we have been hearing rumours of possible changes to ISAs, with allowances for cash ISAs being reduced from £20,000 to £4,000 and even possibly disappearing altogether. Data has demonstrated that the majority of households on average only invest £5,000, and therefore, the wealthy (a term used loosely) receive significant tax benefits. By reducing the allowance, there would be a significant increase to the treasury. I am sure the IFAs amongst you reading this will have various opinions on this prediction, and I would love to hear them.
I always enjoy reading the press releases from HMRC when they share the data around the Christmas Tax Return submissions. A staggering 40,000 customers submitted their returns over Christmas week, with 4,400 even taking the time to miss the King’s speech and file on Christmas Day. As interesting as all this is, I expect you’ll also be intrigued to note that January 2025 has been anything but dull in the world of tax. HMRC’s receipts for the month hit a whopping £112bn – nearly £3.9bn more than the previous record set in January 2023. Talk about setting new benchmarks!
Leading the charge this month were income tax receipts, which jumped by £6.8bn, reaching just shy of £50bn for January alone – another new high. When you look at the numbers, it's clear: January 2025 has certainly not been a “quiet month” for HMRC!
The January 31st deadline for self-assessment tax returns was clearly a major driver, with HMRC raking in £25.8bn from those returns. This contributed to a total income tax receipt for the month of just under £50bn, up by an impressive £6.9bn from last January. To put that in perspective, that’s more than double the rise we saw in the previous year, which is truly phenomenal. Over the past 12 months, income tax receipts have increased by almost £26bn – a substantial boost.
Combine this with the anticipated penalties that will be raised in the sum of £110M – that’s right, £110M – and if every late tax return was not filed until next year, that in itself would generate additional revenue of £1.76bn, in no way a small sum, but in reality, it will be less as many tax returns are only late.
Something I’ve mentioned before (and been politely asked to stop) is whether HMRC might eventually raise its penalty regime, which has been in place since Self-Assessment came in back in 1997. Remember Hector the Inspector? Recently, we’ve seen other departments follow suit with fee increases. Take probate, for instance—the cost for estates between £50,000 and £300,000 has jumped to £300, while estates over £2 million now face a £12,000 fee. Then there’s the Office of the Public Guardian, raising fees for powers of attorney with no real improvement in service speed (so I have heard).
Surely, this has to be a consideration for any government serious about driving tax revenues. Can you remember what £100 would buy you back in 1997?
As we head out of one tax year and into the next, it always seems to come around quicker than Christmas, doesn’t it? But don’t worry – there’s still time for some last-minute tax planning, particularly when it comes to pension contributions. For your clients who are high-net-worth individuals (HNWIs) or those earning between £50K and £100K, a strategic approach to pension contributions could result in significant tax savings.
One effective option is tapered annual allowance relief, which reduces the annual pension contribution limit for those with incomes over £200K. However, by making pension contributions before the tax year-end, we can help your clients reduce their taxable income and lessen the impact of this tapering effect.
Additionally, the carry forward relief offers another great opportunity, allowing clients to use unused pension allowances from the past three years. This can be particularly beneficial for those looking to make larger contributions and reduce their overall taxable income.
As your trusted tax advisor, I’m here to help navigate these strategies, ensuring your clients don’t exceed their annual allowances, maximise higher-rate tax relief, and ultimately preserve wealth while minimising tax liabilities.
But it’s not just about tax savings; it’s about giving your clients peace of mind knowing they’re on the best path for their financial future. By working with you to implement these strategies, I can help reduce the long-term tax burden on their estates, which is essential for high-net-worth individuals looking to pass on their wealth efficiently.
Additionally, by collaborating with me, you can offer your clients a comprehensive approach to tax planning—something that goes beyond just pension contributions. Whether it's addressing the potential impacts of future tax hikes or leveraging unused allowances from prior years, we can ensure their wealth is not only growing but also protected from unexpected tax consequences.
In this dynamic tax environment, the ability to respond to changes quickly and efficiently can set you apart. Let me help you stay ahead, so you can deliver tailored advice that makes a real difference in your clients' financial outcomes.
Thank you for taking the time to read this. I hope you found it helpful. As always, feel free to get in touch if you need any advice or have thoughts on topics you'd like me to cover next time. I look forward to hearing from you!
If you require expert guidance on any of the services we offer, we would be delighted to assist you. Whether you need support with trust and estate tax returns, capital gains tax planning, inheritance tax advice, or any other aspect of personal taxation, our team is here to help. Please don’t hesitate to get in touch at jreeves@taxmatters.tax to discuss your specific needs and explore how we can provide tailored solutions.
