HMRC publishes tax update on simplification, modernisation and fairness

On 23 June 2026, HMRC published a tax update under the banner of “simplification, modernisation and fairness” containing a wide range of measures across several areas of tax. According to HMRC, these measures are intended “to reduce administrative burdens, improve certainty, fairness, customer experience and allowing businesses to focus on growth”.

While we the detail is being worked through and will be the subject of further articles, we have set out a summary of the key announcements that are likely to affect individuals and business owners.

Timing of tax payments under Self Assessment

HMRC have launched a consultation, which runs until August 2026, on their intention to accelerate the payment of tax under Self Assessment, with this change due to take effect from April 2029. The consultation follows HMRC’s announcement in the 2025 Budget that they would be looking to change the timing of tax payments.

Under current rules, taxpayers within Self Assessment generally pay their tax on 31 January, 10 months after the end of the tax year, with some being required to make payments on account in the prior January and July. In some cases, there can be a delay of up to 22 months between income being generated and the tax on that income being paid.

The proposed acceleration has two aspects to it:

1. Taxpayers within Self Assessment who also receive income taxed at source through PAYE would see all or part of their Self Assessment tax liability collected through PAYE, alongside the tax payable on the PAYE income itself.
2. Self Assessment taxpayers without PAYE income, or with insufficient PAYE income to absorb the Self Assessment tax liability, would make monthly payments on account of their tax liability during the tax year.

In both cases, taxpayers will be making “in year” tax payments on account of their tax liability for that year, rather than paying the tax in arrears.

Voluntary National Insurance contributions (NICs)

Voluntary NICs allow taxpayers to build a National Insurance record where they are otherwise precluded from doing so.  In another call for evidence, HMRC are seeking to better understand how voluntary NICs operate in practice, whether they offer value for money, and how the system might be reformed.

HMRC state that no specific changes are proposed and the information gathered will inform future developments.

Collection of low value tax debts

HMRC currently have powers to collect tax debts direct from a taxpayer’s bank account, subject to certain limits and safeguards. The current powers are limited to the manual collection of large debts (greater than £1,000) that can be collected in a single payment and are applied on a case-by-case basis. Typically, HMRC would only resort to this action where the taxpayer has persistently refused to engage with HMRC over their tax debt.

A consultation has been launched, ending in August 2026, on a proposal to widen the scope of these powers to enable smaller debts to be collected by way of instalments and for the process to be automated so that it is scalable. As with the current system, safeguards will be put in place.

This change would see more taxpayers who are in default and who have not engaged with HMRC to resolve their unpaid taxes and have payments taken from their bank account automatically.

Modernising the framework for company distributions and repayments of capital

This is a wide-ranging consultation that runs until September 2026 and focuses on numerous aspects of the tax system in respect of company distributions and repayments of share capital.

• Reduction of share capital
  HMRC are looking to close a perceived loophole where they believe distributions taxed as capital should more properly be taxed as income. The proposed alteration to the rules could impact on the efficacy of capital reduction demergers.
• Statutory demergers
  There is a proposal to relax some of the conditions to be met for statutory demerger relief to apply, partly in light of the impact on capital reduction demergers mentioned above, and partly because the government does not believe statutory demerger relief is widely used at present.
• Distributions from non-UK companies
  HMRC are looking to align the tax treatment of distributions from non-UK companies with those from UK companies.
• Loans from non-UK companies
  In certain situations, a loan from a UK company to a shareholder can result in a tax liability for the company.  HMRC are looking to impose an equivalent tax charge on loans made by non-UK companies, but in that situation the tax liability would fall on the shareholder because the overseas company would not be within the charge to UK tax.
• Interaction between the tax rules for debt, loans and distributions
  HMRC are looking to introduce rules to avoid the potential double taxation or non-taxation of amounts loaned by a company to a shareholder. Double taxation may arise where the loan arises from an invalid distribution and the loan gives rise to a tax liability for the company despite the shareholder having also been taxed on the distribution. HMRC claim they have seen cases where the rules have been used to avoid a tax liability for both the company and the shareholder.
• Purchase of own shares
  Where certain conditions are met, the payment by a company to purchase its own share capital is taxed on the selling shareholder as a capital payment. Where the conditions are not met, the payment by the company is subject to income tax as a distribution. Capital treatment is generally preferrable to income treatment as capital gains tax rates are typically lower than income tax rates. One of the conditions to be met for capital treatment to apply is the “trade benefit test” and whether this test is met can be a point of dispute with HMRC. In order to avoid this, HMRC are looking to add clarity by replacing this test with a list of set requirements.
• Transactions in Securities (TiS) anti-avoidance overhaul
  The TiS anti-avoidance rules are designed to counteract situations where transactions in a company’s share capital are arranged to avoid an income tax charge on what would otherwise amount to a distribution by the company. HMRC believe the TiS rules, which have existed since the 1960s, are now outdated and are seeking to amend or replace them to ensure the anti-avoidance provisions remain fit for purpose.
  These are complex matters and the full impact may not be known until the consultation process has ended and HMRC have published their summary of the responses.

Where gifts are made of certain business assets, the transferor may defer the capital gain arising on the disposal by making an election for gift relief. Where the asset in question is shares in a company, the amount of relief is restricted where the company holds non-business assets.

HMRC have published draft legislation, effective from 6 April 2027, that will change the list of assets to be considered when determining to what extent the restriction applies. This could have a positive or negative effect on the relief, depending on the nature of the company’s asset base.

PAYE Settlement Agreements (PSAs)

PSAs allow employers to voluntarily pay the tax on certain employee benefits on behalf of their employees, effectively making it a tax-free benefit from the employee’s point of view. PSAs are particularly useful where the benefits in question are small and/or impractical to apportion between individual employees, making them difficult or uncommercial to report on a form P11D or through the payroll.

HMRC has called for evidence from employers, advisers and other stakeholders on how PSAs are used, what types of benefits are included, how they operate in practice, and what might be improved about the rules and the process.

The call for evidence runs until September 2026 and the results will be used to assess whether changes are needed to the current PSA system and what form those changes might take.

Corporation tax quarterly instalment payments (QIPs)

Certain “large” companies must pay their corporation tax in quarterly instalments, whereas smaller companies settle the liability in a single payment nine months after the end of the financial year. Whether a company is large and therefore required to make QIPs depends on the level of its taxable profits. From April 2027, when measuring these profits, Research & Development Expenditure Credits, Audio-Visual Expenditure Credits, and Video Games Expenditure Credits will no longer be included in the calculation.

This will be good news for companies that receive these credits and may result in some avoiding the need to make QIPs.

If any of the above proposals affect you or you want to learn more, please get in touch with your usual Crowe contact.