As the year begins, our experts look ahead to how last autumn’s budget may affect the people TaxAid supports – and the challenges many will face.
The 2025 Autumn Budget will bring additional considerations for UK taxpayers, and many of those will be on low incomes and dealing with tax for the first time. This, along with potential knock-on effects from tax changes in other areas, such as increased tax costs for landlords, may further impact those on lower incomes. For many, this means a higher risk of falling into tax debt – and a greater need for the kind of specialist, free support we provide every day.
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Hundreds of thousands will pay tax for the first time
The freezing of the Income Tax Personal Allowance and the Income Tax rate thresholds until 2031 will see a natural increase in the number of individuals paying Income Tax – and the number paying at higher rates.
It’s estimated that an additional 780,000 taxpayers will find themselves paying basic rate income tax for the first time, many on very low or unstable incomes. We expect this to lead to an increase in demand for our services – with people needing help to navigate systems that are new to them, as well as resolving tax issues and debt they may find themselves accruing. Setting aside money for tax payments will also be a new challenge for many new business owners on low incomes.
Last year, we supported 18,052 people with their tax issues and from 2021-2024 we have seen an increase in demand for our services of 58%.
The Office for Budget Responsibility (OBR) forecast that if the Personal Allowance and rate bands hadn’t been frozen, the Personal Allowance would be £4,900 higher and the higher rate threshold £20,100 higher by the 2030/31 tax year. This extended freeze will be felt most sharply by people on lower incomes.
The State Pension and Simple Assessment
The freezing until 2031 of the Income Tax Personal Allowance will also affect pensioners. Currently, where people’s state pensions are more than the Personal Allowance, Income Tax will be due on the excess and HMRC tries to collect this tax from any employment or other pension income. However, many pensioners who do not have enough of (or any) other type of income will need to pay the tax due through Simple Assessment.
Last year, we helped 989 people understand their Simple Assessments from HMRC and as a result, we know that Simple Assessment can be difficult for many people to understand, especially the first year it applies. Of the total 18,052 people we supported last year across all tax issues, 4,275 were in receipt of the state pension.
We welcome the announcement that the Government will ease the administrative burden for pensioners whose only income is the basic or new state pension and this exceeds the Personal Allowance. As the new full state pension is expected to rise above the Personal Allowance from the 2027/28 tax year, this easement is expected to apply from 6 April 2027.
Since the Budget, the Chancellor appears to have confirmed that in addition to the administrative easement, those covered by it will not have the tax collected from their State Pension this Parliament. Further detail is needed to understand exactly what this means.
Making Tax Digital: More people will have to use digital systems.
As Making Tax Digital (MTD) rolls out over the next three years, more and more people will have to use digital systems to report their income. But not everyone will have the digital skills or knowledge to do this. They will need help from services like ours.
In the Budget, a relaxation to the new points-based penalties for late submission of quarterly updates was announced. Taxpayers who are in MTD from April 2026 will not receive penalty points for late submission of their first four quarterly updates. Those who submit their final tax return for 2026/2027 late (due 31 January 2028) will receive a penalty point as well as late payment penalties where tax is due.
This is a sensible announcement and acknowledges the substantial change that MTD will make to how people record and report their income.
From April 2027, the points-based penalty system will also apply to Self Assessment taxpayers who are not within MTD. Again, this is a welcome announcement and means that those on the lowest incomes will also be able to benefit from the new penalty regime which HMRC have previously described as “simpler and fairer”. We know from experience that many people who struggle with tax are often not aware that they are building up penalties – and often they don’t understand why.
Further tax administrative changes announced in Budget 2025 will require Self Assessment taxpayers to pay Income Tax earlier and more frequently, making more regular tax payments automatically throughout the year. These changes will start from April 2029 and mean that even Self Assessment taxpayers who are not impacted by MTD will need to understand how these changes impact them. Work will be required to ensure taxpayers, and in particular those on the lowest incomes, are supported with this additional change.
Higher property tax could push up rents for low-income earners.
From 6 April 2027, the property basic rate of Income Tax will be 22%, the property higher rate will be 42%, and the property additional tax rate will be 47%. Plus, the Personal Allowance will be deducted from earned income before unearned income, meaning that more property income will be taxed at the higher rates.
Along with the frozen Personal Allowance and Income Tax thresholds, landlords may pass on their increased costs and landlord taxes to their tenants through rent increases. On top of the cost-of-living crisis and frozen Personal Allowance, this could be another squeeze on those on low incomes.
Positive news for resolving Loan Charge cases - and a win for our advocacy work.
The Budget announcement set out the Government’s proposals for resolving Loan Charge cases. These were based on the recommendations of this year’s Independent Loan Charge Review. We contributed to the review, giving details of the real-life difficulties our beneficiaries faced in trying to resolve Loan Charge related issues.
The proposals could significantly reduce the outstanding liabilities of the 32,000 or so individuals who were caught out by the 2017 Loan Charge provision and who have not yet settled with HMRC on this issue.
HMRC will start writing to individuals in early 2026 with details of the new settlement opportunity and will publish guidance.
Closing in on promoters of tax avoidance and protecting low-income workers.
We welcome the Government’s announcement to introduce additional measures to tackle promoters of marketed tax avoidance schemes, which can leave people on lower incomes facing more tax debt.
Promoters claim that their avoidance schemes sidestep tax rules and reduce the amount of tax that someone has to pay. However, these schemes hardly ever work. Ultimately, the people using them often end up paying more tax, interest and penalties than were originally due, which can be very distressing, especially for those who are already facing debts or other disadvantages. The news of measures to stop the promotion of these schemes is positive.
The tax advice market will not be regulated.
The Government has provided clarity that, following consultation, the tax advice market will not be regulated during this Parliament, and they will work in partnership with the sector to raise standards.
Those who are vulnerable or on lower incomes often face the impact of poor tax advice, and we have seen examples of this in areas such as the Loan Charge mentioned above.
It is important that the Government meets its commitment to raise standards in the tax advice market to protect the most vulnerable in society from the potential harm that bad tax advice could bring.
Electric vehicles
One of the less obvious measures that might lead to unexpected debt concerns the new eVED rule for electric vehicles (EVs). Used EVs are often now cheaper than comparable petrol cars so this change is more likely to affect those on lower incomes than many might imagine.
The rule announced in the Budget requires the car owner to estimate their mileage upfront and then to reconcile it with the actual mileage at the end of the year. Those who are short of cash when renewing their VED might be tempted to deliberately underestimate their future mileage, so pay less upfront, but they may struggle when they have to pay the tax bill eventually.
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