Tax Update 2026: Simplification, modernisation and fairness

Discount expenditure credit income from corporation tax Quarterly Instalment Payment (QIP) profit thresholds

To reduce administrative burdens and ease cashflow pressures for companies, the Government plans to introduce secondary legislation to amend the definition of augmented profits for corporation tax QIPs. From April 2027, Research & Development Expenditure Credits, Audio-Visual Expenditure Credits, and Video Games Expenditure Credits will no longer be included when determining whether a company is within the QIP regime. This will prevent companies from being brought into QIP solely as a result of receiving these credits.

Employment tax announcements

Call for evidence on PAYE Settlement Agreements (PSAs)

The Government has published a call for evidence on PSAs, seeking to improve understanding of how PSAs operate in practice, including how employers interpret the rules and where there may be areas of complexity or uncertainty. The call for evidence will close on 15 September 2026. The responses will allow the Government to assess whether any changes are needed to reduce administrative burdens for employers and advisers.

Regularising certain existing National Insurance contributions (NIC) easements for internationally mobile individuals

The Government will formalise an existing NIC practice for non-resident directors who attend a small number of board meetings in the UK but are based in countries without a social security agreement. Under this measure, non-resident directors will be able to carry out limited UK duties without incurring a NIC liability, providing clarity and certainty for employers and internationally mobile individuals.

There is also currently a NIC easement that allows certain employees posted abroad by their employer to work in a country with no social security agreement to return to the UK for short periods without them needing to pay additional Class 1 NIC. The Government is considering its approach to this practice and will work with stakeholders on providing further clarity about this in due course.

Personal tax announcements

Modernising the taxation of distributions from companies to shareholders who are individuals or trusts

The Government is consulting on modernising the rules that determine whether a payment to a company’s non-corporate shareholders falls within the distributions regime. The consultation contains seven chapters exploring:

• How tax planning around ‘capital on shares' within the distributions regime can be used to create outcomes not envisaged by legislation;
• How the existing demerger relief rules could be better targeted;
• The income tax treatment of dividends and other distributions from non-UK resident companies;
• The interaction of the distributions regime with the treatment of debt and loans, proposing the introduction of a priority rule as to when the extractions should be charged under the loans to participators regime;
• Loans from companies that are not UK resident but would otherwise meet the close company criteria; and
• The Purchase of Own Shares rules, suggesting changes to bring more clarity and focus.

The consultation closes on 14 September 2026. It should be noted that these proposals have the potential to be wide-reaching and significantly impact individuals and businesses: we will therefore bring you more in-depth coverage in our next edition of Tax Matters Digest.

Capital Gains Tax relief for gifts of business assets

The Government has published draft legislation to modernise capital gains tax gift holdover relief for business assets. The measure will update the rules that restrict the amount of relief available when a company holds assets not used within its trade, restoring how they operated before the introduction of the Substantial Shareholding Exemption and the Intangibles Fixed Assets regime. This will remove distortions that can otherwise arise in the calculation.

More Timely Payments for Income Tax Self-Assessment (ITSA)

The Government has published a consultation seeking views on implementing more timely payments in ITSA, including reforms for ITSA taxpayers with Pay as You Earn (PAYE) income who will be required to pay more of their forecast Self-Assessment liabilities in-year through PAYE from April 2029, and by reforming Payments on Account. The changes are designed to help reduce tax debt and avoid taxpayers having to pay larger, infrequent and sometimes unexpected bills.

Indirect tax and customs announcements

Call for evidence on Customs Modernisation

The Government has published a call for evidence to capture industry views on trade digitalisation and the opportunities and challenges this poses for the future of the UK customs regime. The call for evidence closes on 15 September 2026.

Digitalisation and AI Customs Pilots

Building on successful pilots with trade and US Customs and Border Protection, the Government will test and scale innovations in the customs system. This includes design and delivery of services allowing HMRC to process Electronic Trade Documents for customs applications and participating in the next phase of the Department for Business and Trade’s Digital Trade Corridors programme. These initiatives will support businesses to adopt fully digitalised trade. HMRC will also test how AI can support customs caseworkers to complete real-time border documentary checks, improving border flow and strengthening compliance.

E-invoicing: core interoperability network announcement

The Government has announced that the electronic procurement system Peppol will be the core interoperability network for e-invoicing in the UK. This will give software developers and taxpayers an indication of the direction of travel for the Government’s work towards the e-invoicing mandate in 2029, enabling them to begin planning their product development and rollout of e-invoicing. 

Other measures of note

Other measures of note in the release include announcements to improve compliance, including introducing a criminal offence for making reckless untrue statements or declarations in direct tax, extending direct debt recovery powers and paying VAT and PAYE liabilities by direct debit. The Government also published a summary of responses to the consultation on Land Remediation Relief which closed in September 2025.

Also included in the package, was details of a consultation that was launched on 10 June 2026 on proposals to mitigate double taxation for UK resident individuals who are members of reverse hybrids, such as US LLCs. More details on this consultation can be found in this edition’s Other news in brief.

Next steps

Taxpayers should review the entire package of announcements, identify those that will impact them and prioritise engaging with the Government on open consultations and calls for evidence.

For further information please contact:

• Sharon Baynham
• Stefanie Redmond