Tax update from HMRC announced

The government has announced a package of tax measures and consultations aimed at improving simplicity and fairness.

The UK Government’s Tax update 2026: simplification, modernisation and fairness published on 23 June 2026, sets out a wide-ranging package of measures aimed at reducing administrative burdens, improving compliance, and enhancing fairness across the tax system. Some of the measures, however, may add some further complexity.

Below, we summarise the key announcements and consider their practical implications for advisers and businesses.

Digitalisation of tax administration

A core theme of the announcements is digital transformation, which aligns with HMRC’s Transformation Roadmap. These include:

• New digital channels for VAT option to tax notifications replacing paper processes.
• Exploration of supplementary VAT data usage from digital accounting systems.
• Progression towards mandatory e-invoicing, with Peppol confirmed as the interoperability network.

Quarterly Instalment Payments (QIPs) reform

From April 2027, R&D and other expenditure credits will be excluded from augmented profits for QIP thresholds, preventing businesses from entering instalment regimes solely due to these credits.

This change will help alleviate cashflow pressures and administrative burdens, particularly for innovation-driven companies.

ISA reform

Following on from the announcement at the 2025 Budget that from April 2027, the Cash ISA allowance would be restricted to £12,000, there were several anti-avoidance rules announced. These include:

• 22% flat-rate charge on any interest paid on cash held in a non-Cash ISA.
• Non-cash ISAs containing 100% cash-like assets (money market funds) will be non-qualifying investments.
• Transfers from non-cash ISAs into cash ISAs will not be permitted.
• For those aged 65 and over, a higher cash ISA limit of £20,000 will apply and transfers from non-cash ISAs to cash ISAs will be permitted. However, the prohibition on 100% cash-like investments and the 22% tax on interest earned from cash held in non-cash ISAs will still apply.

Capital Gains Tax reform

The government has published draft legislation to modernise CGT gift holdover relief for business assets, addressing distortions arising from historical interactions with other regimes such as Substantial Shareholding Exemption (SSE).

Assets that qualify for SSE or are subject to the intangible fixed asset regime will now be included in the formula which restricts the amount of gift holdover relief.

Consultations

Alongside these simplification and modernisation announcements, there were also several consultations announced. ICAS will be responding to several of these and would welcome input from members.

VAT and social housing

A notable consultation proposes a new zero rate of VAT for land supplied for social housing development, designed to remove barriers to construction and support housing supply.

If implemented, this could improve project viability for developers and housing associations by simplifying the current rules for zero rating based on the ‘golden brick’ measure.

Timing of tax payments

The government is consulting on more timely payments under Income Tax Self Assessment (ITSA), including:

• In-year collection through PAYE for taxpayers with mixed PAYE and ITSA income from April 2029.
• Potential reform of Payments on Account arrangements, with a proposed move to more regular, in-year payments.

This represents a fundamental policy shift, smoothing cashflow for HMRC but requiring taxpayers to adjust to more frequent payments. This may have practical difficulties in aligning tax payments with the flow of ITSA income and for employers and payroll operators in administering ITSA income through payroll.

VAT and online marketplaces

The government is consulting on extending VAT liability rules for online marketplaces to UK-based sellers, addressing competitive distortions. This levels the playing field between domestic and overseas sellers but may increase compliance obligations for platforms.

Modernising the distributions framework

This consultation will look at the rules on whether a payment to a non-corporate shareholder falls into the distributions regime.

Having not been fully reviewed since 1965, this offers the chance to assess whether the rules are operating as intended in today’s corporate and legal environment.

Mandatory payments by Direct Debit

Consultation on requiring VAT and PAYE liabilities to be paid by Direct Debit reflects a broader push towards automation and with the aim of reducing late payment.

Tackling lower value debts

This consultation is proposing to extend existing powers for collecting lower value tax debts. This would allow HMRC to collect debts directly from taxpayers bank accounts while ensuring there are safeguards for those who cannot pay.

Key challenges

For practitioners, the key challenge will be navigating a period of transition, depending on the outcomes of the consultations.

While some proposals may provide long-term efficiency gains and rectify long-standing issues, the short-term impact will include increased complexity, consultation activity, and system change.

Other measures may not deliver the promised simplicity and modernisation but only add to the additional complexity.

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