Self-Assessment Simplified: A UK Beginner's 2026 Walkthrough For Tax Success
- MAZ
- 7 minutes ago
- 19 min read
Understanding Your 2026 Self-Assessment: Where Most People Go Wrong and How to Get It Right
A Tax Year Full of Small Changes with Big Consequences
Picture this: you’re staring at your payslip, calculator in hand, wondering whether HMRC owes you money—or whether you owe them. You’re not alone. According to HMRC data, over 12 million taxpayers will complete a Self Assessment for the 2025/26 tax year (ending 5 April 2026), yet around one in five will make avoidable errors—often because they misunderstand how income, allowances, or losses work together.
Now, with the 2025 Budget freezing personal allowances again and tightening dividend and capital gains exemptions, even small miscalculations can mean hundreds lost in refunds—or extra bills you didn’t expect. So, let’s make this clear and simple.
In my 18 years as a tax accountant, I’ve seen every kind of error imaginable—from missed employment benefits to forgotten savings income. But most of these mistakes can be avoided with a bit of structure, a clear plan, and an understanding of how your income actually fits into HMRC’s system.
The Backbone of Your 2026 Return: Knowing What HMRC Already Knows
The Power of the Personal Tax Account
If you’ve never logged into your Personal Tax Account, make that your first step. It’s essentially your digital tax file. It shows your tax code, income reported by employers or pension providers, and sometimes even your estimated refund or bill.
Think of your tax code like a postcode for your income—it directs HMRC to where your allowances and deductions apply. If the postcode’s wrong, your money goes astray.
Step-by-Step: Verifying What’s Pre-Filled
Log in to your personal tax account using your Government Gateway ID.
Check your employment income – does it match your payslips or P60?
Look for extra sources – savings interest, dividends, rental income.
Review your tax code – for 2025/26, the standard code is 1257L, representing the £12,570 personal allowance.
If you have multiple jobs, the secondary employment may have a code starting with “BR” (Basic Rate). Be careful here—HMRC often allocates your entire allowance to one job, leaving the second taxed at 20% throughout. I’ve seen countless clients overpay because of this.
Your 2025/26 Income Tax Bands and What They Mean
Here’s the backbone of the system as it stands for England, Wales, and Northern Ireland:
Band | Taxable Income | Tax Rate | Typical Example |
Personal Allowance | Up to £12,570 | 0% | Tax-free threshold |
Basic Rate | £12,571–£50,270 | 20% | Most employees fall here |
Higher Rate | £50,271–£125,140 | 40% | Mid-to-high earners |
Additional Rate | Over £125,140 | 45% | High-income professionals |
(According to HMRC’s 2025/26 published thresholds)
Now, if you’re in Scotland, the picture changes with up to six tax bands ranging from 19% to 48%. A good rule of thumb? Always check which government collects your tax—based on your main residence, not where you work.
Spotting Overpayments: When You’ve Paid Too Much
Common Signs of Overpaid Tax
None of us loves tax surprises, but here’s how to spot them early:
● Job changes mid-year – your new employer might have used an emergency code.
● Multiple jobs – secondary income taxed at 20% without allowances.
● Fluctuating income – common for freelancers or contractors.
● Student loan repayments – sometimes deducted when earnings dip below thresholds.
I once helped a client, Sarah from Manchester, who discovered £780 in overpaid tax because her employer applied a temporary code when she switched roles. A quick cross-check between her payslips and her HMRC account exposed it immediately.
Step-by-Step: Calculating Your Income Tax Manually
Now, let’s demystify the maths. Take a basic example.
Example: Employee with £45,000 salary and £1,000 in dividends
Income Source | Amount | Tax Treatment |
Salary | £45,000 | Standard PAYE |
Dividends | £1,000 | £500 tax-free allowance, £500 taxable at 8.75% |
Calculation:
Taxable income = £45,000 – £12,570 = £32,430 (taxed at 20%)
Income tax on salary = £32,430 × 20% = £6,486
Dividend tax = £500 × 8.75% = £43.75
Total tax due = £6,529.75
This small exercise can help you verify whether your HMRC summary looks right. If your numbers are off, it’s time to dig deeper.
When Losses Turn into Opportunities
Understanding Loss Relief
Here’s where many new filers miss out. If you’ve made a loss—say, from self-employment or a rental property—you can often offset it against other income. For instance, if your freelance graphic design business lost £2,000 but you earned £30,000 in employment, that loss can reduce your taxable income to £28,000.
Example:Employment income: £30,000Self-employment loss: £2,000Taxable income: £28,000 → saves £400 (20% of £2,000)
That’s not trivial—and if you’ve carried losses forward, those can reduce future profits too. Always record them clearly on your Self Assessment form (Boxes 32–33 on the self-employment section).
Checklist: The Must-Do Pre-Submission Review
Here’s my professional pre-filing checklist that I give every new client each January:
Step | What to Check | Why It Matters |
1 | All income sources listed (employment, self-employment, dividends, rent) | HMRC cross-checks data from multiple sources |
2 | Review P60/P45 and payslips | Ensures accuracy against PAYE data |
3 | Update benefits or expense claims | Mileage, uniform, or professional fees |
4 | Double-check tax code on all jobs | Prevents under/overpayment |
5 | Record business losses correctly | To claim relief in current or future years |
6 | Review savings/dividends | Low allowances now mean small amounts are taxable |
7 | Confirm NI contributions posted | Especially self-employed with Class 4 NI |
8 | Save submission proof | HMRC confirmation screen or PDF copy |
If you tick each of these, you’re already ahead of most taxpayers.
Why 2026 Is the Year to Rethink Your Self-Assessment
Let’s be honest—tax planning often takes a backseat until the filing deadline looms. But the 2025 Budget changed the game subtly. With the dividend allowance down to £500, capital gains exemption just £3,000, and frozen income thresholds, more people will cross into higher bands without a pay rise—what economists call “fiscal drag.”
As an adviser, I tell clients: don’t wait until January to find out what you owe.Check your position mid-year, especially if you’re self-employed or earning from multiple sources. It’s much easier to plan deductions or time income before 5 April than to correct an error afterward.
Case Study: The Freelancer with Two Hats
Now, let’s think about your situation—say you’re self-employed part-time but also have a PAYE role.
Take James, a web developer from Bristol. He earns £32,000 from his day job and £10,000 from freelance projects.
● Employment income: £32,000
● Self-employment profit: £10,000
● Total income: £42,000
Because his PAYE income uses his full personal allowance, all freelance income is taxable at 20%. But James can deduct business expenses (software, broadband, part of his workspace) to reduce that £10,000 profit. He also pays Class 4 NI (9%) on the same £10,000.
This blend of PAYE and self-employment is one of the most common—and most confusing—Self Assessment scenarios today.
From Side Hustles to Smart Savings – How to Optimise Your 2026 Tax Return (and Keep HMRC Happy)
Why Most Taxpayers Miss Out on Legitimate Deductions
Let’s be honest—no one enjoys paying more tax than necessary. Yet every January, I see clients across the UK hand HMRC hundreds of pounds they didn’t need to, simply because they didn’t claim what they were entitled to.
Sometimes it’s out of fear (“I don’t want to get it wrong”), sometimes it’s confusion (“I thought I wasn’t allowed to claim that”), and sometimes it’s just down to poor record-keeping. But here’s the truth: if you’re careful and keep evidence, the tax system rewards those who plan smartly.
Whether you’re an employee, a self-employed creative, or running a small limited company, there are legal, fair ways to make your money go further.
Employees: What You Can Still Claim in 2026 - Work Expenses You Might Have Overlooked
If you’re on PAYE and think you can’t claim anything, think again. You might not be eligible for as many deductions as the self-employed, but there are still areas where tax relief applies.
Here are common items that employees can still claim relief for in 2026 (via the HMRC expenses portal):
Expense Type | Example | What You Can Claim |
Professional Fees & Subscriptions | Union fees, professional body (e.g. ACCA, NMC) | 100% deductible if required for your job |
Uniforms & Protective Clothing | Nurses, construction, retail uniforms | Flat-rate allowance or actual costs |
Mileage for Business Travel | Using your own car for work trips | 45p per mile (first 10,000 miles) |
Home Working Costs | For hybrid workers | £6/week without evidence, or actual costs if reasonable |
Tools & Equipment | Mechanics, engineers, artists | Cost of replacement or cleaning |
Charity Donations | Payroll Giving or Gift Aid | Increases basic-rate band threshold |
Pro Tip: Don’t forget that claiming even £100 in valid work expenses could mean up to £20 back in your pocket (if you’re a basic-rate taxpayer).
The Self-Employed: The Art of Deducting Smartly
Knowing the Line Between “Personal” and “Business”
Now, let’s think about your situation—if you’re self-employed, your expenses are the beating heart of your tax strategy. But HMRC is very clear: only costs incurred “wholly and exclusively” for business purposes are deductible.
It sounds straightforward, yet this is where many taxpayers go astray. I once had a client—a photographer—who tried to deduct his Netflix subscription as a “creative research expense.” Clever argument, but HMRC didn’t buy it.
Key Deductible Categories for 2026
Category | Example Expenses | Common Mistake |
Home Office | Rent proportion, heating, electricity, broadband | Claiming for entire rent, not proportion used for business |
Travel | Mileage, parking, train tickets | Claiming home-to-work commute (not allowed) |
Equipment | Computers, cameras, phones | Forgetting capital allowances for items lasting over 2 years |
Marketing | Website, online ads, printing | Missing digital subscriptions (e.g. Canva, domain costs) |
Training | Skill upgrades for existing trade | Claiming for entirely new career training (not allowed) |
Subcontractors | Freelancers you hire | Missing CIS paperwork for construction industry |
Capital Allowances Refresher (2025/26)
If you buy larger assets—like laptops or vans—you can often claim the Annual Investment Allowance (AIA) up to £1 million, meaning 100% deduction in the year of purchase.
However, don’t overlook writing down allowances for assets you keep long-term. For example:
● Computers, machinery: 18% rate
● Cars: 6% (or 100% if electric and CO₂ <50g/km)
Case Study: How Jake the Joiner Saved £1,200
Take Jake, a self-employed joiner from Birmingham. In 2025/26, he made £40,000 in income and spent £8,000 on materials, insurance, and a new van.
● Income: £40,000
● Expenses: £8,000
● Taxable profit: £32,000
He also claimed full AIA on the van (£5,000), dropping taxable profit to £27,000.
Tax saving:£5,000 × 20% = £1,000 in income tax + £5,000 × 9% = £450 NI saved.That’s £1,450 total—almost the cost of his annual insurance premium.
Business Owners: Dividends, Salaries, and Smart Structuring
Balancing Your Pay in 2026
If you operate a limited company, 2026 brings extra complexity. With the dividend allowance reduced to £500, planning your mix of salary and dividends is more important than ever.
Here’s a quick comparison for the 2025/26 tax year (assuming standard tax bands):
Income Type | Tax-Free Allowance | Basic Rate | Higher Rate | Additional Rate |
Salary | £12,570 | 20% | 40% | 45% |
Dividend | £500 | 8.75% | 33.75% | 39.35% |
A popular structure is taking a salary up to the NIC threshold (£12,570) and the rest as dividends—maximising tax efficiency while preserving state pension contributions.
Watch Out for the “High-Income Child Benefit Charge”
The High-Income Child Benefit Charge (HICBC) threshold now starts at £60,000. For every £200 over that, you lose 1% of your benefit—gone entirely at £80,000.
This often catches company directors who take large dividends late in the year. If you’re near the limit, consider deferring dividend declarations until the next tax year or using employer pension contributions to stay below the threshold.
Multiple Income Streams: Avoiding the Overlap Trap
Why Side Hustles Cause Hidden Tax Bills
In my years advising clients in London and Bristol, I’ve noticed a sharp rise in side hustles—freelance design, Etsy stores, tutoring, delivery gigs. But most people underestimate how these combine with PAYE income.
If you earn £28,000 in your job and £5,000 from freelancing, HMRC doesn’t treat that freelance income separately—it’s added to your total. So if your main job already uses your full personal allowance, that £5,000 is fully taxable at 20%.
To stay ahead:
● Keep separate records for each income source.
● Consider opening a dedicated business bank account.
● Use accounting software (FreeAgent, QuickBooks, or HMRC’s own tools) to track profit.
The Gig Worker’s Rule of Thumb
If you earn under £1,000 from self-employment in a tax year, you’re covered by the Trading Allowance—no need to register or file a return for that income. But if you go above £1,000 even by £1, you must register with HMRC.
National Insurance in 2026: Simplified, but Still Critical
What Changed
From April 2025, the government abolished Class 2 National Insurance—good news for the self-employed. But that doesn’t mean you stop paying NI entirely.
Here’s what applies for 2025/26:
Type | Applies To | Threshold | Rate |
Class 1 | Employees | £12,570–£50,270 | 12% (2% above) |
Class 4 | Self-employed profits | £12,570–£50,270 | 9% (2% above) |
Class 2 | Abolished | N/A | N/A |
NI Credits Reminder:If your profits exceed £6,725, you’ll still receive National Insurance credits, protecting your entitlement to State Pension and benefits, even if you don’t pay Class 2 directly.
Practical Worksheet: Estimate Your 2026 Tax Liability
Use this worksheet to get a ballpark figure for your tax planning (simplified for personal guidance):
Step | Detail | Example |
1 | Add all income (salary, freelance, dividends) | £45,000 |
2 | Subtract Personal Allowance | £12,570 |
3 | Add taxable dividends (above £500) | +£500 |
4 | Calculate basic-rate tax (20%) | £33,000 × 20% = £6,600 |
5 | Add dividend tax | £500 × 8.75% = £43.75 |
6 | Add Class 4 NI (if self-employed) | £10,000 × 9% = £900 |
7 | Total Tax Due Estimate | £7,543.75 |
Keep this updated throughout the year—especially before the 31 January 2027 Self Assessment deadline.
Looking Ahead: Making Tax Digital (MTD) for 2026
What It Means for You
Starting April 2026, all self-employed individuals and landlords earning over £50,000 must keep digital records and send quarterly updates to HMRC via compatible software.
Final Checks, Hidden Pitfalls, and Turning Tax Losses into Strategic Wins for 2026
Why Accuracy Is Everything When Submitting Your Return
Picture this: it’s late January, you’ve finally finished your tax return, and you click “Submit” with relief—only to find an HMRC letter in March saying you’ve underpaid.
It happens far too often. In 2025 alone, HMRC estimated that over 3 million Self Assessment returns had errors or omissions, leading to either penalties or delayed refunds. In my experience, nine out of ten of these issues could have been avoided with a proper verification process.
Let’s walk through how to check every figure before pressing “submit” so your 2026 return is clean, compliant, and stress-free.
How to Double-Check Your Income Details Before Filing
1. Verify PAYE Income (for Employees and Directors)
Start with your P60 (for annual totals) or P45 (if you left mid-year). These show total pay and tax deducted. Compare those numbers to what appears in your Personal Tax Account at www.gov.uk/personal-tax-account.
Red Flag: If your P60 tax total doesn’t match HMRC’s figure, it could be due to a temporary or emergency tax code. This is especially common for people with new jobs, multiple employers, or who started freelancing mid-year.
In such cases, file a Tax Code Correction Request before submitting your Self Assessment. It could save you from being overtaxed twice.
2. Confirm Self-Employment Income and Expenses
For self-employed individuals, review:
● Invoices issued but unpaid (you’re taxed on when earned, not received).
● Business bank statements to spot missing or duplicate entries.
● Expense categories to ensure no personal costs slip through (like food that isn’t travel-related).
Be careful here: I once saw a client accidentally include both his QuickBooks total and a manual spreadsheet figure—doubling his turnover. HMRC doesn’t take pity on spreadsheet slip-ups.
3. Check Dividend and Investment Income
For company directors or investors, cross-check:
● Dividend vouchers (or company statements)
● Bank account credits
● Any interest from savings (yes, even small ones)
Remember: basic-rate taxpayers can still enjoy the £1,000 savings allowance, but higher-rate taxpayers get only £500. It’s easy to forget if your side business nudges you into a new bracket.
Spotting and Reporting Common Overpayments
Why You Might Have Overpaid
There are several situations that often cause overpayments:
● Changed jobs mid-year with overlapping tax codes.
● Paid emergency tax (often “1257L W1” or “M1”).
● Incorrect benefit-in-kind reporting (like company cars or health insurance).
● Self-employed paid “payments on account” too high because of a one-off profit spike last year.
To claim a refund, visit www.gov.uk/claim-tax-refund. Most online refunds arrive within five working days.
Tip from experience: Always cross-check your tax summary before spending that refund—if HMRC later revises your figures, they can reclaim it.
How to Turn Losses into a Tax Advantage - Understanding Loss Relief
None of us love losses—but handled properly, they can work in your favour.
If your business or side hustle made a loss, don’t just shrug it off. Under HMRC rules, trading losses can be carried forward or back to reduce your tax bill.
Here’s how it works:
Type of Loss | How You Can Use It | Example |
Current Year | Offset against other income | You lost £3,000 freelancing but earned £30,000 PAYE → Claim reduces taxable income to £27,000 |
Carry Forward | Offset against future profits | You lost £5,000 this year → Next year’s £20,000 profit only taxed on £15,000 |
Carry Back | For new businesses (within 4 years) | Claim refund from previous PAYE tax |
Case Example:Emma, a freelance designer, made a £4,500 loss in 2025/26 but had PAYE income of £32,000. By offsetting the loss, she reduced taxable income to £27,500—saving £900 in tax and £405 in Class 4 NIC.
Capital Gains: Navigating the 2026 Rules
2025/26 Changes at a Glance
As of April 2025:
● Annual exempt amount reduced to £3,000 (previously £6,000).
● Basic-rate taxpayers pay 10%, higher-rate pay 20% (28% for property).
This means even small asset sales can now trigger a gain. If you sold shares, crypto, or property in 2025/26, you must declare it if your total proceeds exceed £50,000, even if the gain itself is below £3,000.
Example: Small Gain, Big Implication
Let’s say Sam from Cardiff sold a second property:
● Purchase price: £180,000
● Sale price: £260,000
● Gain: £80,000
● After fees (£5,000) and allowance (£3,000): Taxable £72,000
If Sam’s a higher-rate taxpayer:
● £72,000 × 28% = £20,160 capital gains tax.
If he had transferred half the property to his spouse before selling, the tax could have halved, using both allowances.
Lesson: Always review ownership and timing before selling assets. I’ve seen clients save five figures by adjusting ownership months before a sale.
Scottish and Welsh Tax Variations for 2025/26 - Scotland’s Distinct Bands
Scotland continues to use different rates for earned income:
Band | Range | Rate |
Starter | £12,571–£14,876 | 19% |
Basic | £14,877–£26,561 | 20% |
Intermediate | £26,562–£43,662 | 21% |
Higher | £43,663–£75,000 | 42% |
Advanced | £75,001–£125,140 | 45% |
Top | Over £125,140 | 48% |
Meanwhile, Wales mirrors England’s system—at least for now—but watch for potential devolution updates after the 2026 budget review.
My advice: If you live or work across borders (say, in Berwick or Chester), check which government receives your income tax. HMRC allocates this based on your main place of residence, not your employer’s location.
High-Income Traps: The £100k and £125k Margins
If you earn over £100,000, your personal allowance tapers by £1 for every £2 of income—completely gone at £125,140.
That means an effective tax rate of 60% between £100,000 and £125,140.
Smart move:
● Contribute to your pension.
● Make Gift Aid donations.
● Delay bonuses or dividends until the next tax year.
These simple timing moves can reclaim your personal allowance and save thousands.
Avoiding Late Filing and Payment Penalties
Deadlines to Remember for the 2025/26 Tax Year
Task | Deadline | Penalty for Missing |
Register for Self Assessment | 5 October 2026 | Possible late notice |
Submit online return | 31 January 2027 | £100 fixed, then £10/day (max £900) |
Pay tax due | 31 January 2027 | 5% surcharge if unpaid after 30 days |
Second payment on account | 31 July 2027 | Interest accrues |
Pro Tip: Even if you can’t pay on time, still submit your return—penalties for non-filing are harsher than for non-payment. Then set up a Time to Pay Arrangement through your HMRC account.
Before You Hit “Submit”: Your Final Tax Return Checklist
Use this short checklist to avoid the most common HMRC triggers:
Checkpoint | Why It Matters |
All income sources declared (PAYE, freelance, dividends, interest) | HMRC’s data-matching flags missing income |
Bank and investment interest verified | Commonly omitted by taxpayers |
Expenses supported by receipts | HMRC can ask for evidence up to 6 years later |
Pension and charity contributions logged | Can reduce taxable income |
Trading losses applied correctly | Prevents overpayment |
Payment on account calculated | Avoids surprise July bills |
NI credits confirmed | Secures State Pension record |
Return reviewed by a second pair of eyes | Mistakes often spotted by someone else |
Honestly, this final review step is where I’ve seen clients recover the most. The difference between a “rushed” return and a “reviewed” one is often several hundred pounds.
Reflecting on Tax Confidence for 2026
When I first started in practice nearly two decades ago, Self Assessment felt intimidating even for professionals. But today, with digital tools and real-time data from HMRC, it’s never been easier to take control of your taxes—provided you stay proactive.
None of us loves tax surprises, but knowledge is your best defence. Treat your Self Assessment not as an obligation, but as an annual financial health check.
And remember, whether you’re an employee with side income or a seasoned business owner, the 2026 tax year is about balance: being diligent, being smart, and being fair—to yourself and the system.
Summary of Key Points
Verify every income source—from PAYE to side gigs—before submission to prevent underpayment notices.
Track expenses throughout the year using digital tools; HMRC prefers consistent, verifiable records.
Self-employed individuals should distinguish personal from business costs and claim proportionately.
Claim capital allowances strategically—especially on vehicles, IT, and equipment.
Offset trading losses against other income or future profits to cut tax bills.
Understand capital gains thresholds—£3,000 exemption and stricter reporting rules apply in 2026.
Review dividend strategy—£500 allowance means tighter planning for company directors.
Mind regional tax differences—Scottish rates diverge significantly from England and Wales.
File before the 31 January deadline—late returns cost more than late payments.
Use HMRC’s personal tax account to verify tax codes, payments on account, and refunds year-round.
FAQs
Q1: Can someone change their tax code if it’s incorrect during the tax year?
Well, yes — and you should do it as soon as you spot the error. If your tax code’s wrong, you might be paying too much or too little through PAYE. Log in to your HMRC Personal Tax Account and check what income and benefits your code is based on. In my experience, many people discover their code still includes an old company car or outdated benefit. Correcting it mid-year prevents end-of-year adjustments and refunds taking months.
Q2: What happens if someone has two PAYE jobs and both use the full personal allowance?
This is one of the most common traps I see. If both jobs use the £12,570 allowance, HMRC assumes you’re earning that twice — which means underpaid tax at year-end. The fix is simple: keep the full allowance on your main job (code 1257L) and request an “BR” (basic rate) code on the second. Otherwise, expect a brown envelope from HMRC come spring.
Q3: How can a taxpayer check if they’ve overpaid income tax without waiting for HMRC to contact them?
It’s worth logging into your Personal Tax Account and reviewing the “Tax Year Overview.” Compare the tax deducted on your P60s and payslips with the expected liability for your total income. In practice, many of my PAYE clients find small overpayments because of job changes or short-term benefits. You can claim a refund online; it usually lands in your bank within a week if HMRC agrees.
Q4: If someone works remotely across England and Scotland, which tax rates apply?
It depends on where you live — not where your employer is based. So, if you’re living in Edinburgh but working for a London firm, you’ll pay Scottish rates. I’ve seen people move north and forget to update HMRC, leaving them on the wrong tax regime for months. Always update your address on your Personal Tax Account so the right regional system applies.
Q5: Can someone claim tax relief for working-from-home expenses if they’re hybrid workers now?
For 2025–26, HMRC still allows a flat £6 per week for home working, but only if your employer requires it — not if it’s your choice. In my experience, many hybrid workers trip up here. If you’re choosing to work from home some days, you can’t claim the allowance unless you can prove employer necessity. However, you can still claim direct business costs like phone bills or extra broadband, proportionally.
Q6: How should gig economy workers handle taxes if they earn from multiple platforms?
Treat each platform (Uber, Deliveroo, Etsy, etc.) as part of one self-employment. Combine income and claim expenses once. The key is to keep proper records — I’ve seen drivers in Manchester forget to include small app bonuses or cash tips, leading to mismatched totals with HMRC’s data feed. The safest route is using one business account and logging income daily.
Q7: What’s the best way for self-employed people to budget for their tax bill throughout the year?
I tell clients to follow the “Quarterly Three” method: every three months, total up income, set aside 25%–30% in a separate savings account, and review your expected bill. For those who tend to spend what’s in their current account, automating this transfer is a lifesaver. That 30% cushion usually covers income tax and National Insurance comfortably — even if profits vary.
Q8: Can small business owners offset business losses against previous years’ PAYE income?
Yes, if the business is genuinely trading with intent to profit. If you’ve left employment to start a consultancy, for example, you can often carry early-year losses back up to four years to recover PAYE tax. I helped a client in Bristol claim a £2,400 refund this way after their start-up’s first-year loss. But be careful — HMRC will question claims that look like hobbies or passive side projects.
Q9: How does someone know if their side hustle needs to be reported to HMRC?
If you make more than £1,000 in total sales or earnings, you must register for Self Assessment. Many Etsy or Depop sellers assume it’s just “pocket money,” but once you pass that threshold, HMRC expects a return. If you’re under £1,000, you’re covered by the trading allowance — no need to report it. Think of it as a de minimis limit for casual earners.
Q10: Can dividends still be a tax-efficient way to pay yourself in 2026?
They can, but not as much as before. With the dividend allowance cut to £500, directors need to plan distributions carefully. For many of my clients, a blend of salary (around £12,570) and dividends up to the basic-rate band still works best. But once you cross £50,270, the tax gap narrows. I now advise some clients to consider employer pension contributions instead — they’re often cleaner and more efficient.
Q11: What happens if a taxpayer misses the 31 January Self Assessment deadline but pays within a week?
Unfortunately, even one day late triggers the £100 penalty. But if you have a genuine excuse — say, illness or HMRC portal downtime — you can appeal. In my experience, appeals succeed about half the time if evidence is solid. Always submit the return first, then file an appeal; HMRC won’t consider excuses without a return in place.
Q12: Can someone still correct a Self Assessment after it’s been submitted?
Yes, absolutely. You can amend a submitted return within 12 months of the filing deadline. Say you forgot to include £500 of savings interest — log back into your HMRC account, select “Amend Return,” and resubmit. I once had a client correct a return three weeks after submission and receive a £700 refund within days. Corrections are normal; HMRC prefers accuracy over perfection.
Q13: How should a taxpayer handle underpayments caused by an emergency tax code?
If you’ve been on an emergency code like “1257L W1” or “M1,” you’ve likely paid too much tax. Once HMRC updates your code, they usually refund automatically through payroll. If it’s late in the tax year, it may instead show as an overpayment in your Self Assessment. Either way, keep your P60 and payslips — they’re your proof if HMRC’s numbers don’t add up later.
Q14: Are pension contributions still an effective way to reduce taxable income in 2026?
Definitely. Contributions to a registered pension scheme extend your basic-rate band, effectively lowering your income tax. For example, if you earn £60,000 and put £5,000 into your pension, you may drop below the high-income child benefit threshold and save hundreds. In practice, this remains one of the most legitimate and overlooked tax planning tools.
Q15: Can someone claim mileage if they use both a personal and company car?
It depends who owns the car. If your company provides it, mileage claims are limited to fuel reimbursement rates (around 14p per mile). But if it’s your own car, you can still claim the full HMRC rate — 45p per mile for the first 10,000 miles. I’ve seen directors accidentally double-claim, which HMRC views as a benefit-in-kind issue. Keep logs and know which car each journey applies to.
About the Author
Maz Zaheer, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants, two premier UK tax advisory firms. With over 15 years of expertise in UK taxation, Maz provides authoritative guidance to individuals, SMEs, and corporations on complex tax issues. As a Tax Accountant and an accomplished tax writer, he is renowned for breaking down intricate tax concepts into clear, accessible content. His insights equip UK taxpayers with the knowledge and confidence to manage their financial obligations effectively.
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