Strategies for minimising IHT liabilities.

Inheritance tax (IHT) in the United Kingdom applies to the transfer of wealth after death. It can affect property, savings, investments, and other assets. Although it applies to a smaller portion of estates, those crossing certain value limits may face a 40% tax charge on amounts above available allowances. Thresholds have been frozen for several years, so rising asset prices can bring more families into scope.

This guide reviews the 2025/26 allowances, rates, and reliefs and outlines legal provisions under HMRC regulations. It offers factual, compliance-based guidance for individuals and families who wish to manage their affairs effectively.

Current thresholds and rates

• Nil-rate band (NRB): £325,000 per individual. This level has not changed for several years and remains frozen for 2025/26. Estates valued below £325,000 pay no IHT. Amounts above this threshold are generally taxed at 40%.
• Residence nil-rate band (RNRB): £175,000 per individual, available when a home is left to direct descendants (children, stepchildren, adopted children, or grandchildren). If the RNRB applies, it can raise a person’s overall tax-free allowance to £500,000 (i.e. £325,000 plus £175,000).
• Taper for RNRB: If the total estate exceeds £2 million, the RNRB is withdrawn by £1 for every £2 above £2m. High-value estates may lose some or all of the £175,000 allowance.
• Spouse and civil partner exemption: Transfers between spouses or civil partners are exempt from IHT, regardless of amount. The first spouse’s unused NRB can pass to the survivor. This can double allowances to £650,000 (2 × £325,000) or up to £1m (2 × £500,000) if the RNRB is fully used.
• Rate of tax: The standard rate is 40% on any value above the available allowances. This can drop to 36% if you leave at least 10% of your net estate to charity.

These thresholds are set to remain in place until at least April 2030. Since property and investment values continue to rise, individuals who might not previously have worried about IHT may now need planning advice.

Lifetime gifts and exemptions

A common way to lower IHT liability is to pass on assets while still alive. Some gifts are instantly exempt, while others become exempt over time:

Annual gift exemption

• Each individual can give away up to £3,000 per tax year free of IHT. This amount can go to one person or be split among several recipients.
• If the full £3,000 exemption goes unused in a particular tax year, it can carry forward one year (up to £6,000 maximum). After that, any unused portion expires.

Small gifts exemption

• You can give any number of gifts up to £250 per recipient each tax year, and these are immediately exempt as long as no other exemption is used for the same person that year.
• This applies well to small, customary presents for special occasions.

Wedding or civil partnership gifts

• Gifts made on the occasion of a marriage or civil partnership are exempt up to certain limits: £5,000 for a child, £2,500 for a grandchild, and £1,000 for anyone else.
• You can combine this exemption with the £3,000 annual exemption.

Regular gifts out of income

• If you have surplus income, you can set up a pattern of gifts from after-tax income without affecting your normal standard of living. These are free of IHT immediately.
• Proper documentation is important: your executors should be able to show that the gifts came from income and did not erode your capital.

Potentially exempt transfers (PETs) and the seven-year rule

• Gifts above the specific exemptions above are known as PETs. They incur no IHT if the donor survives for seven years.
• If the donor dies within seven years, the gift may be added back into the estate, potentially creating a tax liability. However, taper relief can reduce the IHT rate on that gift if death occurs more than three years after the donation.

Gift with reservation of benefit

• You cannot keep using or benefiting from an asset you have supposedly “gifted.” For instance, giving a house to children but continuing to live there without paying market rent would not remove the property from your estate for IHT.
• The gift must be genuine and unconditional for it to leave your estate.

By making gifts early and consistently, an individual can reduce the size of their taxable estate. The seven-year window for larger transfers (PETs) is important to keep in mind. Good record-keeping is essential for executors to show HMRC the timing and nature of any gifts.

Trusts

Trusts can provide a structured way to transfer or protect assets. Different trust types follow specific IHT and tax rules:

Bare trusts

• A bare trust gives the beneficiary an immediate, absolute right to the assets. It is often used for minors until they reach adulthood.
• For IHT, putting assets in a bare trust counts as a PET. If the donor survives seven years, the gift is fully exempt.

Discretionary trusts

• Discretionary trusts allow trustees to decide which beneficiaries receive income or capital. No beneficiary has an automatic right.
• When establishing or adding assets to a discretionary trust, any amount above your available nil-rate band can be taxed at 20% (the lifetime rate). If you die within seven years, that may rise to 40%, with credit for the 20% already paid.
• Discretionary trusts face a “periodic charge” (up to 6%) every ten years on the value above the nil-rate band, and there may be an “exit charge” of up to 6% when assets leave the trust between those anniversaries.

Will trusts

• Assets can pass into a trust when someone dies, based on the terms in their will.
• In the past, couples sometimes used nil-rate band discretionary trusts in their wills so the allowance of the first spouse was not wasted. However, since the nil-rate band can now be transferred between spouses, that is less common for the sole purpose of using the band. Trusts in wills remain helpful for more complex family arrangements or controlled distribution.

Reasons to use trusts

• They allow control over how and when beneficiaries receive assets.
• Once assets have been correctly placed in trust for long enough (and any relevant IHT on entry paid or avoided through exemptions), future growth often sits outside the settlor’s estate, which may reduce IHT in the long run.

Trusts require careful drafting and administration. Specialist advice is often advisable to ensure the trust is set up in line with current tax laws.

Business and agricultural reliefs

Certain businesses and farms benefit from substantial IHT relief, preventing a situation where heirs must sell assets to cover the tax.

Business relief (BR)

• Some or all of a trading business can be passed on free of IHT, depending on qualifying criteria.
• Ownership of an unlisted trading company or partnership interest may attract 100% relief if held for two years.
• Assets such as land or machinery personally owned but used by the business can attract 50% relief.
• Businesses that focus on investment rather than trading (e.g. property letting) usually do not qualify.
• From April 2026, BR will be capped so that only the first £1 million of qualifying business assets (or interests) benefits from the relief.

Agricultural property relief (APR)

• Aims to protect working farms. Farm property, farmhouses, and buildings used for agriculture may receive up to 100% relief, depending on ownership duration and use.
• The agricultural value of the property is exempt, but extra development value might not be covered.
• From April 2026, a cap will apply so that only the first £1 million of qualifying agricultural property benefits from full APR, with reduced relief available above that threshold.

These reliefs can significantly reduce the taxable part of a deceased’s estate by ensuring conditions are met (such as maintaining a genuine trading status or continuing active farming). Ownership time frames are key – most often, two years of ownership is required for 100% relief.

Pensions

Defined contribution pensions usually lie outside the estate for IHT purposes, making them a significant opportunity for wealth transfer:

• General treatment: Because most pension schemes are set up with discretion for trustees over death benefits, the funds are not considered part of the estate for IHT.
• Before vs. after age 75: If death occurs before 75, a nominated beneficiary may inherit pension funds tax-free (no income tax and no IHT). If death occurs after 75, the beneficiary pays income tax at their marginal rate when drawing from the inherited pot, but there is still no IHT on the fund.
• Practical approach: Many retirees choose to spend non-pension assets first, leaving the pension to grow or remain invested, as it can transfer to heirs with minimal tax consequences.
• Potential future changes: The government has indicated it may review these rules, especially from 2027 onwards, but for 2025/26, defined contribution pensions generally remain outside IHT.

By clearly nominating beneficiaries, individuals can ensure their pension passes smoothly, often free of inheritance tax. Given the freeze on other allowances, this is a popular planning tool.

Charitable donations

Leaving part of an estate to charity can reduce or remove inheritance tax on the donated sum and, in some cases, lower the rate on the rest of the estate:

Charity exemption

• Any assets left to a registered UK charity are fully exempt from IHT. This portion does not affect the nil-rate band.
• For example, leaving £50,000 to charity reduces the taxable estate by that amount.

Reduced 36% rate

• If 10% or more of the net estate (after allowances and deductions) goes to charity, the IHT rate on the remaining taxable estate is cut from 40% to 36%.
• Therefore, the effective cost of donating that 10% is partly offset by the lower tax on the rest.

Some people choose to combine these two benefits, both supporting philanthropic causes and reducing the overall tax their heirs might face.

Other strategies

Life insurance in trust

• A life insurance policy (often a whole-of-life plan) can be used to cover any IHT bill. Writing the policy in trust means the payout falls outside the estate and is paid promptly to the beneficiaries or trustees, who can then settle the tax.
• This approach does not reduce the IHT itself, but it removes the need for beneficiaries to raise cash – often a problem if most wealth is in property.

Equity release

• A homeowner can take out a lifetime mortgage to unlock cash from their property. This debt reduces the estate’s net value, and the homeowner might gift the released funds (which could be exempt if they survive seven years).
• The accumulating interest on the loan will further lower the estate’s final value. This can help reduce or avoid IHT, although it also means less equity remains for beneficiaries.

Family investment companies (FICs)

• A private company structure can allow parents to transfer shares to their children without giving them immediate control over the assets.
• Shares given to children count as potentially exempt transfers. If the parents survive seven years, the shares do not return to their estate.
• Parents typically retain voting (but low-value) shares, so future growth accrues to the children’s shares, helping to limit the parents’ taxable estate.

Wills and regular reviews

• A valid will is essential to use allowances and reliefs effectively.
• As personal or legislative circumstances change, reviewing IHT plans periodically helps to keep strategies up to date.

The value of professional guidance

While some estates remain below the IHT thresholds, many property owners now find themselves close to or over these limits. Families can mitigate or eliminate the 40% tax on amounts above the nil-rate bands by focusing on legitimate allowances, reliefs, and planning structures.

Early, informed action is the foundation of effective IHT planning. By reviewing current rules, seeking professional guidance, and monitoring any legislative changes, individuals can ensure their estate plans remain aligned with their wishes. Regular updates can help owners respond to shifts in property values, personal circumstances, and policies, allowing them to preserve more of their assets for future generations.

Regularly reviewing your inheritance tax plan can help you adapt to legislative changes and protect your assets. We’re here to help.

Unlock funding to grow your business.

Small and medium-sized enterprises (SMEs) are the backbone of the economy, comprising 99.9% of all businesses and employing a significant portion of the workforce. To support the growth and sustainability of these enterprises, the government offers a variety of grants tailored to diverse business needs. Understanding and accessing these grants can provide vital financial support, enabling SMEs to innovate, expand, and thrive.​

The importance of government grants for SMEs

Government grants are non-repayable funds allocated to businesses to achieve specific objectives, such as fostering innovation, enhancing sustainability, or stimulating regional development. For SMEs, these grants can alleviate financial constraints, reduce operational risks, and accelerate growth. Unlike loans, grants do not require repayment, making them an attractive funding source for businesses aiming to undertake new projects or expand existing operations.​

Types of government grants available

The government provides grants that cater to various business activities and sectors. Key categories include:

1. Innovation and research grants: Aimed at businesses developing new products, services, or processes. For instance, Innovate UK offers funding to support research and development (R&D) initiatives across multiple industries.​
2. Regional development grants: Designed to stimulate economic growth in specific areas. These grants often target businesses that contribute to local employment and infrastructure development.​
3. Sector-specific grants: Focused on particular industries, such as renewable energy, manufacturing, or creative arts, to encourage growth and competitiveness within those sectors.​
4. Employment and training grants: Intended to support businesses in creating jobs and providing training, thereby enhancing workforce skills and employability.​

Notable government grants for SMEs

Several prominent grants are available to SMEs in 2025:

• Innovate UK smart grants: These grants support disruptive innovations in any technology area, including science, engineering, and the arts. Eligible projects can receive funding to cover a portion of their costs, depending on their size and scope.​
• Gigabit broadband voucher scheme: This scheme aims to help SMEs upgrade their broadband connections by providing vouchers worth up to £4,500 to cover installation costs.

Eligibility criteria and application process

Each grant has specific eligibility criteria, often based on factors such as business size, sector, location, and the nature of the project. Common requirements include:

• Business size: Many grants are targeted at SMEs, typically defined as businesses with fewer than 50 employees and an annual turnover not exceeding €10 million (small), and fewer than 250 employees and an annual turnover not exceeding €50 million (medium).​
• Project type: Grants may be available for activities such as R&D, capital investment, training, or sustainability initiatives.​
• Geographical location: Some grants are region-specific, aiming to boost economic activity in particular areas.​

The application process generally involves:

1. Researching available grants: Identify grants that align with your business objectives and assess their eligibility criteria.​
2. Preparing a detailed proposal: Outline your project, objectives, expected outcomes, and how the grant will be utilised.​
3. Submitting the application: Follow the guidelines the grant-awarding body provides, ensuring all required documentation is included.​
4. Awaiting assessment: The grant provider will evaluate your application against set criteria and inform you of the outcome.​

Challenges in securing grants

While government grants offer valuable support, securing them can be challenging due to:

• High competition: Many businesses vie for limited funding, making the selection process highly competitive.​
• Complex application processes: The detailed information required can be time-consuming to compile and may necessitate professional assistance.​
• Specific eligibility requirements: Strict criteria can limit the number of businesses that qualify for specific grants.​

Despite these challenges, the potential benefits make pursuing grants worthwhile for many SMEs.​

Strengthening your grant application

With many businesses competing for limited funding, a well-prepared grant application can make all the difference. The key to success lies in demonstrating not just eligibility but also the value and impact of the project. SMEs should ensure their applications are clear, well-structured, and backed by evidence. This means detailing how the grant will be used, providing realistic financial forecasts, and outlining measurable outcomes. Funders seek projects which align with their objectives, whether fostering innovation, job creation, or sustainability improvements. Tailoring an application to highlight these factors will increase its chances of approval.

Timing is another important factor. Many grants operate on specific funding rounds with set deadlines, so planning ahead is crucial. Businesses that prepare early can avoid last-minute issues, such as missing key documents or underdeveloped proposals. If a business is unsuccessful in securing funding on the first attempt, it’s worth seeking feedback from the awarding body. Understanding why an application was rejected can help refine future submissions, improving the likelihood of success.

Many SMEs overlook the importance of partnerships when applying for grants. Collaborating with other businesses, research institutions, or local authorities can strengthen an application by demonstrating broader benefits and shared expertise. Some grants explicitly encourage joint applications, particularly those aimed at innovation and regional development. Partnering with an organisation with a strong track record in securing funding can also provide additional credibility.

Avoiding common mistakes in grant applications

Many SMEs miss out on valuable funding opportunities due to common mistakes in their grant applications. One of the biggest pitfalls is failing to fully understand the eligibility criteria. While a grant may seem like a perfect fit, businesses must carefully review all requirements before applying. Some grants require a minimum number of employees, a specific turnover threshold, or a clear demonstration of financial need. Misinterpreting these conditions can lead to wasted time and effort on applications that are unlikely to succeed.

Another frequent mistake is submitting a weak business case. Grant providers want to see a well-defined project and evidence that it will deliver meaningful results. This means outlining clear, measurable objectives and explaining how the grant funding will be used to achieve them. A vague or overly ambitious proposal can raise red flags, making it harder for assessors to justify awarding funds. Including strong financial projections and, where possible, examples of past successes can help demonstrate credibility.

Incomplete applications are another major issue. Many grants require supporting documentation, such as financial statements, project plans, or letters of recommendation. Businesses that submit applications without the necessary documents risk being disqualified outright. Paying close attention to the requirements and double-checking everything before submission is crucial.

Timing is also an issue. Some businesses delay applying for grants until they are in financial difficulty, only to find that the process takes longer than expected. Grants are designed to support growth and innovation, not as emergency funding. SMEs should be proactive in identifying funding opportunities early and planning their applications well in advance.

Many businesses underestimate the importance of aligning their applications with the grant provider’s goals. For example, if a grant is designed to boost sustainability, the application should clearly highlight how the project contributes to environmental improvements. Tailoring each application to the specific objectives of the grant increases the chances of success.

Maximising the benefits of government grants

To fully leverage government grants, SMEs should:

• Align grants with business strategy: Ensure the grant objectives complement your long-term business goals.​
• Maintain accurate records: Keep detailed financial and project records to meet reporting requirements and demonstrate accountability.​
• Seek professional advice: Consult financial advisers or business support organisations to enhance your application and compliance processes.​
• Stay informed: Regularly monitor government announcements and industry news to identify new funding opportunities.​

Leveraging grants for long-term business growth

Securing a government grant can provide an immediate financial boost, but its real value lies in how it is used over the long term. A well-planned project funded by a grant can position an SME for sustained growth, allowing it to expand operations, invest in new technology, or improve efficiency.

Businesses that receive grants for research and development often reap benefits beyond the initial funding. Many R&D grants are designed to help businesses develop innovative products or services that give them a competitive edge. A successful innovation can lead to further investment opportunities, strategic partnerships, and increased market share.

Businesses that receive funding for digital transformation often find that the improvements have a lasting impact. For example, an SME that uses a grant to implement new accounting or customer management software may see long-term cost savings and improved productivity. The efficiencies gained can free up resources to reinvest in other business areas.

Grants that support hiring and training can also have lasting benefits. Expanding the workforce and improving employee skills contribute to long-term business stability and growth. A business that invests in upskilling its employees through grant-funded training may become more adaptable and resilient in the face of industry changes.

Once a business has successfully secured one grant, it may be in a stronger position to apply for future funding. Many grant providers look favourably at businesses with a track record of successfully managing grant funding. Keeping thorough records and meeting all compliance requirements makes applying for additional support in the future easier.

Beyond direct financial benefits, securing a grant can enhance a business’s credibility. Investors, lenders, and potential partners often view grant-funded businesses as lower-risk and more innovative. This can open doors to further investment and collaboration opportunities.

Government grants are more than just a short-term financial boost. When used strategically, they can help SMEs strengthen their position in the market, improve operational efficiency, and drive long-term success. Taking the time to apply carefully, manage funds effectively, and integrate grants into a broader business strategy ensures the best possible return on investment.

The role of accountants and advisers in grant management

Many SMEs struggle with the administrative burden that comes with applying for and managing grants. Accountants and business advisers play a crucial role in simplifying this process. From identifying suitable grants to ensuring compliance with reporting requirements, professional guidance can save time and reduce stress.

One of the most valuable services an accountant can provide is financial forecasting. Many grant applications require detailed financial projections, including cashflow forecasts and return on investment estimates. A well-prepared financial plan can demonstrate a project’s viability, increasing the likelihood of approval.

Once a grant is secured, conditions are often attached, such as reporting how funds are used or meeting specific project milestones. Failure to comply with these requirements can result in funding being withdrawn. Having a professional on hand to manage financial tracking and reporting ensures that businesses remain compliant and maximise the benefits of their funding.

Businesses that take a strategic approach to grant funding, with the support of experienced advisers, are more likely to use it effectively. The right financial guidance can turn a one-time grant into long-term business growth, helping SMEs maximise available opportunities.

Wrapping up

Government grants present significant opportunities for SMEs to access funding that can drive innovation, expansion, and sustainability. By understanding the available grants, meeting eligibility criteria, and effectively managing the application process, businesses can secure essential support to achieve their objectives.

We are committed to supporting SMEs and are here to assist you with grant applications and financial planning.

Get in touch to ensure you make the most of the opportunities available.

Tax changes could cost drivers up to £600. Many electric vehicle (EV) owners are unaware that road tax charges will rise from April 2025.

A survey of 2,000 UK car owners by used car retailer Motorpoint found that 83% of EV drivers did not know they would soon need to pay vehicle excise duty (VED).

Currently, EVs are exempt from road tax, but starting in April 2025, all electric cars will be taxed. New EVs will be charged £10 for the first year, while those priced under £40,000 will pay £195 annually from the second year.

More expensive models – originally costing over £40,000 and registered after 1 April 2025 – will face a £600 annual charge, including a £410 ‘expensive car supplement’. Taxing an EV before April 2025 could save drivers nearly £200 over the next year.

Despite Government plans to phase out new petrol and diesel car sales by 2030 and transition fully to zero-emission vehicles by 2035, many industry experts believe these targets are unrealistic. The Motorpoint survey found that 80% of respondents think the Government should do more to support EV adoption.

The Department for Transport reviews feedback on measures to encourage zero-emission vehicle uptake as part of its ongoing consultation on the transition.

Talk to us about your EV concerns.

Landlords and sole traders to receive letters from April. HMRC is set to inform taxpayers affected by Making Tax Digital (MTD) for Income Tax.

Initially, these will go to landlords, sole traders, and self-employed individuals earning over £50,000.

From 6 April 2026, those earning above this threshold must report income quarterly. While this is the first time HMRC has directly notified individuals, accountants are also urged to prepare their clients.

Letters will be sent from April 2025 to taxpayers whose 2023/24 self assessment returns indicate income at or above £50,000. Early sign-up is available with two options:
1. Join for the 2025/26 tax year: This allows firms and clients to familiarise themselves with the system before the deadline. Early adopters will receive support from a dedicated HMRC team.
2. Join for the 2026/27 tax year: Mandatory participation begins.

Some taxpayers, however, including those on HMRC payment plans, receiving income from trusts, or using profit averaging, are ineligible for early enrolment. Exemptions exist for age, disability, location, or religious beliefs.

Those already exempt from MTD for VAT do not need to reapply. As these changes approach, accountants must ensure they understand their clients’ impacts.

Talk to us about MTD.

Business activity across the UK private sector has fallen again, with weak consumer spending weighing on companies.

The latest growth indicator from the Confederation of British Industry (CBI) shows that private sector activity declined faster in the three months to February than in the previous quarter.

All sectors reported falling business volumes, pushing the CBI’s growth index down to -27% in February from -23% in January. Looking ahead, firms expect further declines as economic struggles persist. The overall outlook remains tough, particularly for consumer-facing sectors.

The CBI is urging the Government to boost business confidence through policy changes, such as reforming the apprenticeship levy, improving business rates, and offering incentives for occupational health.

Meanwhile, a survey by accountancy network BDO highlights concerns among mid-sized firms, with nearly half seeking better Government support for exports. Suggested measures include expanding access to UK Export Finance, new trade agreements, and simpler customs rules.

Rising workforce costs, including national insurance and the living wage, are also a major concern. A quarter of business leaders cited these as significant pressures, with the Government resisting calls to reverse the planned NICs increase set for April.

Talk to us about your business.

HMRC’s clampdown on IR35 off-payroll working rules has raised £4.2bn in additional tax, National Insurance, and apprenticeship levy payments between October 2019 and March 2023.

Around 120,000 contractors were affected, with the average individual paying £10,000 more in tax.

The reforms first hit the public sector in April 2017, followed by the private sector in April 2021. As a result, many contractors moved from using personal service companies (PSCs) to PAYE employment. HMRC estimates that 280,000 individuals transitioned from PSCs between 2019 and 2022, with 40% doing so directly due to the reforms. The IT, professional, and scientific sectors, including legal, accounting, engineering, and advertising, were the most affected.

The number of new PSCs dropped significantly, with 45,000 fewer than expected between April 2021 and March 2022. Of those who moved away from PSCs, 96% became employees, with 69% working directly for organisations, 18% joining umbrella companies, and 13% using agencies. A small fraction, 0.5%, turned to disguised remuneration schemes, an ongoing concern for HMRC.

The highest tax yield was in 2019/20, generating £1.9bn as contractors switched to PAYE. While IR35 reforms have increased tax revenue, they have also reduced contractor take-home pay by limiting allowable deductions.

Talk to us about IR35.

The Bank of England (BoE) has cut the base rate by 0.25%, bringing it to its lowest since May 2023.

Seven members of the Monetary Policy Committee (MPC) supported the move, but two pushed for a deeper cut to 4.25%.

Governor Andrew Bailey warned that inflation could climb to 3.7% this year. Despite progress in reducing inflation over the past two years, the Bank emphasised the need to keep rates at a restrictive level. Inflation currently stands at 2.5%, while GDP grew by just 0.1% in November. The Bank does not expect any significant economic growth until mid-2025.

Concerns are mounting over additional pressures on businesses, including an increase in employers’ National Insurance contributions and the rise in the minimum wage from April. These changes have dampened business confidence heading into 2025.

The rate cut relieves businesses struggling with rising costs, but the UK is cutting rates slower than major global competitors. There are also fears over the potential impact of US-imposed tariffs on the EU, which could indirectly harm UK trade. Despite forecasting higher inflation, Bailey did not mention the US tariff threat in his remarks.

Talk to us about your finances.

Following the Bank of England’s base rate cut to 4.5% on 6 February, HMRC will lower its late payment and repayment interest rates from 25 February.

The late payment interest rate will drop from 7.25% to 7.0%, while the repayment interest rate will decrease from 3.75% to 3.5%. These changes reflect HMRC’s standard approach, where late payment interest is set at the base rate plus 2.5%, and repayment interest is set at the base rate minus 1%, with a minimum floor of 0.5%.

For corporation tax, interest on underpaid quarterly instalments will fall to 5.5% from 5.75% on 17 February – one week earlier than the main rate change. Similarly, interest on overpaid quarterly instalments and early corporation tax payments will drop to 4.25%.

Looking ahead, from 6 April 2025, HMRC will increase its premium on late payment interest, raising the surcharge from 2.5% to 4% over the base rate. Announced in last October’s Budget, this move will generate £255 million a year from 2025/26, targeting tax avoidance and late payments.

Despite these adjustments, HMRC continues to pay lower interest on overpayments than on late payments. It has defended this policy by citing international tax authority practices and comparing commercial loan and deposit rates.

Talk to us about your finances.

From April 2027, unused pension pots and death benefits will be included in an individual’s estate for inheritance tax (IHT) purposes.

The Association of Taxation Technicians (ATT) has warned that this change, announced in the Autumn Budget, could increase costs and cause delays for around 50,000 families a year.

Pension pots are exempt from IHT rules, making them a popular tool for estate planning. Under the new system, personal representatives handling a deceased person’s affairs must work with Pension Scheme Administrators (PSAs) to determine the value of any unspent pension assets and allocate allowances accordingly. Each pension fund will then be responsible for paying its share of IHT before probate can be granted.

The ATT has raised concerns that these additional administrative steps will increase the time and effort required to finalise estates. Delays in obtaining probate could create financial difficulties for beneficiaries, while the added complexity may result in higher costs for professional assistance.

The ATT has called for a separate IHT regime for pensions to reduce the impact on bereaved families. With pensions playing a key role in IHT planning, it may be worth reviewing your arrangements to ensure they remain tax-efficient. While some view tax-free pension pots as a loophole, others argue they provide a vital means of passing on wealth.

Talk to us about your pension.

Maximising efficiency with digital accounting tools.

In the modern business environment, efficiency and accuracy in financial management are paramount. We understand businesses’ challenges in maintaining precise financial records while striving for growth. Implementing accounting software can be a game-changer, offering numerous benefits that streamline operations and enhance decision-making. This guide explores how the right tools can simplify financial processes, improve compliance, and free up time to focus on growing your business.

Benefit 1: Automating routine tasks
One of the primary advantages of accounting software is the automation of repetitive tasks. Processes such as invoicing, payroll, and tax calculations can be handled automatically, reducing the time and effort required for manual entry. This automation saves time and minimises the risk of human error, ensuring that your financial data remains accurate.

Benefit 2: Enhancing financial accuracy
Manual data entry is prone to errors, significantly affecting financial reporting and compliance. Accounting software minimises these risks by providing accurate calculations and consistent data entry protocols. This precision ensures that your financial statements reflect the true state of your business, aiding in compliance with tax regulations.

Benefit 3: Real-time financial insights
Access to real-time financial data is crucial for informed decision-making. Accounting software offers up-to-date insights into your business’s financial health, allowing you to monitor cashflow, track expenses, and assess profitability anytime. This immediacy enables proactive management and swift responses to financial challenges.

Benefit 4: Facilitating compliance with tax regulations
Navigating the tax landscape can be daunting. Accounting software simplifies this by keeping you updated with the latest tax laws and ensuring your financial records comply. Features such as automated tax calculations and report generation make it easier to meet HMRC requirements, reducing the risk of penalties.

Benefit 5: Improving client relationships
Maintaining strong client relationships is essential for accounting practices. Accounting software enhances client interactions by providing accurate and timely financial information. This transparency builds trust and allows for more strategic discussions based on real-time data. According to a report by Libeo, 67% of accountants say cloud technology is improving client interactions and service offerings.

Benefit 6: Adapting to technological advancements
The accounting industry is experiencing a significant shift towards digitalisation. A report by Sage and Demos found that widespread AI adoption in accounting practices could add £2 billion to GDP and create nearly 20,000 jobs.

Embracing accounting software positions your business to take advantage of these technological advancements, ensuring your business remains competitive in the evolving market.

Customising software to suit your business needs
Every business has unique financial processes, and off-the-shelf accounting software may not always align perfectly with specific requirements. Many platforms offer customisation options, allowing businesses to tailor features such as charts of accounts, reporting formats, and user access levels.

For instance, a retail business may require advanced inventory tracking, while a consultancy firm may prioritise time-tracking and project-based invoicing. Platforms like Xero, Sage, and QuickBooks provide industry-specific add-ons and configurations, ensuring that businesses can adapt the software to meet their operational needs.

Beyond core functionality, businesses can also personalise dashboards and reports to highlight key performance indicators (KPIs) relevant to their financial goals. By customising accounting software, businesses can optimise workflow efficiency and gain deeper insights into their financial performance.

Choosing the right software for your business size
The size and complexity of a business significantly influence the choice of accounting software. Small businesses and sole traders may only require basic bookkeeping and invoicing features, whereas larger organisations need advanced capabilities such as multi-currency transactions, consolidated reporting, and extensive automation.

For micro-businesses, user-friendly software like FreeAgent or Zoho Books offers straightforward solutions without overwhelming features. In contrast, mid-sized businesses may benefit from Sage or QuickBooks Online, which provide scalable options that accommodate growth. Larger enterprises with more complex accounting needs often use software like NetSuite or SAP Business One, which offer enterprise-level customisation and automation.

By selecting software that aligns with business size and growth plans, companies can avoid paying for unnecessary features while ensuring they have the necessary tools to support expansion.

 
How software improves cashflow management
Accounting software not only tracks incoming and outgoing payments, but also offers AI-driven forecasting tools. These tools analyse historical data and predict cashflow trends, allowing businesses to plan for future expenses, identify potential shortfalls, and manage credit more effectively. This is particularly useful for businesses with seasonal revenue fluctuations, helping them allocate funds efficiently and avoid cash shortages.

The role of accounting software in financial reporting and audits
Accurate financial reporting is essential for compliance and business decision-making. Accounting software simplifies report generation by automatically categorising transactions and compiling data into structured financial statements.

Accounting software streamlines daily financial management and audits by maintaining structured, traceable records. Features such as automated categorisation, built-in audit trails, and secure data storage allow businesses to provide auditors and regulatory bodies with clear, verifiable financial statements.

By maintaining well-organised digital records, businesses can comply with regulatory requirements and gain better financial oversight and strategic insights.

Overcoming adoption challenges
While the benefits are clear, some businesses may face challenges adopting new technologies. To overcome this, it’s important to choose user-friendly software and provide adequate training to staff, ensuring a smooth transition.

Integrating software with other business tools
One of the biggest advantages of modern accounting software is its ability to integrate seamlessly with other essential business tools. Many platforms offer direct integrations with customer relationship management (CRM) systems, payment gateways, and inventory management software. This interconnected approach streamlines workflows, reducing the need for duplicate data entry and improving overall efficiency.

For example, integrating accounting software with an e-commerce platform like Shopify or WooCommerce automatically records sales transactions, eliminating the need for manual updates. Similarly, linking software with payroll systems like BrightPay or Xero Payroll simplifies salary calculations and tax deductions, ensuring accuracy and compliance.

These integrations give businesses a more comprehensive view of their financial health while reducing administrative burdens. According to a study by Xero, businesses that integrate their accounting software with other tools report a 30% improvement in operational efficiency.

 
Cloud accounting vs traditional software: Making the right choice
Cloud solutions offer businesses a competitive edge through automatic software updates, real-time data access, and integration with other digital tools. This ensures businesses can manage finances flexibly, regardless of location, without needing manual updates or on-premises infrastructure.

A 2023 report by QuickBooks found that 78% of small businesses in the UK now use cloud-based accounting solutions due to their flexibility and cost-effectiveness. Cloud accounting also plays a crucial role in compliance with Making Tax Digital (MTD) requirements, ensuring that VAT submissions are done correctly and on time. This will become even more relevant when HMRC brings in further MTD requirements for sole traders.

Data security and compliance considerations
Financial data is highly sensitive, so ensuring robust security measures is a key consideration when using accounting software. Cloud-based platforms employ high-level encryption and multi-factor authentication to protect data, but businesses must also implement strong internal policies to prevent unauthorised access.

GDPR compliance is another essential factor. Businesses using cloud accounting software must ensure their provider adheres to GDPR data protection and storage guidelines. Platforms like FreeAgent and QuickBooks Online offer compliance features, including secure data storage within the UK or EU jurisdictions.

Additionally, implementing role-based access controls within accounting software ensures that only authorised personnel can access specific financial information. This reduces the risk of internal fraud and maintains data integrity.

The future of accounting software: AI and automation
The accounting industry is rapidly evolving, with AI increasing in automating tasks such as bank reconciliation, invoice processing, and financial forecasting. AI-powered tools can analyse large volumes of financial data in seconds, providing valuable insights that help businesses make better decisions.

A recent survey by Sage found that 58% of accountants believe AI will transform how financial data is processed within the next five years. Automated bookkeeping, fraud detection, and AI-generated financial reports are just a few advancements businesses can expect.
Embracing AI-driven accounting software improves efficiency and frees accountants to focus on advisory services, helping businesses grow strategically. As AI capabilities expand, integrating smart accounting solutions will become a key competitive advantage for businesses.

 
Final thoughts
Implementing accounting software is a strategic move that offers numerous benefits, from automating routine tasks to providing real-time financial insights. We are committed to helping businesses harness these tools to enhance efficiency and achieve financial goals. By embracing digital solutions, you can position your business for success in an increasingly competitive environment.

Get in touch to discuss how software can streamline your accounting operations.