UK accountants have been greeted by three significant tax announcements this week. HMRC is chasing BADR lifetime limit breaches. Corporate reconstruction rules tightened post-Budget. And Scottish taxpayers face threshold changes from April 2026.
Here are the details.
BADR Lifetime Limit: HMRC Sends Warning Letters
HMRC is writing to taxpayers who claimed Business Asset Disposal Relief (BADR) in 2024/25 returns and may have exceeded the £1m lifetime limit.
Two letter types are circulating:
-
Letter One: Already Over the Limit Sent
When HMRC records show taxpayers exceeded the lifetime limit before their 2024/25 claim. Recipients must remove the BADR claim entirely.
-
Letter Two: Pushed Over by Latest Claim Issued
When the 2024/25 claim takes total BADR over the £1 million cap. Recipients must amend returns so cumulative claims stay within limits.
Taxpayers believing their claims are correct should contact HMRC using the letter details. Others must amend returns by stated deadlines. Ignoring letters triggers HMRC amendments, enquiries, interest charges and potential penalties.
Current BADR rates are 10% for 2024/25, rising to 14% for 2025/26 and 18% for 2026/27. The £1m lifetime limit has applied since 11 March 2020, down from £10m previously.
Agents receive copies of client letters. Review client files immediately if BADR claims were made.
Corporate Reconstructions: Anti-Avoidance Rules Overhauled
The Autumn Budget 2025 introduced major changes to share exchange and reorganisation treatment. Changes are now in Finance Bill 2025/26.
The Critical Change HMRC removed wording requiring the exchange itself be part of a tax avoidance scheme. Relief now fails if any component of the wider arrangements carries a tax avoidance purpose, even when the exchange is commercially driven.
Additional changes include:
- Partial relief denial replaces the previous all-or-nothing approach
- The 5% shareholder safe harbour has been removed entirely
- Taxpayers must explain every transaction step in detail
These changes respond to recent HMRC court defeats where previous wording proved inadequate.
These changes apply from 26 November 2025. Transitional protection exists for clearance applications submitted before that date if transactions are completed by 26 January 2026 or within 60 days of clearance being granted.
Scottish Budget 2026/27: Threshold Increases & Business Relief
The Scottish Budget delivered on 13 January includes income tax and business rates changes.
Income Tax Changes
The thresholds for the starter, basic and intermediate rates will increase by 7.4% for 2026/27. The rates themselves remain unchanged, and there are no changes to the higher, advanced and top rate bands.
Here’s the comparison:
The Scottish government estimates that approximately 57% of Scottish taxpayers will pay less income tax in 2026/27 than their counterparts in the rest of the UK.
Business Rates Relief Package
Ahead of the revaluation taking effect on 1 April 2026, the government announced:
- Reductions to the basic, intermediate and higher property rates
- 15% relief for retail, hospitality and leisure properties at basic or intermediate rate
- 15% cash cap on increases due to revaluation for small properties (revaluation transitional relief)
- Small Business Bonus Scheme maintained at existing rates for the next three years
- New transitional relief for those losing eligibility for reliefs in April 2026
The relief package is estimated to save ratepayers £864m in 2026/27, with over 96% of retail, hospitality and leisure properties paying zero or reduced rates.
Quick Roundup
-
Spring Statement Set for 3 March
Government responds to OBR spring forecast, but will not normally respond with fiscal policy absent significant economic changes.
-
Interest Rates Fall
HMRC's headline rate on underpaid tax drops from 8% to 7.75% from 9 January, following the Bank of England base rate cut to 3.75%.
-
Multi-State Workers Rule Change
December 2025 CJEU ruling requires third-country working time inclusion in social security assessments. Implications for A1 certificates are potentially widespread. The UK's position under the EU protocol is unclear.
-
Business Rates Consultation Open
Government seeks evidence on reform areas until 18 February. Submit responses directly or share evidence with ICAEW by 6 February.
-
R&D Advance Assurance Pilot
HMRC launches targeted service for SMEs in Spring 2026 covering project qualification, overseas expenditure, contracted expenditure and PAYE/NI cap exemptions.
Plan Ahead
-
18 February 2026
Business rates reform consultation closes.
-
26 January 2026
Corporate reconstruction transitional arrangements end for pre-Budget clearance applications.
-
3 March 2026
Spring Statement delivered to Parliament.
Check BADR claims immediately. Review corporate reconstruction clearance applications. Identify Scottish clients affected by threshold changes.
This week’s updates are based on news published by ICAEW between 6 and 14 January 2026.
