On 3 March 2026, Chancellor Rachel Reeves presented the government’s Spring Forecast alongside the latest economic outlook from the Office for Budget Responsibility (OBR).
As expected, no new tax measures were announced, as the government has committed to holding only one major fiscal event each year.
However, the economic forecasts still give us a useful indication of where tax policy may be heading.
Below we highlight the key points and what they may mean for taxpayers and businesses.
Rising Tax Burden Expected Over the Next Decade
The OBR forecasts that the UK tax burden will continue to rise, with taxes expected to reach 38.5% of GDP by 2030/31. This would be the highest level since the Second World War.
One of the main drivers of this increase is the continued freeze on income tax thresholds until April 2031.
What this means in practice
As wages increase but tax thresholds remain fixed:
- More people will start paying income tax
- Some taxpayers will move into higher tax bands
- Overall tax bills may increase even if circumstances stay the same
This phenomenon is often referred to as “fiscal drag.”
State Pension May Exceed the Personal Allowance
The OBR expects the state pension to exceed the personal allowance from 2027/28.
If this happens, some pensioners whose only source of income is their State Pension, could technically become liable to pay income tax on that pension.
The government has stated that it does not intend pensioners whose only income is the state pension to pay income tax during this Parliament, although the practical details have not yet been confirmed.
Tax Planning Is Becoming Increasingly Important
With rising taxes and frozen allowances, proactive tax planning is becoming more important than ever.
Areas worth reviewing include:
- timing of income and dividends
- pension contributions
- capital gains planning
- ownership of family assets
- business profit extraction strategies
Small changes in these areas can sometimes significantly reduce long-term tax liabilities.
Salary and Dividends for Company Owners
For many owner-managed companies, the traditional strategy of taking a low salary and the remainder as dividends is still generally the most tax-efficient approach where there is a sole director/shareholder.
However, recent tax changes mean this is not always the best strategy.
If your company has:
- multiple shareholders
- family members involved
- higher profit extraction requirements
- additional personal income sources
Then a different structure may now be more tax efficient.
If your circumstances are different from the typical sole director/shareholder structure, it may be worth reviewing your profit extraction strategy. Please contact us if you would like us to review this with you.
Making Tax Digital for Income Tax Starts April 2026
Making Tax Digital (MTD) for Income Tax will begin from April 2026.
This will affect self-employed individuals and landlords whose gross business or property income exceeds £50,000 per year.
Under the new system you will need to:
- keep digital accounting records
- submit quarterly updates to HMRC
- submit a final end-of-year declaration
The first quarterly update for the new regime will be due by 7 August 2026.
Important reminder
Your 2025/26 Self Assessment tax return must still be filed in the normal way by 31 January 2027.
If you are likely to be affected and have not yet prepared for the change, it would be sensible to review your systems sooner rather than later.
Overpaid Tax? You May Still Be Able to Claim It Back
If you believe you have paid too much tax, you may be able to claim a refund through overpayment relief.
However, there is usually a four-year deadline to make a claim.
For example:
- Claims relating to the 2021/22 tax year must be submitted by 5 April 2026
A valid claim must include:
- confirmation that it is an overpayment relief claim
- the tax year concerned
- why too much tax was paid
- the amount overpaid
- confirmation whether an appeal has previously been made
HMRC checks these claims carefully, so it is important that they are submitted correctly.
Advisory Fuel Rates Updated
HMRC publishes Advisory Fuel Rates for employees who use company cars for business travel.
From 1 March 2026:
- petrol, diesel and home-charging rates remain unchanged
- LPG and public electric charging rates have increased
Employees using their own car for business
The approved mileage rates remain unchanged:
- 45p per mile for the first 10,000 business miles
- 25p per mile thereafter
Employers may also be able to reclaim input VAT on the fuel element where valid VAT receipts are held.
Company Vehicles and Benefits in Kind
Where an employer provides a vehicle to an employee or director, it is usually treated as a taxable benefit in kind (BIK).
From 6 April 2026, the following annual benefit figures will increase:
- Van benefit charge: £4,170
- Van fuel benefit charge: £798
- Car fuel benefit multiplier: £29,200
The value of a company car benefit depends on:
- the car’s list price
- CO₂ emissions
- the fuel or power source
- periods where the car was unavailable
Benefits in Kind Reporting – Important Deadline
If you provide employees or directors with taxable benefits, these must be reported to HMRC each year.
For the 2025/26 tax year:
- P11D forms must be submitted by 6 July 2026
- Class 1A National Insurance must be paid by 19 July 2026 (or 22 July if paid electronically)
Common reportable benefits include:
- company cars
- private medical insurance
- beneficial loans
- certain accommodation or travel benefits
If you are unsure whether your business has reportable benefits in kind, we would be happy to review this with you.
Using Agency or Umbrella Workers? New Rules Apply
From 6 April 2026, new rules may make businesses jointly liable for PAYE and National Insurance where labour is supplied through agencies or umbrella companies and the intermediary fails to pay HMRC.
Businesses using third-party labour should therefore review their supply chains and carry out appropriate due diligence.
Need Advice?
Tax rules are becoming increasingly complex, and the right planning can make a significant difference.
If you would like to discuss any of the topics above or review your tax position, please contact our team.
Disclaimer: This newsletter covers the key news headlines from The Spring Statement March 2026. The authors take great care in its production, but it is not exhaustive and should not be read as a full fiscal summary. The content displayed is correct as of 6 March 2026. We cannot take responsibility for any action taken or not taken from this document alone. Please contact us for personalised advice.
