web development slot pragmatic can be a sought-after skill, which can open the door to many opportunities for earning money. However, being a web developer can be stressful and demanding particularly when you are required to meet deadlines, complex projects, and demanding clients. If you’re trying to diversify your sources of income and decrease your dependence on active income, you might think about pursuing passive income.

Top Passive Income Ideas for Web Developers

Passive income can be a great way for web developers to generate additional revenue streams without constant active effort.

Start a SAAS Product Developer Business

A SaaS solution could be an ideal method for Web developers to earn regular income. It is possible to build a large customer base and earn a steady revenue from membership fees by creating a solution that addresses the same issue that is common to other companies. After your product has been developed and launched, it will continue to earn money without needing an ongoing effort and allow you to focus on other business tasks.

Start an Affiliate Marketing

You can earn money by making use of affiliate marketing to promote the services or products of other individuals. Each time a purchase is made using your affiliate link, you’ll earn a commission. Your expertise can be utilized as a web designer to create content that draws people to your site and promotes the products that you’re associated with. When your content is finished you can then be able to generate passive income.

Also read: Top 15 Unique Website Ideas

Start an Online Jewelry Store

It is possible to sell your items to a huge client base and earn income from passive sources by setting up an online jewelry store. An appealing and user-friendly online store that showcases your items can be built with your skills as a web designer. After your store is set up, it can continue running and earning revenue without requiring an endless amount of work.

Start a Content Writing Company

As a web developer, starting a content writing business could be an excellent option to earn a passive income. It is possible to delegate work and focus on business growth while also earning a share of the profits by hiring additional editors and writers. If your team is on the job the business will continue to earn money with no direct involvement, which gives you the opportunity to move to other tasks.

Start a Subscription Box Business

Customers who subscribe to receive a particular set of products every month from a subscription-box business. Because customers love getting a variety of items from different brands Subscription boxes are in fashion in the present.

Sell Digital Products

Digital assets, such as stock images and 3D models are developed and sold by web developers. Digital assets are easy to use and could generate earnings for many years. The most highly rated items are those that can be made digital. They are easy to create and share and are a great way to increase your business.

Start a Tech Blog

Blogging has become an income-generating venture for those with the appropriate expertise and who are able to effectively communicate with their readers. Through sharing useful information bloggers are able to earn money through a variety of ways, including affiliate marketing sponsorships or Google Ads.

Start A WordPress Template Business

Web developers are able to design templates for their websites and sell them on marketplaces for digital goods like ThemeForest. After a template has been created it can be used to continue earning revenue without any additional effort from the designer.

Also read: Top 30 Money Making Apps for Extra Income

Start A Website Hosting Platform

Web developers are able to offer website hosting services to their customers or offer hosting packages for sale on websites. Hosting could be a lucrative passive income stream because customers regularly pay to host services.

Start an Etsy shop

Etsy is a popular platform for artists to sell their products and web designers are able to profit from this opportunity by creating a visually appealing and user-friendly shop. After you’ve established your shop, you’ll be able to create multiple passive income streams by implementing actions like refining the product listing, using social media to promote the shop, and collaborating with influencers to enhance its visibility.

Final Word

Web developers can generate passive income through digital products, affiliate marketing, ad revenue, mobile apps, online courses, and more. Diversifying income streams can lead to financial stability and growth.

The 2026/27 tax year is now underway, and while many headline tax rates remain unchanged, ongoing freezes and reduced allowances continue to pull more taxpayers into higher tax bands.

Here is our overview.

Personal tax rates

Personal allowances and income tax thresholds remain frozen until April 2028:

• Personal allowance: £12,570
• Basic rate limit:20% from £12,571 to £50,270
• Higher rate: 40% from £50,271 to £125,140
• Additional rate: 45% above £125,140

The additional rate threshold remains at £125,140, and individuals earning above this level do not receive a personal allowance.

For incomes over £100,000, the personal allowance is reduced by £1 for every £2 of additional income, creating an effective marginal tax rate of 60% within this band.

Dividend tax

The dividend allowance remains at:

Dividend tax rates have increased by 2 percentage points to:

• 10.75% (basic rate)
• 35.75% (higher rate)
• 39.35% (additional rate)

With such a low allowance, individuals, particularly retirees and business owners, may need to report dividend income to HMRC.

Capital gains tax (CGT)

The annual exempt amount for capital gains tax remains at:

Rates remain unchanged:

• 18% (basic rate taxpayers)
• 24% (higher/additional rate taxpayers)

The rate for gains qualifying for business asset disposal relief has changed to 18% from 6 April 2026.

Spousal transfers on separation

The rules introduced in April 2023 continue to apply:

• Up to three years after the end of the tax year of separation to make no gain/no loss transfers
• Unlimited time where transfers are part of a formal divorce agreement
• Continued access to private residence relief in certain circumstances

Pensions

Pension rules remain significantly more flexible:

• The annual pension allowance remains at £60,000, subject to tapering
• The Money Purchase Annual Allowance (MPAA) remains at £10,000

Making Tax Digital (MTD)

The rollout of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is a key development affecting many taxpayers:

• From April 2026, self-employed individuals and landlords with income over £50,000 must comply with MTD rules
• From April 2027, this will extend to those with income over £30,000

Under MTD, affected taxpayers will be required to:

• Keep digital records of income and expenses
• Submit quarterly updates to HMRC using compatible software
• File an end-of-year final declaration to confirm total taxable income

This represents a significant shift from the traditional annual tax return process and will require many taxpayers to adopt accounting software if they have not already done so.

Corporation tax rates

From the 1 April 2026 there is no change to the corporation tax rates which remain as follows:

• Small profits rate: 19% for companies with taxable profits under £50,000.
• Main rate: 25% for companies with taxable profits over £250,000.
• Marginal relief applies between £50,000 and £250,000 of taxable profits.

The thresholds are divided by the number of associated companies.

Capital allowances

Capital allowances main rate of writing down allowance (WDA) for plant and machinery has been reduced from 18% to 14% from 1 April 2026 for companies and 6 April 2026 for income tax purposes.

A hybrid rate will apply for chargeable periods that straddle 1 April 2026.

The WDA for the special rate pool remains at 6% and no changes for full expensing (for companies) or annual investment allowance.

A new 40% First Year Allowance (FYA) was introduced from 1 January 2026 for qualifying main pool expenditure for businesses unable to claim full expensing (i.e. unincorporated business or assets used for leasing).

The 100% FYA for zero-emission cars and EV charge points has been extended to March 2027.

Late Filing Penalties for corporation tax returns

For corporation tax returns with filing dates on or after 1 April 2026, the fixed penalties have been doubled as follows:

• Up to 3 months late: £200.
• More than 3 months late: Another £200.
• If your tax return is late 3 times in a row, the £200 penalties are increased to £1,000 each.

Tax returns – key deadlines and dates for 2026/27

The 2025/26 tax year has now ended (on 5 April 2026), and tax returns for that year can now be prepared and submitted.

Key dates:

• 31 July 2026
  Second payment on account due for the 2025/26 tax year
• 5 October 2026
  Deadline to notify HMRC if you need to register for self-assessment
• 31 October 2026
  Deadline for submitting paper tax returns
• 31 January 2027
  Deadline for submitting online tax returns and paying any tax due
• 5 April 2027
  End of the 2026/27 tax year – ensure ISA allowances are used

Next steps

With continued freezes, reduced allowances, and the introduction of Making Tax Digital, tax compliance is becoming more complex. If you have any questions or would like tailored advice, please get in touch, our experienced team of tax advisers will be happy to assist.

Find out what our members have been asking us this month…

I prepare LLP accounts for a partnership consisting of a husband and wife who run a small business.

For this example let’s say I charge £2,000+VAT for LLP accounts / partnership tax return, and £250+VAT per personal tax return to report the share of partnership profits.

Can the personal tax return fee be claimed if the only requirement for preparing one is to report partnership profits?

A

In order for an expense to be allowable as a revenue deduction for tax purposes, it must be an expense of the partnership and it must be incurred wholly and exclusively for the purposes of the partnership’s business (s34 ITTOIA 2005).

I cannot see how the cost of the personal tax returns are a business cost that is wholly and exclusively incurred for the purposes of the business. They may be incurred as a consequence of having the business, but the purpose that it has been incurred is to satisfy the personal compliance of the taxpayer and not for the purposes of the partnership business.

Please see HMRC manual PM163350 for some guidance.

Q

We prepare service charge accounts for a number of clients.

A group of leaseholders of a block of flats (i.e. 20 units) have grouped together to buy the Freehold of the building they own flats in.

They are buying the freehold via a Limited Company for a consideration of £140,000 in total.

Is there likely to be stamp duty on this purchase?

A

On the basis that the freehold is being acquired by a company for a consideration of £140,000, this will constitute a chargeable land transaction for SDLT purposes.

Where a transaction consists solely of residential property, the SDLT treatment depends on the number of dwellings acquired. Where six or more dwellings are acquired in a single transaction the acquisition can be treated as non‑residential for SDLT purposes.

 Accordingly, if the freehold acquisition relates to six or more self‑contained dwellings, the transaction would be treated as non‑residential and SDLT would be calculated using the non‑residential rates. As the non‑residential nil‑rate threshold is £150,000, no SDLT would be payable on a purchase price of £140,000, although an SDLT return would still be required.

However, if fewer than six dwellings are included, the transaction would be treated as residential for SDLT purposes, and the residential rates (including the higher rates surcharge, where applicable) would need to be considered.

If you have a question similar to the above or want to know more about our Tax Partner Pro membership please drop us an email mailto:[email protected]

It’s not always about the numbers!

When it comes to Tax, it is not always just about the numbers. HMRC is just as concerned with how you behave and cooperate with them.

Error on your tax return? What are you going to do?

Let’s say you make a rather substantial error on your tax return. What do you do about it? Do you immediately resolve the situation? Do you say “I’ll deal with that another day”? Or do you turn a blind eye and hope it disappears?

Recent tribunal decisions show that, situations such as making mistakes on tax returns, or failing to declare income/gains, are judged not only by how much loss to the revenue is at stake, but also by what steps you as the taxpayer made either to ensure accuracy or to resolve any failures.

Making the wrong move (or not making any moves) can be the deciding factor as to whether HMRC impose additional financial penalties or even have the legal ability to investigate your records from the previous 20 years.

Two recent cases in the First Tier Tax Tribunal highlight the importance of this perfectly: Witton [2026] TC 09793 and Uzoh [2026] TC 09775

What ‘behaviours’ determine what outcome?

There are generally three categories of behaviour which HMRC can assess you on:

1. Reasonable Care
2. Careless but non-deliberate
3. Deliberate (either concealed or not concealed)

 It is whichever category you fall into that can determine:

1. The level of penalties they can charge on you; and
2. How far back into your tax history they can investigate, if they decided to.

Taking reasonable care

Reasonable care is not about perfection. It is about taking sensible steps to check and substantiate your tax position. A reasonable taxpayer generally will:

• Keep accurate records of income, expenses, and deductions.
• Check figures and reconcile accounts before submitting a return.
• Seek guidance from HMRC manuals, legislation, or official guidance where appropriate.
• Consult a professional advisor when unsure, and follow up if advice is unclear.
• Act promptly if an error is discovered, notifying HMRC rather than ignoring it.

Failing to take these steps can leave a taxpayer exposed, even if there was no intention to mislead.

Careless behaviour

A loss of tax or a situation is treated as brought about carelessly if the person fails to take reasonable care to avoid it.

This is an objective test based on what a reasonable and prudent person would have done in the same circumstances.

This differs from deliberate behaviour, which is subjective and requires HMRC to show what the taxpayer actually knew.

Case: Uzoh [2026] TC 09775

• Mr Uzoh claimed employment expenses using a digital tax app service.  
• HMRC challenged some claims, arguing they were not valid.

The tribunal found:

• The taxpayer should have queried the content and validity of the claims before making them, rather than simply relying on the third-party advisor.

Even without intending to deceive, the taxpayer was found to have acted carelessly because he failed to take reasonable care to avoid the error. HMRC could issue penalties and recover unpaid tax.

Usually appointing an adviser can help argue that reasonable care has been taken. However, if you do not raise appropriate queries or check your documents properly, such as in this case, this could result in an unfavourable outcome.  

Deliberate behaviour

Deliberate behaviour is considered when a loss of tax arises because a person knowingly provides inaccurate information or intentionally ignores the risk of an error. The bar for this is generally very high.

HMRC must prove that the taxpayer either knew the information was wrong or “consciously avoided” confirming its accuracy.

Case: Witton [2026] TC 09793.

• Mr Witton had worked first as self-employed and later as a director of a financial services company.
• HMRC claimed he deliberately under-declared his income and that his employer had wilfully failed to operate PAYE.
• They attempted to recover all unpaid tax and penalties from him personally going back to 2006.

The tribunal found:

• He relied on his accountant and his employer’s finance department. He was not responsible for payroll or finance.
• His income fluctuated widely, making it difficult to reconcile bank deposits with his gross turnover.
• He had no formal contract or payslips for his director period and assumed that any salary received was taxed.
• Simply failing to submit tax returns does not prove deliberate behaviour.

Because HMRC could not show that he had acted deliberately, their discovery assessments were out of time and penalties could not stand.

Co-operation with HMRC

Ultimately, regardless of how HMRC characterises any behaviour, the more cooperative you are, the more likely any consequences will be mitigated. This can be achieved by:

• Prompt disclosure – informing us (and HMRC where appropriate) about any failures or inaccuracies as soon as possible.
• Full detail – providing clear and accurate information about the extent of the failure or inaccuracy.
• Responsive engagement – answering questions thoroughly and in a timely manner.

That said, while transparency is essential, there is a balance to be struck. Providing excessive or unrelated information can inadvertently create further questions or issues, if everything has been done correctly in the past. The key is to be open and accurate, but focus on supplying what is relevant and requested rather than volunteering extraneous details.

Protecting Yourself

So what can you do to protect yourself from future penalties or assessments?

• Document everything: keep records of calculations, communications, and professional advice.
• Ask questions: never assume someone else is handling your obligations correctly.
• Act promptly: don’t ignore it, inform HMRC if you do discover errors.
• Seek professional advice: specialist guidance can make the difference between being considered careless or deliberate.

Bottom Line

Your behaviour matters just as much as the numbers on your tax return. Taking reasonable care, being proactive, and seeking guidance can protect you from penalties and potentially decades of back taxes. Cases like Witton and Uzoh show that how you act is central to your risk with HMRC.

If there is a problem, can I deal with HMRC myself?

Dealing with HMRC alone can sometimes be risky, and time consuming. Even small errors or missteps in how you explain a situation can lead to penalties, interest or pro-longed investigations.

So whilst you can do this yourself, using an adviser such as ETC Tax can:

• Reduce risk – ensuring disclosures and responses are accurate and proportionate.
• Protect you from unnecessary penalties – using an adviser can show co-operation and help demonstrate reasonable care in the eyes of HMRC.
• Provide clarity – guiding you on what to say, when to say it, and what to document.

Next steps

Tax is tricky, and a lot of the time HMRC refer to complex legislation, which is better in the hands of a trained eye.

If you are worried about your HMRC position, please do not hesitate to get in touch with one of the team.

The tax environment for residential property investors is set to tighten over the coming years.

From April 2027, landlords will face higher income tax rates on rental income, followed by an additional annual surcharge on higher-value homes from April 2028.

For many buy-to-let investors, particularly those with larger or heavily mortgaged portfolios, these changes could significantly increase the overall tax burden. As a result, more landlords are beginning to question whether holding property personally remains the most efficient structure.

Higher tax rates on rental income

From April 2027, the income tax rates applying specifically to rental income will increase by two percentage points:

• Basic rate: 22% (currently 20%)
• Higher rate: 42% (currently 40%)
• Additional rate: 47% (currently 45%)

These increases will affect landlords who hold property in their personal name.

Properties held through companies will not be subject to these changes. Instead, they will remain within the corporation tax regime, where rates currently sit at 19% or 25% depending on profit levels.

Mortgage interest relief for individual landlords also remains restricted. Rather than deducting interest from rental profits, landlords in 2027 will receive a tax credit equal to 22% of their finance costs it is currently 20%. This means tax is effectively calculated before interest is deducted, which can leave some landlords paying tax on profits they have not actually received.

When combined with the higher income tax rates from 2027, landlords with significant borrowing are likely to feel the impact most.

New surcharge on high-value homes

Additionally, from April 2028, residential properties in England valued at £2 million or more are expected to face an additional annual council tax surcharge:

£2m–£2.5m: £2,500
£2.5m–£3.5m: £3,500
£3.5m–£5m: £5,000
£5m+: £7,500

Initial valuations will be based on property values as at April 2026 and reviewed every five years.

As property prices continue to rise, more homes could gradually fall within these thresholds over time.

Corporate ownership

Corporate ownership has increasingly become part of the conversation for landlords because companies benefit from:

• Full deductibility of mortgage interest
• Lower tax than personal income tax rates (in most cases)
• Flexibility over how and when profits are extracted
• The ability to transfer shares rather than the underlying property

However, incorporation is rarely straightforward and can involve significant upfront tax costs.

For capital gains tax purposes, transferring property to a company is treated as a disposal at market value, meaning CGT of up to 24% could arise even if no cash changes hands.

Stamp duty land tax can also apply to the company acquiring the property, often at the higher residential rates. In many cases, SDLT becomes the largest cost of incorporation.

While reliefs from CGT and SDLT may be available where the portfolio qualifies as a genuine property business, these rules are technical and eligibility can be limited.

A simple example

Consider a landlord with a £900,000 portfolio generating £48,000 of annual rental profits and £16,000 of mortgage interest.

Under personal ownership, the taxable profit would remain £48,000. At a 42% tax rate, the income tax liability would be £20,160. After applying the 22% tax credit on the mortgage interest (£3,520), the tax payable would be £16,640.

After interest and tax, the landlord would retain roughly £15,360.

Under company ownership, the mortgage interest is fully deductible. The taxable profit becomes £32,000 and corporation tax at 19% would be £6,080, leaving £25,920 retained in the company.

If those profits are reinvested, the tax difference can be significant. However, once profits are extracted personally through dividends or salary, a second layer of tax will apply.

Planning for landlords who retain personal ownership

Incorporation will not be suitable for everyone. Many landlords will continue to hold property personally.

In these cases, income splitting between spouses can still be an effective planning strategy. Transfers between spouses are generally treated as taking place on a no gain, no loss basis for capital gains tax purposes, allowing rental income to be shared between two tax bands.

Where beneficial ownership differs from legal ownership, the income split may also be adjusted using a declaration of trust and Form 17.

Capital gains tax planning can also help reduce tax on future property disposals. Strategies may include staggering sales across multiple tax years or transferring part ownership to a spouse to utilise two CGT allowances.

A good time to review the position

With tax changes approaching in April 2027 and April 2028, now is a sensible time for landlords to review how their portfolios are structured.

For investors focused on long-term growth and reinvesting profits, corporate ownership can often provide advantages. For those relying on rental income personally or planning to sell properties in the near future, the analysis is often more complex.

What is clear is that property ownership structure is no longer a passive decision. Landlords should review their cash flow, understand the potential restructuring costs and consider their long-term plans before making any changes.

Next steps

We regularly advise landlords and property investors on tax-efficient structuring, incorporation and long-term planning. Getting advice early can make a significant difference before the new rules take effect. If you would like to discuss how these changes could affect your property portfolio, please get in touch.

Introduction

When people think about tax increases, they usually look at the obvious things, such as changes in tax rates or new rules being introduced.

In reality, a lot of the increase in tax over recent years has come from something much quieter: frozen tax thresholds.

More and more people are finding they are paying higher tax without any obvious change in their circumstances.

What’s actually happening?

A number of key thresholds have remained at the same level for several years now. This includes the personal allowance and higher rate threshold, alongside reductions in dividend and savings allowances.

At the same time, income, whether from employment, investments or business interests, has generally been increasing.

The result is fairly simple. More income ends up being taxed at higher rates.

It does not feel like a tax rise in the traditional sense, but the end result is often the same.

Why this is catching people out

This is no longer something that only affects higher earners.

We are increasingly seeing:

• Basic rate taxpayers being pushed into higher rate tax
• Savings income becoming taxable where it was not before
• Dividend income creating liabilities much sooner than expected

There can also be knock-on effects. As income increases, certain allowances or reliefs may start to reduce or fall away altogether.

The slow creep

What makes this tricky is how gradual it is.

There is usually no single moment where things change dramatically. Instead, it is a slow shift over a number of years. A position that once felt relatively tax-efficient can become less so without anything obvious changing on the surface.

That is often where people get caught out. Not because they have done anything wrong, but because the rules around them have effectively tightened.

Where planning comes in

While the thresholds themselves are not something that can be changed, there is usually some flexibility in how income and assets are structured.

In many cases, relatively small adjustments can make a difference, but these tend to depend on individual circumstances. What works in one situation may not be right in another.

Because of that, opportunities are often missed unless there is a conscious review.

Next steps

Frozen thresholds might not get the same attention as headline tax changes, but over time they can have a real impact.

As more income is pulled into higher tax bands, it becomes increasingly important to understand how your position is evolving.

If you would like to sense-check your current position, please get in touch.

For years, succession planning in small businesses has sat on the “must get round to” to-do list.

As business owners, you’ll know that list – I have one too.

But lately, it’s moved lists, as more and more owners are actively raising succession and exit planning with us, no longer content to leave the future of their business to fate.

Many seem to be fast-forwarding plans to pass on the reins to the next generation, and not just because they fancy spending more time on the golf course.

Tax changes, as well as a desire to stay in control of the narrative, are pushing succession conversations from “later” to “now”.

Running a family business is rarely just about profit margins and spreadsheets.

It’s identity.

Legacy.

That firm that started in a spare room or a shed.

The children who grew up stacking shelves or answering phones.

The pride in seeing the company name on the side of a van or in a publication.

Which is precisely why many people avoid thinking about their exit. It’s emotional. And it can feel complicated.

But with recent tax changes – reductions to business asset disposal relief (BADR), changes to CGT relief on sales to an EOT, and proposed inheritance tax reforms (even if many trading businesses remain largely unaffected for  now), owners are starting to ask questions of themselves.

If not now, when?  And if not now what might my exit look like?

I see this daily – not just with clients. Fellow business owners who were previously content doing what they were doing, are now asking what’s next.

Should we wait, or act now while the tax rules still bring known benefit, and we still have control over the process? After all, none of us know what the future holds.

But it’s not just a tax.

Post-Covid many business owners have realised they don’t have to, or want to, work 14 hour days tied to a desk. They can stay involved while spending winters in Portugal. They can still be part of the business, just differently.

I’m seeing more people in their 40s and 50s thinking about succession where previously those conversations didn’t start until their 60s or 70s.

Owners are exploring things like

• bringing children into leadership earlier,
• transferring shares gradually,
• setting up Family Investment Companies, or
• formalising plans to pass the business to the existing management team where family succession isn’t an option.

The conversations we all avoid

And let’s be honest – these conversations can be awkward.

We recently met with a large portfolio landlord and his wife, both in their early 60s, and still working 60 hours a week in a business they built over 20 years.

They had assumed that one of their four would take over, but they all have full-time careers. The first question was simple – do any of them actually want this?

We also met a client who ran a family bakery. His son, now Finance Director is keen to step up when his father steps away; but he knows he needs help. They have a great Operations Director in place, so we discussed what a future shared leadership might look like.

But these things need planning. As business owners, we can’t just live in hope (or denial).

The hope that one day someone will step forward and say “don’t worry I’ve got this” or that a buyer will magically appear.

There may need to be a restructure.

The business will need valuing.

And most importantly conversations need to happen – maybe lots of them – these things take time.

Talking about stepping back is never easy, especially when the business is tied up with personal identity. No one likes admitting they won’t always be “running the show”. But without proper planning, uncertainty can turn into fall-outs, disputes and avoidable tax bills.

Succession doesn’t have to mean walking away

Accelerating succession conversations isn’t about walking away. In many cases, founders are staying involved just in a different way.

Succession conversations allow business owners to protect the business while giving the next generation time to grow, make decisions and make mistakes in a safe environment.

And there are commercial advantages too. Businesses with a visible future leadership structure appear stronger to lenders, investors, suppliers and clients alike.

So, when is the perfect time to start planning?

What’s that they say? Oh yes! There’s no time like the present.

Succession shouldn’t be something that just happens to you. With the right advice, it’s something you design yourself.

And now more than ever, owner-directors are increasingly aware that waiting for the “perfect time” can mean missing an opportunity to pass on wealth tax efficiently and on their own terms.

So, if you’re thinking about what your next chapter might look like – whether that’s five years away or fifteen – it’s worth starting the conversation. Even if it feels slightly uncomfortable.

So, if the future is sitting on your to-do list, get in touch – you might just feel better afterwards 😊.

‘The Great Resignation’, an influx of employees leaving their jobs in unprecedented numbers over the last few years.

Since the pandemic, many people have re-evaluated their priorities, seeking better work-life balance, more meaningful roles, flexible working and growth opportunities. This trend shows no sign of slowing and reflects a broader shift in generational expectations in the workplace.

This wave has affected businesses of all sizes, but smaller companies, particularly those in more specialist fields, can feel a much larger impact. Finding and keeping the right people has become one of the biggest challenges for SMEs. Losing talented employees can disrupt growth, affect consistency across the business, and create gaps that are difficult to fill.

What’s the solution?

Nothing ever is a guarantee, but there are some tried and tested ways to give your team a stronger reason to stay and remain motivated.

One of the most effective tools is an EMI (Enterprise Management Incentive) scheme. This is a government-approved share option scheme, which allows businesses to grant selected employees the right to buy shares in the company at a future date at a discount (or even todays price).

By giving employees a stake in the business, it gives them more incentive for contributing to the growth in the company and hopefully staying in the long run. This incentive isn’t something that would particularly be easy to give up. If the shares increase in value, employees can reap significant gains upon selling them.

Can’t I just grant normal share options? Why is it tax efficient?

You can grant normal (unapproved) share options, but EMI options are specifically designed to make employee ownership more tax efficient for both the business and the employee – so why wouldn’t you choose EMI if you could?

Under a non-approved scheme:

• On exercising their options, the employee has to pay income tax and NICS at rates of up to 45%*.
• On sale, CGT at up to 24%* would be due based on the Market Value, less any amounts subject to income tax.
• A CT deduction can usually be made for the company, based on the amount on which the employee is subject to income tax.

Under an EMI scheme:

• On exercising their options, if done within 10 years of the grant, with no disqualifying event, and no discount at grant, there will be no income tax or NICS on exercise.
• CGT is payable on the sale of the shares, but only up to 24%* (with the potential to claim a lower rate of 14%** Business Asset Disposal Relief, with less strict conditions under EMI).
• A CT deduction can usually be made for the company, based on the difference between the market value when the shares were acquired and the amount the employee paid for them.

*based on current rates as of October 2025

**subject to increase to 18% from 6^th April 2026

How does my business set this up?

Before granting EMI share options, a business first needs to confirm it meets the eligibility criteria. The company must be an independent trading entity with gross assets of £30 million or less and fewer than 250 full-time equivalent employees. There are also conditions relating to the employees themselves, so it is important to involve a suitably qualified tax adviser to ensure compliance before moving forward.

While there is no formal HMRC approval process for EMI schemes, it is possible to agree the share valuation in advance. This is an area where experienced advisers can add real value, helping to reduce risk and ensure the scheme is structured effectively.

Companies are required to notify HMRC within 92 days of granting options, and there is also an annual reporting requirement to maintain compliance.

You would need to consult a solicitor to assist in drafting the relevant legal documentation, such as the option agreements, to ensure the scheme is legally robust.

Will it fit the needs of my business?

One of the biggest advantages of an EMI scheme is its flexibility. The structure can be tailored to the business’s goals and workforce, allowing it to be a powerful retention and motivation tool. For example:

• The number of options or timing of exercise can be linked to individual or corporate performance targets.
• Exercise may be tied to specific events or milestones, ensuring alignment with the company’s growth objectives.

In short, an EMI scheme can be designed to fit the unique needs of each business, providing a tax-efficient way to reward and retain the employees who are most critical to its success.

Next Steps

If you’re looking for ways to retain key employees and reward their contribution to your business, an EMI scheme could be the solution. If you want to find out more, please get in touch.

Find out what our members have been asking us this month…

My client has a company which received a qualifying EIS investment of £350,000 on 29 Aug 2023.  The nominal value of the shares acquired was small, and so most of the money has been allocated to a share premium account.

The company has grown as a result of this investment, and the company has been paying dividends.  However, there are no more distributable reserves left.

The directors would therefore like to do a capital reduction under  Companies act 2006 to reallocate the share premium account to distributable reserves (without cancelling any shares), to allow for further dividends using the cash surplus.

Please assume that the directors can and will sign the solvency statements etc to comply with the Companies Act. 

Concerning tax;

1. Can you see any other tax risks here?
2. I assume the transfer from share premium to distributable reserves is not a taxable event – please confirm?
3. Does this process affect the original EIS investment, in which case, would it help to wait to do this until after 29 Aug 2026?  If it can be done earlier, that would be better for the shareholders?

1. The transfer from share premium to distributable reserves does not have any tax implications (balance sheet movement);
2. I think the capital reduction may fall foul of the “value received” rules – Section 216( 2)(a) ITA 2007. You are effectively distributing what was originally capital on which EIS tax relief has been claimed by the investors.
3. No other tax risks, but in view of the above comments, you should probably wait until after 29 August 2026 to do the capital reduction.

I have a client who is a self-employed trekking guide. Since 6/4/25, he has spent all his time working across various countries in Europe and Asia on these expeditions.

His clients will come and meet him in whatever country, and he has no business base in the UK.  Nb  Earnings / Expenses are paid via a UK Bank account.

He has no property or dependents in the UK or other ties.

He spent less than a week in the UK 25/26

His expectation is similar for  26/27  , i.e. will not be in the UK more than a week.

The question is does he have to declare his earnings on a UK tax return for  25/26?   (That said, no idea where he does declare as moving from country to country!)

If not, does he have to notify HMRC of his circumstances in any particular way?

Based on the information provided, your client appears to be spending very limited time in the UK, with no UK home or other ties, and working full-time overseas. On that basis, they are likely to be non-UK resident under the UK Statutory Residence Test.

If they are non-UK resident, they would generally only be subject to UK tax on UK-source income. As their trekking activities are carried out overseas, this would typically be treated as non-UK source income and therefore outside the scope of UK tax. In these circumstances, a UK tax return may not be required, unless they have other UK income or remain within Self-Assessment.

It would, however, be sensible to notify HMRC of their position (for example, via a P85 and/or final return where appropriate).

A key point to be mindful of is that, while they may not be UK resident, there is a risk of becoming tax resident in another country (or potentially more than one), depending on time spent and local rules. This can sometimes lead to overlapping tax residency positions, which may require consideration of double tax treaties and local filing obligations.

If you have a question similar to the above or want to know more about our Tax Partner Pro membership please drop us an email [email protected]