Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.

While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.

 

UK Company Size Thresholds

The new government has confirmed that it will be continuing with legislation to increase company size thresholds, but it will not, at this time, be taking forward proposals reducing reporting requirements for medium-sized companies.

Legislation to increase the turnover and net asset size thresholds by approximately 50% is due to be laid before parliament by the end of the year and is expected to come into force on 6 April 2025.

Companies able to move down a size category will be entitled to the accompanying reduction in reporting requirements.

 

Time to Change Accounting Date?

Basis period reform affects how the trading profits of unincorporated businesses (such as sole traders and individual members of partnerships) are calculated for tax purposes.

For businesses who don’t draw their accounts up to 31 March or 5 April, the new ‘tax year basis’ introduced in April 2024 will result in additional ongoing administrative burdens. One way to avoid these is to change year-end.

Changing accounting date to 31 March or 5 April removes the need to apportion figures from more than one set of accounts, and the possibility of having to file and correct provisional figures each year. However, it will not remove the need to apply the tricky transitional rules in 2023/24 (see below).

Ultimately, whether a change in accounting date is suitable or possible is a commercial decision, and businesses will need to consider the wider pros and cons beyond tax.

However, if a business does decide to make the change, it is worth modelling the potential tax payment profile before deciding whether to prepare one long set of accounts or two sets. Although the same amount of additional profits will eventually be brought into account overall, one option could soften the blow more than the other.

Finally, remember that the deadline for making a change of accounting date is 31 January following the tax year in question – ie, 31 January 2025 for a 2023/24 change.

 

New MTD Guidance

The new Labour government is yet to comment publicly on Making Tax Digital, although some form of update or notice on MTD IT is expected in the upcoming Budget.

In the meantime, HMRC has released two pieces of guidance on Making Tax Digital for income tax.

It should be remembered that the Treasury is yet to officially confirm that Making Tax Digital for income tax (MTD IT) will go ahead on its current timeline.

The guidance includes a section on what’s included in a taxpayer’s qualifying income, giving several examples that combine self-employed and rental income, income from jointly owned property, qualifying care relief, partnerships and trusts, and examines how residence and domicile affect qualifying income.

It also contains a link to an interactive tool for you to check if you need to use the service – and if so, when you need to start. It runs you through a series of questions based on the MTD IT eligibility criteria, before displaying a final verdict about whether you need to register or not.

Where you have 2 agents acting for you (eg bookkeeper or letting agent plus an accountant) HMRC proposes two types of agent.

• A main agent who has full access to all services, can do all tax-related filings including making final declarations, and can view tax calculations. Only one main agent is allowed at a time for a given taxpayer.
• A supporting agent who has more limited access, can submit in-year updates but cannot make final declarations and self-assessment filings or view calculations. Multiple supporting agents are allowed for each taxpayer.

According to the document, taxpayers will be able to authorise a main agent and multiple supporting agents to act on their behalf.

 

KPIs – Key Performance Indicators

Key performance indicators can tell a story, bring a business to life and make it meaningful.

There is always a reason any business exists and that is rarely just to make profits. An essential KPI for any business is therefore a measure of their performance against achieving fulfilment of that specific purpose. This may not necessarily be a financial KPI although they will be important as well.

There may, for example, be certain numbers that really matter to a business owner and the measurement may help to focus the efforts of those working on the ground.

Certain KPIs, particularly financial KPIs, can help to  drive the desired results for that business. They may be measures of quantity or reflect more on efficiency.

Every business has the capability to generate a huge amount of data and it is possible to lose sight of performance – you cannot see the wood for the tress. KPIs are a measure of the pulse and if that is not as expected, they give you a focus on what parts of the business require some TLC.

Different businesses will identify their own key stats that they want to track, but that will also be influenced by the owners and the people working in that business. They will be a measure of what is important to these various people.

 

Claiming Employment Expenses

Anybody wanting to claim employment expenses will now need to use a paper P87 form and provide supporting evidence to prove their eligibility.

HMRC is tightening the process and adopting a “check first, pay later” approach after reporting that the current way of working has resulted in many ineligible claims for employment expenses.

Employers can choose to reimburse expenses incurred by an employee. If not reimbursed, the employee can claim income tax relief for allowable expenses from HMRC. These customers can claim this tax relief through PAYE if the amount claimed is up to £2,500.

If you incur job-related expenses of up to £2,500 per tax year which are not fully reimbursed by your employer you will need to provide the information alongside the printed P87 form in the post.

The address to send evidence to is:

Pay As You Earn and Self-Assessment
HM Revenue and Customs
BX9 1AS

HMRC said it is working to reinstate the digital process. Those looking to claim for uniform, work clothing and tool expenses will only have to wait until 31 October for a digital route to claim. HMRC expects all digital claim routes to be available by April 2025.

Examples of the evidence required range from a copy of a mileage log for each employment to claim for mileage allowance; copies of receipts or other evidence showing how much was paid for subscriptions to professional bodies; evidence that the claimant must work from home, such as their employment contract, to claimants of expenses for working from home.

 

IHT – Time for Change?

During the election Labour was silent on the two existing wealth taxes: inheritance tax (IHT) and capital gains tax (CGT). Both these taxes are inefficient, with the former affecting fewer than 4% of estates and raising a mere 0.7% of the UK’s tax revenues.

Various bodies have recommended changes to IHT. There seems to be a feeling that IHT is broken and needs fundamental reform, ideally leading to a situation where more estates (or beneficiaries) pay IHT, with a consequential rise in tax revenues.

The UK is only one of four OECD countries that taxes estates with the others taxing the beneficiaries instead of the estate, mostly bolstered by a gift tax during lifetime. Death tax rates are generally higher than for lifetime gifts and most countries aggregate over a set period.

Taxing lifetime gifts would certainly accelerate the tax take, as you don’t need to wait for the taxpayer to die in order to collect.

The UK is one of the few countries to impose a flat rate of tax – nearly every other country has progressive rates eg France has many marginal rates (from 5% to 60%) which depend on both the amount given and the familial relationship to the donor.

Where they are available, business relief (formerly called business property relief) and agricultural relief (formerly agricultural property relief) can reduce the value of business or agricultural assets being passed on in lifetime or on death by either 50% or 100%. Rumours about these being abolished have circulated for many years.

It is also proposed that IHT be extended to catch assets within registered pension schemes.

It is possible that the Capital Gains Tax uplift on death will be scrapped, with base cost of the assets inherited being carried over to the beneficiary. This would bring in about £1.6bn of additional revenues per annum.

The UK could, of course, move towards a European model of IHT, with the tax paid by the beneficiaries and progressive tax rates that are dependent on both the relationship to the donor and the amount received.

However, it is important to realise that the reason France, for instance, brings in more IHT (at 1.4% of tax revenues, versus 0.7% in the UK) is that the thresholds are surprisingly low, meaning that more people end up paying it.

 

Changes to Probation Periods

The law on this hasn’t changed yet.

The government is proposing that all employees are given protection from unfair dismissal from their first day of employment, however they have not released any further details as to how this will work in practice.

Currently, employees can be dismissed within a two-year window before they can claim ‘unfair dismissal’, with the exception of employees who possess a protected characteristic.

Protected employees should always be managed more cautiously.

Probation periods are a widely used tool but there is no legal requirement to utilise them, yet.

If you already have an established probation process, you will continue to use this. The government may make the process mandatory in due course.

Currently most probation periods are six months with the option of an extension if the employee has not yet demonstrated their suitability.

The best practice probation process will include regular catch ups about the employee’s progress and a training programme or shadow process to ensure the employee is fully equipped to succeed in their new role. If a gap in their knowledge or skill is identified, this is the time to plug it.

Probation periods are a way to monitor absences and reiterate attendance expectations. If concerns about the employee does arise these should be addressed, as issues identified during a probation period will often escalate if left unaddressed.

Whether an employer decides to pass, fail or extend a probation, a probationary meeting should occur, and following this a formal outcome letter issued to the employee.

It is not just probationary periods that may become mandatory, the government has recently released their Employment Rights Bill, which includes things like making flexible working the default and ending fire and rehire practices, and day one rights for paternity, parental and bereavement leave. There is also a provision to change statutory sick pay so it is available from the first day of absence and repealing the anti-union legislation put in place by the previous administration.

 

Companies House – ID Verification

Companies House has issued a timeline for ID verification, which will affect more than seven million company directors who in future will have to provide proof of their identity before filing information on the register to reduce abuse and fraud.

The first registration point for ID verification will be for accountancy firms and solicitors registered for anti-money laundering, which will kick off in early 2025.

By autumn 2025 identity verification will be a compulsory part of incorporation and new appointments for new directors and persons with significant control (PSCs), who will be required to verify their identity at the point of incorporation.

There will be a transition period of 12 months for existing companies until autumn 2026. They will be required to provide identity verification credentials for their directors and PSCs when their confirmation statement is due within this period.

 

Companies House Penalties

The penalties will start at £250 for the first offence by companies of a minor nature, rising to £2,000 for repeat offenders, which repeatedly ignore the registration rules.

More serious offences could result in civil action, director disqualification or potentially even criminal prosecution.

Depending on the offence, penalties can be:

• fixed penalty – a set amount based on the offence, previous behaviour and other factors.
• daily rate penalty – a daily penalty for each day that the offence continues.
• combination of a fixed penalty and daily rate penalty.

New powers for Companies House include much tougher oversight of the register of companies. This includes the following measures:

• Ensure that anyone who is required to deliver a document to the registrar does so (and that the requirements for proper delivery are complied with);
• Ensure information contained in the register is accurate and all information required is disclosed;
• Records kept by the registrar must not create a false or misleading impression to members of the public; and
• Prevent companies and others from carrying out unlawful activities, or facilitating others to carry out unlawful activities.

 

Questions?

If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at alan.long@thelongpartnership.co.uk.