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.

 

Dividend Planning with Alphabet Shares

Alphabet shares provide an alternative to dividend waivers, which can carry significant risks due to their lack of commercial substance.

Dividend waivers involve shareholders formally waiving their entitlement to declared dividends, enabling remaining shareholders to receive distributions to the exclusion of the shareholders who waived their rights. The form of a waiver needs to satisfy certain legal requirements and must pre-date the declaration of the dividend. They should remain effective for periods of less than twelve months to avoid the risk of being a gift for IHT purposes.

On the other hand, alphabet shares create flexibility in the structure of dividend payments. Each share class can carry defined rights regarding dividend participation, enabling differential dividend policies to be implemented through board resolutions declaring different rates for different classes. This approach provides greater certainty and less tax risks.

Alphabet shares therefore facilitate long-term dividend planning strategies that increase flexibility both now and in the future, taking account of changes in shareholdings over time.

Having said that there is a danger where income is diverted for tax purposes particularly where shares are acquired undervalue by family members or where dividend policies are structured to benefit specific shareholders based on their tax positions rather than commercial considerations.

You must be able to demonstrate a genuine commercial rationale extending beyond tax efficiency considerations. This requires evidence that different share classes reflect meaningful economic distinctions between shareholders based on their varying contributions to business success, different risk appetites, distinct liquidity requirements, or different levels of business involvement.

Issues can arise where non-working family members acquire valuable shares without providing adequate consideration or where dividend policies systematically favour shareholders with lower tax rates despite their limited contribution to business success.

If dividend planning is to be conducted successfully between spouses, the use of dividend only shares significantly increases the risk of a challenge from HMRC. The class of shares held by the lower-income spouse must carry genuine capital and/or voting rights. It cannot be seen as just a diversion of income to save tax.

When issuing alphabet shares you avoid the following:

• Founders gifting shares or selling them at undervalue to family members
• Founders providing funds for later generation to subscribe for shares.
• Altering share rights with expectation of advantage to other shareholders
• Founders providing services without adequate remuneration with expectation of benefiting family shareholders
• Intentions to pay dividends disproportionately on shares held by family members.

HMRC will also look at the following:

• Whether sufficient distributable reserves exist for equal dividend payments
• Whether systematic patterns of differential dividends emerge over multiple years
• The relationship between dividend recipients and non-recipients
• Whether tax advantages are obtained through the arrangements
• The commercial rationale for differential treatment
• Arrangements involving shares with restricted rights subscribed at par,
• Dividends paid on share classes held by minor children.

There are specific provisions to prevent income diversion to minor children, making alphabet shares inappropriate for under-18 beneficiaries in most family company situations regardless of commercial justification.

Alphabet shares continue to represent valuable tools for achieving tax-efficient profit extraction within owner-managed business structures, particularly where different shareholders have varying degrees of business involvement, different but Alphabet share structures and dividend policies should demonstrate genuine commercial substance extending well beyond simple tax efficiency considerations.

 

Companies House

New identity verification (or IDV) checks will be required from 18 November 2025 for directors and others.

Who needs their identity checked?

All directors, members of a limited liability partnership (LLP) and people with significant control (PSCs) will need their identities verified on incorporation.

For those already in these positions, IDV will be required as the company’s confirmation statement becomes due.

From spring 2026 those delivering accounts to Companies House will also need their identity checked and further expansion of the requirements for less common entities are expected in due course.

How can IDV be done?

IDV can be done by an authorised corporate service provider (ACSP), such as an accountancy firm that has registered as such, or using one of the government-based services set out below.

The government IDV options are as follows:

• gov.uk One Login ID check app – this uses a smartphone to check biometric information on an identity document, together with the camera to check the person’s image matches the document details
• gov.uk One Login web service – this involves answering more detailed security questions on the web service, such as details of your bank account or mortgage, together with providing ID document details
• gov.uk One Login face-to-face service – this involves a visit to a post office to present relevant documents and for the documents to be matched to the person whose ID is being checked, but the appointment must be booked online and an email address is required.

ACSP IDV options

Two options are available for an ACSP that wishes to (it is voluntary) offer IDV services for their clients. You will need to provide full name, date of birth, address history and an email address specific to you. You will also need to provide specified identity documents, such as a passport or driving licence.

The documents that are eligible depend on whether option 1 or 2 (see below) are being used.

• Option 1 uses technology (called IDVT – identity verification technology) to confirm ID, by reading the cryptographic data (such as biometric information embedded in your passport) and comparing it with photos or videos of the person. The ACSP must checking that the evidence is real and the person presenting it is that person.

• Option 2  uses manual verification of ID documents and comparison with the person, but to use this option the person doing the checks must have had training in the relevant standards on how to do this properly. Such training must follow the Home Office best practice guide and include how to check for signs of tampering and querying if there is any damage to a document.

 

Redundancy Payments

Some organisations are stating that redundancies are necessary to financial stability. Others downsize for one reason or another.

The redundancy process brings together both employment and tax laws and both are complex.

Most elements of a typical termination payment are liable to tax and NIC.

Since 2018, legislation has deemed payments related to the termination of employment to be ‘relevant termination awards (RTAs)’.

The 2018 legislation introduced the post employment notice payment (PENP), which  must be compared to the RTA. There are a number of potential outcomes.

• If the PENP value exceeds the full value of the RTA, then the employer is required to deduct tax and employees NIC from the termination payment via PAYE, and account for employers’ NICs.
• If the PENP value is less than the full RTA value, any excess of the RTA may qualify for the £30,000 tax relief mentioned above.
• If the RTA exceeds the PENP value and the £30,000 tax relief, the excess will again be subject to tax under PAYE. However, it will be liable to Class 1A and not Class 1 NICs, so there is no further deduction for the employee.

Then if applicable you must determine if the £30,000 tax relief is available and that in itself is complex and beyond what we can cover here.

Therefore, don’t leave the calculation of tax and NICs on termination payments to the last minute. You will probably need professional advice.

 

Scammers Target Solicitors

The Law Society and the National Crime Agency (NCA) have launched a joint campaign to tackle the risks of payment diversion fraud in property transactions, calling solicitors and conveyancers the ‘first line of defence.’

There were 143 reports of this type of payment diversion fraud in the year to 2024/25, with victims losing an average of £82,000.

Criminals are targeting critical moments in the property transaction when large sums are being transferred between buyers, sellers, and law firms, trying to scam either customers or solicitors.

Fraudsters pretend to be another lawyer or a bank to dupe solicitors into sending a client’s payment to the wrong account, and the criminals create fake e-mail addresses and invoices to make the process more believable.

They also contact customers claiming to be a solicitor, and then the victims are manipulated into transferring large amounts of money, with house deposits or full property purchase funds being targeted.

 

HMRC Installing Modern Phone and CRM Systems

HMRC has confirmed that they are finalising plans to buy a brand new telephony system with proper call management and digital assistant support.

This ambitious plan will see 12 separate contracts for different aspects of the HMRC contact centre, phone system and customer engagement services merged into a single agreement with one supplier instead of old legacy systems which do not talk to each other.

The £500m contract for a fully powered eCRM and Contact Centre as a Service (CCaaS) telephony system will be awarded by April 2026 and will run for eight years initially

This will better manage call queues, provide accurate wait times, and offer intelligent digital assistant support. The existing phone system has no queue management, which means anyone on hold for more than 50 minutes is simply cut off, while HMRC cannot put callers in a callback queue, which is standard practice outside the public sector.

 

Tips and Service Charges

Employers who receive tips, including service charges and gratuities, into their business are under an obligation to pass 100% of them onto their staff in a fair and transparent way under rules effective from 1 October 2024.

The Employment (Allocation) of Tips Act 2023 came into force on 1 October 2024 along with a statutory Code of Practice on the fair allocation of tips. This brought into law an obligation on affected employers to pay the total amount of qualifying tips that are paid at, or otherwise attributable to, a place of business of the employer, to their staff – including employees, workers and agency staff – in a fair and transparent way.

If the worker receives and keeps a tip, with no employer control or involvement, the tip is outside of the scope of the legislation. Digital tipping, where a customer uses an app to directly tip members of staff, bypassing the employer altogether, is also out of scope.

If the company operates a service charge this is likely to fall within the scope of the legislation because they will have control over it when they receive it. They will need to develop a system to allocate and distribute fairly and transparently 100% of that service charge among the workers in the business unit in which the tips are received.

 

Jewellers, Dentists and Payroll Agents

A total of 109 companies from across the UK are on the latest deliberate defaulters list, owing HMRC a grand total of £201m, split between £123m in tax and £79m in penalties, including recurring a payroll company, software developers, caterers, newsagents, landlords, and a dentist and bookkeeper. In each case, the taxpayer failed to fully disclose their default at the outset of an investigation.

One retailer of watches and jewellery, owes £5m in tax and £2.8m in penalties for a four-year period from June 2014 to August 2018. Now in liquidation, the statement of affairs showed HMRC as the biggest creditor due to the outstanding VAT bill, while the business, which has two directors, had total debts of £8m when it went bust.

A software developer appointed voluntary liquidators in June 2024, with unpaid tax debt of £1.9m related to unpaid PAYE, and a penalty of £1.3m for four years up to March 2023.

A freight delivery business has unpaid tax of £.18m and a penalty for £1.3m, for the 2022-23 tax year. It was set up in September 2020 with a sole director but only filed one set of dormant company accounts.

And so, it goes on.

Publishing the names of deliberate defaulters is intended to send a clear message that this behaviour has consequences and aims to encourages compliance across the board.

 

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.