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.
Tax on Accountants and Lawyers
It appears that the Treasury is looking to raise £2bn by making LLPs pay employer national insurance.
It is described as a tax on accountants and lawyers because many firms choose to operate as limited liability partnerships (LLPs), with ‘equity partners’ holding a stake in the business and the partners working in a self-employed capacity. This structure is also widely used by fund managers, private equity and GP practices, bringing accountants, tax advisers, lawyers and GPs more firmly into the NI.
We are not and never have been an LLP. It tends to be larger practices although not exclusively.
Affluent middle-class partners in white collar professions would easily fall into the Chancellors category of those with the broadest shoulders.
Individual members of LLPs are treated as self-employed for national insurance purposes and pay the lower Class 4 rate as a percentage of the partner’s annual taxable profits. For partners this is equivalent to 6% on profits over £12,570 up to £50,270, and 2% on profits over £50,270.
Employer’s NIC is calculated and paid by employers by reference to salary payments paid via the payroll/PAYE. Partners receive a profit share – that is a share of the net profit of the business, usually not known until the end of the accounting period, or some while afterwards. It is therefore not clear how the new NIC charge would be calculated or paid.
It remains to be seen if this new charge is extended to normal partnerships. If not, would LLPs merely convert to a more traditional partnership structure to avoid the charge. The alternative is a company.
Who Pays Most of the Tax
HMRC figures show that around 500,000 individuals paid £93.82bn in income tax and CGT in the 2023-24 tax year, equivalent to 33% of the £288.5bn paid by the entire tax paying population.
The top 100,000 taxpayers paid £54.9bn, or 19% of the total collected.
So, a very small group of individuals is responsible for a large share of the nation’s tax revenue and if just a handful of these wealth creators were to leave, the fiscal impact would be both immediate and severe. Presumably this will affect government thinking when setting taxes for these very wealthy individuals.
The Chancellor has said that those with the broadest shoulders should pay their ‘fare share’.
However, we will find out what she is planning on 26 November. Could it be a wealth tax, slashing ISA account limits, increasing Stamp Duty on expensive homes in England or a reduction in the tax-free drawdown limit for pensions, perhaps to as low as £100,000. Time will tell.
Business and the New Inheritance Tax Regime.
Tax experts appearing at a House of Lords committee warned that overhaul of BPR will not produce sufficient revenue to justify complex new rules from April 2026.
House of Lords Finance Bill Sub-Committee questioned tax experts about government plans to change agricultural and business property reliefs for inheritance tax.
Committee chair Lord Liddle asked if there was enough awareness about the IHT changes for business and whether HMRC would be able to cope with the increased workload and what guidance was available for businesses.
They were informed that there is a large swathe of business owners who don’t realise what’s happened because it’s all been about the farmers. There is an education exercise that HMRC can do for accountants and business owners.
One of the concerns is the massive number of businesses that HMRC would now need to scrutinise to determine the correct value on which IHT would be charged, Can they actually cope.
Another was whether it is worth all this hassle, including the sinking of some businesses, to raise what the government estimates could be as low as £500m of tax.
It was recognised that there needed to be a relief for elderly taxpayers and proposing a transitional relief for people who are elderly and are not going to use the reliefs that the government say are available.
It was also suggested that the changes be deferred to 2027 to give more time for planning, given that there is still uncertainty what the final rules will look like.
Money Laundering
The government is planning to take the supervisory role of Professional bodies and give it to the Financial Conduct Authority. They will hold responsibility for ensuring accountancy and legal firms comply with anti-money laundering legislation.
The proposal is for The Financial Conduct Authority (FCA) to be given responsibility for supervising all firms across the accountancy and legal sectors. The timescales for the change aren’t clear, as government will need to pass primary legislation, but the move means that the FCA will be supervising an additional 60,000 entities on top of the 17,000 it already supervises.
ICAEW is the largest in accountancy, supervising around 10,000 firms, of which we are one.
It seems likely that supervisory effectiveness will reduce significantly in the short-medium term given the size of the supervised population, as it will take many years for a single professional services supervisor body to reach equivalent levels of supervisory effectiveness of the existing supervisory bodies.
There are concerns that the FCA does not have the expertise or knowledge of the accountancy profession to effectively monitor AML at firms. The FCA would have to build expertise across a wide range of different sectors, professions and sizes of business, and much valuable existing expertise would be lost, increasing the risk of economic crime rather than reducing it.
Amazon Web Services Outage
A global outage of Amazon Web Services (AWS) hit companies and organisations around the world, as the IT giant’s cloud computing services had technical issues, making it impossible to use many web sites and vital services hosted on the IT giant’s servers. This included HMRCs website which was affected for several hours making online submissions impossible. It also affected sites from McDonalds to Amazon and Snapchat to Xero and Lloyds Banking Group.
The issue kicked off just after 5am on Monday morning UK time, with Amazon saying it was ‘investigating increased error rates and latencies for multiple AWS services’, which affected ‘multiple Availability Zones (AZs) in US-EAST-1.
In the UK, the outage affected HMRC online services, with taxpayers and agents turning to phone services at the tax authority to resolve urgent issues as they were unable to get on the HMRC website.
By late morning, Amazon Web Services, the tech giant’s cloud computing division, was being restored with the HMRC website back up and running.
AWS has a 36-month contract valued at £350m with HMRC and also a £94m DWP contract, which have been in place for nearly two years.
All HMRC online services were back up and running by late morning. Customers, including agents, were unable to log into their online services via Government Gateway. Normal service was resumed by 11am.
AWS recently made a submission to the Treasury Committee which said that financial services customers are choosing to use AWS to support and improve their security and resilience, and that AWS has a comprehensive approach to resilience that spans multiple layers of protection, ensuring businesses can reliably maintain operations.
AWS servers affected are based in the US and the Chair of the Treasury Committee questioned whether HM Treasury was ‘concerned that seemingly key parts of our IT infrastructure are hosted abroad’.
The Resignation Ripple
Over the years we have experience this on a number of occasions. One employee handing in their notice with spark others to do the same. Research suggests that around 30% of employees had followed a colleague out of the door.
Is there anything you can do to reduce the risk?
A starting point is to understand why that initial person is leaving. Have your wage and salary rates fallen behind the curve, or perhaps there is a toxic member of staff that they want to get away from. Once you know and understand the problem you can see about fixing it.
You always want to part on good terms. The grass is not always greener, and they may ask to come back.
Fill the gap as soon as possible so that the rest of the team do not feel they are having to shoulder excessive additional work. Then organise a smooth handover of knowledge and process. If you can use the leaver to do the training, it stops that burden falling on the rest of the existing team.
Cyber Actors
Here are some of the common ones.
Insiders
When somebody leaves, do you remove their access and privileges on your computer system. In our case, it generally gets done as they go out of the door, if not before. We probably don’t need to be quite that quick but once somebody decides to raid your records post exit for useful information that might help them in the future, it is too late. These days it is very easy to quickly download large amounts of data even if it is just names and addresses of suppliers, customers and staff. Better safe than sorry.
Hacktivists
There may well be people out there who don’t like what you do on principle and so might be interested in disrupting your activities, not for financial gain, but because they want to do it. Maybe you are involved in an industry that has vociferous critics. Maybe you’re an accountant and perceived as promoting tax avoidance.
Organised criminals
These are primarily in it for financial gain and are likely to have considerable resources to achieve their aims. Their tactics can be quite sophisticated and will often us AI technology. Major losses by larger businesses can occur by deception.
One area that has been reported to be of interest to these criminals are mergers and acquisitions because large sums of money can be changing hands, which through deception might be “diverted”. So, lawyers and accountant working in this field need to be particularly vigilant.
Hobbyists
These are the boy racers of hacking. It may be just for the thrill or for bragging rights with their peers. Their techniques may not be that sophisticated and they have limited resources, But given that damage is their aim, it can still be a painful experience for the target. They can be unpredictable and could well strike when you least expect it.
State actors
State-backed hackers are likely to seek to cause as much disruption as possible. They will have deep pockets and be well resourced. They may not target large corporates necessarily but large numbers of small operators making up in quantity for the lack of size, possibly utilising known weaknesses in systems, possible ones that you did not even knew existed in your software. Have you installed your most recent security updates yet?
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.
