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.
Taxes Going Up!
Former chancellor George Osborne was joined on a Treasury select committee panel by former business secretary Vince Cable.
George Osborne’s view was that tax rises are inevitable but needed to be put alongside expenditure reductions and constraints. He was happy with the Chancellor’s fiscal rules and felt that they were quite sensible.
George Osborne was the Chancellor who increased VAT to 20%, introduced additional taxation of pensions, and introduced higher stamp duty on higher value properties. This was all done alongside expenditure reductions.
Vince Cable thought that a substantial tax increase is unavoidable but that tax rises needed to go hand in hand with tax reform and that the UK has an extraordinarily complicated and perverse system of taxation, and if an income tax rise were coupled with integration of the national insurance system of employees, a partial integration or a stepping stone of effectively making the two the same would be a very positive step.
The Budget will be announced at 12.30 on Wednesday, 26 November.
£1m Audit threshold for Scottish charities
The audit income threshold is set to rise from £500,000 to £1 million almost immediately.
As a result, over 90% of Scottish charities will not need an audit once new regulations are passed by the Scottish parliament.
Charities have been complaining about the high cost of audits, and as the number of firms offering the service has gone down, finding specialist charity auditors is proving more and more difficult.
Secondary legislation has been laid in the Scottish Parliament, which, subject to approval by MSPs, will apply to financial years beginning on or after 1 January 2026.
The threshold change will come into effect from 2026, but does not include any leeway where a charity falls over the limit on a temporary basis, perhaps as a result of a single major donation.
There are also some changes to reporting requirements for Scottish charities.
Christmas Traders
People selling homemade crafts and Christmas cards at markets this December need to keep within the £1,000 side hustle threshold, or face a demand from HMRC.
HMRC is warning anyone selling handmade gifts and trinkets at venues around the country that they need to check if their earnings exceed £1,000 a year.
Anyone who earned over the £1,000 threshold from side hustles in the 2024-25 tax year will need to register for self-assessment as a sole trader, file their return, and pay any tax due by 31 January 2026.
The threshold applies to all trading activities, so you need to add up the income from all trading sources and register if that total exceeds £1,000.
This warning is part of HMRC’s Help for Hustlers campaign, which has a dedicated website with tips and advice and a tool to calculate tax liability.
If you’re just selling unwanted personal belongings from time to time, like old toys and clothes, whether it’s online or in person, you don’t usually need to tell HMRC. It’s only if you’ve sold a single personal item or collection for more than £6,000 that you need to tell HMRC. Under £6000, you are covered by the chattels exemption.
Remember that platforms like eBay, Vinted and Facebook Marketplace have to report details of trading activities on their platforms to HMRC. So, tell the Revenue before they tell you.
Ferrero Takes the Biscuit
Ferrero’s ‘Nutella Biscuits’ have been found to be zero-rated, despite looking strikingly similar to United Biscuits’ Blissfuls that were found to be standard rated in 2023.
Food is generally zero-rated for VAT except for a few crumbs of complication. Confectionery, for example, is excluded unless it’s a cake or biscuit – and even then, biscuits “wholly or partly covered with chocolate or some product similar in taste and appearance” lose their zero-rating.
So, when does chocolate become a “covering”?
Whether the biscuits are standard or zero rated has huge implications in terms of price and margin.
Both Nutella Biscuits and Blissfuls contain biscuit, chocolate-like filling, and a decorative lid. But one is zero rated and the other standard rated.
Ferrero’s lawyers managed to convince the tribunal that their biscuits were not “partly covered” with chocolate. The visible chocolate-like ring, or “sealant”, sits within the biscuit structure and not on top of it. Similarly, the chocolate filling is visible through, but does not form part of the outer surface.
The lattice-like biscuit on top of the Blissfuls was deemed insufficient to prevent the chocolate layer that was showing through from being treated, for VAT purposes, as a partial covering. Square that circle if you can.
It may be that HMRC had been keen to get back on McVities, the makers of Blissfuls. After all, McVities won their case that a Jaffa Cake was indeed a cake and so zero rated.
Farming Profits
A recent survey has found that over a third of farmers made no profit last year, and half of all farmers considered leaving the industry after the government introduced punishing inheritance tax changes.
Low profits, long hours, and mental strain are casting doubt over the farming industry’s future.
Increased input costs were the biggest financial pressure facing farmers, followed by changes to government grants and payments and then inheritance tax.
The farming community have lobbied hard against changes to inheritance tax (IHT) since the Budget announcement last October to remove IHT free status.
If there is no substantial backtracking on the IHT changes, then farmers need an inheritance tax transitional gifting rule.
Current rules incentivise farmers and business owners to hold on to their farms and businesses until their deaths, but the April 2026 changes reverse the incentive, making lifetime giving the best approach.
Bringing in changes to agricultural and business reliefs with a cliff-edge date of 6 April 2026 is leading to great anxiety among older farm owners, as they are unlikely to survive seven years and therefore are unlikely to see making gifts as a solution.
The chancellor could allow gifts made between now and April to continue to qualify for the 100% relief currently available.
The speed of the announcement of the APR/BPR overhaul last October left farmers and business owners off guard, with no time to properly consider sensible tax planning.
In a submission to a House of Lords inquiry about the impact of the changes to APR/BPR, it was noted that for older farmers and business owners, there is a substantial risk that they will die within seven years of a lifetime gift, with the result that the gift will be ineffective for IHT purposes.
If necessary, the amendment could be restricted to those over a certain age or in ill health.’
Changes to Lease Accounting and Reporting
A major change in the lease accounting rules for companies comes into effect from January.
The effective date for these amendments will be periods beginning on or after 1 January 2026, but you can apply them early.
For the first period in which the change in accounting standards applies, the prior period will need to be restated to be comparable. So, if, for example, your accounting year end is 31 December 2026, which will be the first year you are applying the changes, you will also need to restate 31 December 2025 to be comparable.
Under the previous accounting rules, leases were classified as either finance leases (recorded on the balance sheet) or operating leases (kept off the balance sheet). Under the revised rules, most leases will now be treated as finance leases, meaning they must be recognised on the balance sheet.
The lease liability will need to be calculated based on the present value of the future lease payments. Therefore, a discount rate will need to be applied over the period of the financial obligation.
Each year, the asset will be depreciated in line with the period of the lease. The depreciation will reduce the asset, and increase the depreciation charge in the profit and loss (P&L), which was previously recorded as the rent expense recognised in the P&L.
The finance lease liability will then be unwound based on the payments made, and the unwinding of the discounted cash flow will be recorded as the finance cost in the P&L. This, in turn, will reduce the amount of the loan.
You don’t need to apply the new rules to:
- short-term leases, which are defined as leases with 12 months or less as at the date of commencement, and with no option to purchase the asset at the end of the lease.
- low-value asset leases.
If the lease of the asset has multiple elements to the cost (such as the use of the lease, but also the maintenance and service charges for it), then you must determine the relative stand-alone price of each part of the agreement, between the parts that relate to the lease, and the non-lease components.
VAT Fraud
There are reports of a worrying rise in VAT-related fraud.
In one reported example, a client registered for VAT, but before they could submit their first VAT return, they were notified that a refund was due. The VAT account had been assigned to another Government Gateway account, and a fraudulent return was submitted claiming a refund.
Reports suggest that this is a common problem with new registrations.
HMRC’s view is that the fraudsters are attempting to steal money from HMRC, not from taxpayers, and so no customer will experience financial loss because of these incidents.
To help prevent fraud, HMRC are advising all businesses registering for VAT to add the VAT online service to their business tax account as soon as they receive their VAT registration number.
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.
