0 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.
Will Accountants Become Superfluous
AI is supposed to eliminate the need for many businesses including accountants within 5 years. This will apply to all knowledge work and those lawyers left in practice will probably be based somewhere like India where salaries and fees are less.
The thinking goes that if machines can reconcile, draft, summarise and analyse in seconds, what’s left for human accountants?
But perhaps AI allows humans to redefine what work is meant to be?
Work was meant to be about creative problem solving, empathy, judgment, responsibility, accountability, contextual interpretation, and trust. AI will let us do that better and faster.
AI can be turned into an unprecedented opportunity to liberate an entire workforce from busy, mundane and repetitive work.
For years, we have all invested in systems, platforms and software to automate parts of our processes. AI simply accelerates what was already underway leading to significant productivity gains.
When AI handles execution, the human role shifts upward.
The accountant of tomorrow is not the person manually processing transactions. The new value lies in interpreting insights from perceived context and finally getting to explaining what the numbers truly mean and what should be done next.
The question isn’t will AI replace accountants. It’s more what accountants and other professionals choose to become in the AI era.
It’s going to be an interesting 5 years!
VAT on Commission Sales
There are a number of situations where the sale proceeds of a transaction are split as for example when a gallery sells a painting and retains a percentage of the sales price.
A disclosed agent is one where the consumer, who will be buying the artwork, is aware that the artwork is being sold by a third party (i.e., the artist).
An ‘undisclosed agent’ is where the consumer is unaware of the third party involved and, as far as the consumer is aware, they are purchasing the goods directly from the gallery acting in their own name.
The invoicing rules and therefore the VAT treatment will depend on who is perceived by the buyer as selling for example, the painting.
If the gallery is acting as a disclosed agent, the artist, if VAT registered, will be liable to account for any applicable VAT on the sale of the artwork directly to the consumer. The gallery is supplying services to the artist and accounts for VAT on that basis.
If the gallery is acting as an undisclosed agent, it is effectively seen that the gallery is the seller of the artwork and is acting in their own name. In this case there is a deemed purchase of the artwork by the gallery, from the artist, and then an onward sale of the artwork by the gallery to the end consumer. The gallery must account for VAT on the full selling price of the artwork. If the artist is VAT registered, they should charge VAT to the gallery on the deemed supply.
Struggling to Pay Tax
A recent survey found that almost all accountants and financial advisers surveyed are seeing a rise in clients struggling to pay tax bills.
Half of those surveyed said the biggest increase is in clients struggling to pay corporation tax, with 26% singling out VAT, and 24% income tax.
It will not be surprising to see that company insolvencies are at an eight-month high, rising to 2,022 in March 2026, an increase of 7% month-on-month.
As everyone will be aware the new tax year has brought a fresh wave of cost pressures including the effects of frozen thresholds, reduced reliefs, not to mention higher National Insurance and wage inflation generally.
The economic fallout from the Middle East conflict, will also be having an impact with higher fuel and energy prices.
One of the signs that cash glow is getting tighter is the growing use of HMRC’s Time to Pay (TTP) scheme. Currently 62% of accountants and financial advisers say 5% or more of their clients use TTP compared with 25% of accountants citing its use in last year’s study. It is an easy form of credit but is best put in place early and not waiting till HMRC are threatening legal action.
Striking Off a Company
There are various routes to formal liquidation of a company, including voluntary arrangements, receivership or administration.
In some circumstances a company can simply be “struck off” the register without undergoing formal liquidation procedures. Strike off can be initiated by the directors of the company, or the Registrar of Companies (where there has been a failure to comply with statutory filing requirements). Strike off is not an alternative to formal liquidation procedures and is only appropriate where the company is solvent, there are no outstanding legal actions, and it hasn’t traded for at least the last three months.
If the formal strike off is finalised before the accounts filing deadline for a set of financial statements, whilst the legal requirement for financial statements to be prepared and filed remains, Companies House will not usually chase for the financial statements to be filed before strike-off, because there is no longer a company to file these financial statements against.
There may however be a need to supply financial information to HMRC to support the final Corporation Tax returns. In addition, members and other parties may be entitled to receive a copy of the financial statements. HMRC will monitor proposed strike off requests and if they have an open file, will object to the strike off and derail your plans.
If a company is pursuing strike off, but this will not be completed prior to the filing deadline for the financial statements, it may be beneficial for the company to extend its year end so you only need one long set of accounts.
If the company has any unpaid creditors, they are likely to object to the strike off and, even if the company has been dissolved, creditors could apply to have the company restored to the register.
When a company is dissolved, any assets that remain are deemed to belong to the Crown, the Duchy of Lancaster or the Duchy of Cornwall (deemed to be “bona vacantia”). If the amounts are small, it is questionable whether any action would be taken to seize these, but Directors should be aware of the risks.
Our advice is always to clear out your balance sheet before the strike off is commenced and you may need to take advice on the ways to do this.
It is always advisable to close the company bank account. We have seen quite a few companies where the directors were not aware that there was a balance at strike off and the cash has been lost. Shutting the account avoids mishaps.
Loans to Participators
A company may incur a tax charge where it makes a loan or advance to a participator, broadly a director or shareholder, or to an associate of a participator during an accounting period.
The tax is equal to 33.75% of the amount outstanding nine months after the end of the accounting period.
Where a company has paid this tax charge under s455, CTA 2010 and the loan is later repaid, released or written off, the company may claim a repayment of the tax paid from HMRC.
Provisions apply to prevent “bed and breakfasting”, (i.e., taking a second loan from the company to repay the first loan).
In the case of a release or write off, there is a charge to income tax on the individual, treating the amount written off or released as dividend income.
Corporation tax relief for the amount written off/released is denied.
Loans with an Unallowable Purpose
A loan relationship has an unallowable purpose if the purposes for which the company is a party to the relationship include a purpose “which is not amongst the business or other commercial purposes of the company”. If a company has a tax avoidance purpose for being a party to a loan relationship, and this is the main or one of the main purposes of being in the relationship, this will be treated as an unallowable purpose.
Over time some useful principles have been established:
- Having other reasons for entering into a loan relationship does not preclude a company from having a “tax avoidance purpose”.
- It is not necessary to adopt “a ‘tunnel-visioned’ approach looking simply at how the company was proposing to use the money it was borrowing, in determining whether a tax avoidance purpose is present.
- The company will have a tax avoidance purpose if it agrees to participate in “a scheme which, to the knowledge of the relevant decision-makers, was designed to secure a tax advantage”.
Family Investment Companies
Interest in the use of family investment companies (FICs) appears to grow year on year, with renewed interest since the Autumn Budget inheritance tax (IHT) announcements about the changes affecting trusts, the proposed cap on agricultural and business property reliefs from April 2026 and undrawn pensions becoming liable to IHT from 2027.
A FIC is normally a UK-incorporated and resident company that holds investment assets (e.g., real estate or stocks and shares). In many cases, the FIC is an unlimited company to assist with privacy. The directors of the FIC are normally the individuals (typically, husband and wife) who created the FIC.
FICs are normally created to:
- provide a vehicle for holding a wide range of investments and accessing corporation tax rates, which may be lower than individual tax rates; and/or
- as part of a succession and IHT planning strategy.
The shareholders of the FIC will normally be members of the same family. For example, the founder may form the FIC and hold shares in it, but also vest shares in their children. The children’s shares may often have specific rights, either enabling the parents to retain voting control or decide when the children should receive dividends and so on, or only enabling the children to benefit from the future growth in the value of the FIC.
FICs are normally funded by cash. This is because there can be capital gains tax (CGT) charges if assets standing at a gain are transferred to the FIC.
The FIC is subject to the corporation tax regime but does not benefit from the small profits rate of corporation tax or marginal relief. Key points include that corporation tax rates are paid on capital gains, dividends may be received tax free by the FIC in many circumstances and the possibility of a deduction for management expenses.
Many FICs are funded by a loan. The advantage of the loan is that it enables the person making the loan to extract funds from the FIC without a personal tax charge
Where a loan is used, it is often interest free, although sometimes interest is charged.
Care is also required when further capital is contributed to the FIC. Funds contributed to a FIC are not potentially exempt transfers and so there could be an immediately chargeable transfer for IHT purposes, depending on the share structure at the time of any further contribution. Where a loan is used, the loan is normally repayable on demand to avoid a transfer of value for IHT purposes.
FICs are widely used and can be an effective solution. Correctly structured they are also tax efficient and unlikely to be viewed by HMRC as an aggressive planning technique.
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.
