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Welcome...
To May's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Section.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
Please contact us for advice in your own specific circumstances. We're here to help!
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Tax rises inevitable amid tariff trade war?
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The dust had barely settled on Rachel Reeves' Spring Statement before shockwaves were sent through financial markets following news
of trade tariffs from America. Donald Trump's new tariff regime - which initially included enormous tariffs on most of the world's largest trading nations - has led to fears of a ripple
effect that could envelop the UK economy.
And some leading economists in the UK have warned that the knock on effect of this situation will inevitably force the Chancellor to raise taxes at the next Budget in Autumn 2025. It comes
just weeks after Ms Reeves had confirmed there would be no further tax rises at the Spring Statement.
Andrew Goodwin, chief UK economist at Oxford Economics, told The i Paper: 'I think we're likely to need a full rethink of fiscal policy, and the Chancellor has to decide what's most important -
the manifesto pledges on tax, the spending plans or the fiscal rules? Because I think one of the three at least has to give.'
Ms Reeves was questioned only a week after her Spring Statement by The Treasury Select Committee in Parliament.
She did not directly rule out raising taxes in the next Budget when that question was put to her. Instead, she stated: 'I'm not going to write another four years' worth of budgets. That would
not be responsible. But I can assure the committee that I will not need to repeat a Budget on that scale because we have now wiped the slate clean and put our public finances on a firm footing.'
Her latter comment related to the 2024 Autumn Budget where she announced a range of tax changes.
The Institute of Fiscal Studies has said Ms Reeves should consider the 20p basic rate of income tax at the next fiscal statement, with it being one of the simplest ways to significantly boost the
Treasury coffers to help cope with the extraordinary circumstances it faces both at home and globally. But that would mean breaking a key manifesto pledge from last year's General Election.
No doubt the debate will continue to rage as the year goes on, especially if further turmoil in the markets continues to ratchet up the pressure on the Chancellor.
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HMRC could get new powers in tax avoidance clampdown
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Tax avoidance - and specifically those who promote it - has once again been pushed into the spotlight. That's because of a new review
launched by the Government, as trailed at the Spring Statement.
New measures are being put forward to crackdown on the promotion of tax avoidance. HMRC would get more powers and have the option to issue stronger penalties if the proposals go forward.
Officials said the plans would empower HMRC to 'more efficiently and effectively disrupt the business model promoters rely on'.
According to official figures, around £0.5 billion of the 'tax gap' is connected to 'marketed avoidance schemes sold to individuals'.
A statement read: 'The government's intent is to make a step change in efforts to close in on the small number of remaining promoters of tax avoidance. This would contribute to closing the tax gap
attributable to marketed tax avoidance.'
The measures would include enlarging the remit of the Disclosure of Tax Avoidance Schemes (DOTAS) regime and bring in a new 'Universal Stop Notice and Promoter Action Notice'.
Other suggestions include new 'highly targeted obligations and stronger information powers' and looking at ways to deal with legal professionals who contribute in some way to promoting avoidance schemes.
The consultation papers stated: 'A persistent and determined group of promoters of tax avoidance seek to exploit every opportunity to harm the tax system by selling tax avoidance schemes they claim sidestep
the rules. They cause harm to public finances and to the individuals that use the schemes they promote, who often end up with large tax bills on top of the substantial fees already paid out to the promoters.
The government is determined to close down this unacceptable behaviour.'
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Financial reporting: major changes for business sizes take effect
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Significant changes affecting financial reporting have kicked in, meaning many businesses may be re-classified in
terms of their sizes.
The thresholds to determine whether a company is counted as 'micro, small or medium' changed on 6 April for the first time in 12 years. The Government announced the changed
in December 2024.
The figures on the potential impact of the changes released by the Government, indicated around 6,000 businesses would go from 'large' to 'medium' under the changes. Around
113,000 businesses and LLPs will shift from small to micro and about 14,000 would drop from medium to small.
The published legislation memorandum states: 'The legislation reduces reporting burdens on companies. It does this by:
'Increasing by approximately 50% the turnover and balance sheet criteria that help determine whether a company is a micro-entity or small, or medium-sized, or large for the
purpose of reporting and audit requirements under the Companies Act 2006, which will see many companies benefit from lighter touch financial and non-financial reporting
requirements.'
The new thresholds officially apply to accounting periods beginning on or after 6 April 2025. So, for example, if your financial year begins on 1 July and ends on 30 June,
the first period you'll be required to apply the new thresholds will be for the year ending 30 June 2026. So, for your 30 June 2025 accounts, the old thresholds still apply.
Although there's also a transitional provision that could be applied. Here's what the thresholds look like for before and since April 2025:
Micro-entity:
Before 6 April 2025: turnover of £632,000 or less
From 6 April 2025: turnover of £1 million or less
Small company:
Before 6 April 2025: turnover of £10.2 million or less
From 6 April 2025: turnover of £15 million or less
Medium-sized company:
Before 6 April 2025: turnover of £36 million or less
From 6 April 2025: turnover of £54 million or less
Large company:
Before 6 April 2025: turnover over £36 million
From 6 April 2025: turnover over £54 million
For some businesses, the change might mean they drop to the lower category, which may mean they are no longer required to undergo a statutory audit. Ultimately the reforms are
meant to help reduce the compliance burden on smaller businesses.
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Chancellor adds more fuel to ISA reform fire
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After much rumour and conjecture, it seems that some potentially significant changes to ISAs (Individual Savings Accounts) are on
the way.
We heard a lot in the build up to the Spring Statement - only to hear no words uttered by the Chancellor in relation to this. Yet, we then saw some new information come out in the Spring
Statement papers, released after the Parliamentary speech, by the Treasury.
This stated: 'The government is looking at options for reforms to ISAs that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail
investment, and support the growth mission.'
Since then, Rachel Reeves, the Chancellor, has commented further. She appeared before the Commons Treasury committee on 2 April. Her comments, reported by The Independent, among other newspapers,
stated: 'I do think that reform would be worthwhile and that's what we're looking at at the moment.
'I want to say that I do recognise the importance of cash for a lot of people. Already, you can save in a savings account and some of that is tax-free, the interest on that is tax-free, and also
we have got the ISA limits.
'But I do want to look at the balance, because I think sometimes it's a disservice to people saving. If you think about the inflation we've experienced over the last few years, you've actually seen
an erosion in the value of your savings in real terms.'
She added she doesn't want to 'rush' the changes.
At the moment savers can pay in £20,000 per year tax-free. We'll keep a close eye on developments.
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May Questions and Answers
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Q:My business has always used P11D forms for reporting benefits-in-kind. We don't payroll benefits currently. But I've heard the rules are changing. What does this mean for my business
and what do I need to do to prepare?
A: You're absolutely right, HMRC has confirmed that from April 2026, the requirement to submit P11D forms will be withdrawn.
Instead, all reporting of benefits and expenses provided to employees will need to be done via payrolling in real time.
So, what does this mean for your business? In short, it marks the end of the annual P11D ritual. Rather than waiting until the end of the tax year to report benefits, employers will need to process
these through payroll on a monthly basis, ensuring tax is collected as the benefits are provided.
For those already payrolling benefits, there's not much change - just a simplification ahead. However, in your case, as you're still using P11Ds, it's time to begin preparing for a shift in your internal
processes. Here's what you should be thinking about now:
- Review your current benefits: make a list of all benefits you currently report via P11D (e.g. company cars, private medical insurance).
- Consider payrolling early: you don't have to wait until 2026. HMRC already allows voluntary payrolling, and many employers are making the switch ahead of the deadline to smooth the transition.
- Check your payroll software: make sure it can handle benefit processing correctly and provide the necessary employee breakdowns.
- Communicate with your employees: when you move to payrolling, employees need to understand that the tax on their benefits will now be collected in real time via PAYE, rather than showing up in a later
tax code adjustment.
- Speak to us: this is a key change, and professional advice from our team can ensure a compliant and hassle-free implementation.
In many ways, this change should simplify year-end reporting, but like all transitions, a bit of early planning will go a long way.
If you'd like to discuss how your business can get ahead of the curve, we're here to help.
Q:We run a business with a turnover of around £12.5 million for the last couple of years. Under the current rules, we've been classed as a medium-sized company. With the changes to the size
thresholds from April 2025, will we be able to requalify as a small company again? And do the new rules apply to our 30 June 2025 accounts? We have a 30 June year-end.
A: On 6 April 2025, new company size thresholds came into effect for UK companies.
This is something that will affect many companies hovering around the various threshold limits. It's important to note that these thresholds don't' pertain to Corporation tax or tax filing or VAT rates etc.
But they relate to financial reporting requirements, director reports and disclosure and, significantly, whether your company is exempt or not from statutory auditing.
Under the reforms, the small company turnover threshold has increased from £10.2 million to £15 million, meaning some companies that previously fell into the medium category may now be able to reclassify
as small.
However, the timing of when these apply is key. The new thresholds apply to accounting periods beginning on or after 6 April 2025. Since your year-end is 30 June, your 2025 accounts (covering 1 July 2024
to 30 June 2025) began before the change, so you'll still need to use the old thresholds for that year. The new thresholds will apply from your 30 June 2026 year-end onwards.
There is, however, a transitional provision within the new rules that you could potentially take advantage of. This means that when preparing your 2026 accounts, you can choose to apply the new thresholds
retrospectively to both the 2026 and 2025 financial years—for the purpose of determining your company size.
So, if you take up that option, and your turnover stays at £12.5 million, you'd fall within the new small company limits. This could allow you to requalify as a small company for both 2025 and 2026, even
though under the old thresholds, you were classed as medium.
That reclassification could reduce your reporting obligations, possibly remove the audit requirement, and simplify your filings.
If you'd like to understand more or discuss your case in greater detail, please get in touch with our team.
Q:I am thinking that I may incorporate by business by transferring it for shares. I am trying to understand how it works, the relief and also what I need to pay in Capital Gains Tax.
Can you help?
A: Incorporation means legally setting up your business as a limited company, making it a separate legal entity from you as an individual. This means
the company can own assets, enter into contracts, and be held responsible for its own debts.
The steps towards incorporation include choosing a company name, appointing at least one director, deciding on shareholders and how many shares they'll own, and preparing basic documents like the Articles
of Association. And you need to register with Companies House.
Incorporating your business can allow you to claim Incorporation Relief, which lets you defer paying Capital Gains Tax when you transfer your business to a company in exchange for shares. This means you
won't have to pay tax on any gain until you sell those shares in the future.
Let's imagine you go ahead and incorporate your business and you receive 1,000 £1 ordinary shares. That means your company has a value of £100,000 on incorporation, and the shares had a market value of
£100 each.
If you didn't get Incorporation Relief, it would mean the 'chargeable gain', as it's called, would be £60,000.
Normally, the cost of shares in a future disposal/ sale would be £100,000. But with the relief available, this gets reduced by the amount of the deferred gain (£60,000), leaving a base cost of £40,000,
or £40 per share.
This is a complex area of tax and we'd need to know all the key details of your business to be able to determine the impact for you and how much Capital Gains Tax you might be liable for. If you'd like
to discuss your circumstances in full with our team, please do get in touch.
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19th
- For employers operating PAYE, this is the deadline to send an Employer Payment Summary (EPS) to claim any reduction on what you'll owe HMRC
22nd
- Deadline for employers operating PAYE to pay HMRC. This is also the quarterly deadline for businesses that pay per quarter. For those paying by post, the deadline is 31 May.
31st
- Corporation Tax Returns are due for companies with year-end of 31 May.
- Deadline for P60s for employees who were on your payroll on 5 April 2025.
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Please contact us if we can help you with these or any other tax or accounts matters.
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All new client consultations are provided free of charge and without obligation.
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Morgan Hemp Accountants are one of this area's leading accountants, serving businesses and professional practices across the UK.
Whether you are a large limited company or just starting out we can help you manage all your financial matters from book keeping and wages to annual accounts and raising finance.
Visit our website https://www.morganhemp.co.uk for more information.
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Disclaimer
The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances.
No action should be taken without consulting the detailed legislation or seeking professional advice.
Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.
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