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Month: December 2024

For better or worse? The corporate tax roadmap

Written by admin on . Posted in Budget, Corporation Tax, R&D. No Comments on For better or worse? The corporate tax roadmap

As part of the October Budget, the government published a ‘corporate tax roadmap’, outlining a commitment to maintaining corporate tax rates for the duration of this parliament. This provides businesses with welcome certainty going forward, although the existing increased rates of corporation tax introduced in 2023 remain a source of disquiet.

The government’s intention with publishing the corporate tax roadmap is that a stable and predictable tax environment will help to provide the confidence companies need to invest, innovate and grow over the long term.

Main commitment

The government has left itself the option of cutting the main rate of corporation tax should this be necessary to keep the UK’s tax regime competitive. This includes:

  • Rate of corporation tax: The main rate will be capped at 25%, with the small profits rate and marginal relief kept at their current rates and thresholds.
  • Capital allowances: The system of 100% and 50% first-year allowances on new plant and machinery expenditure will be maintained, as will the £1 million annual investment allowance threshold and the structures and buildings allowance.
  • R&D reliefs: The current rates for both the merged research and development (R&D) expenditure credit scheme and enhanced R&D intensive support for small- to medium-sized enterprises (SMEs) will be maintained.
  • Loss reliefs: The current loss reliefs for both standalone companies and groups will remain in place.

Potential improvements

The roadmap also highlights areas of corporate tax where the government will explore possible improvements. One particular area of concern is the tax treatment of predevelopment costs. A recent Upper Tribunal decision was that the cost of preliminary studies performed prior to the installation of wind turbines did not qualify for capital allowances.

Not surprisingly, this decision has caused uncertainty for investors and a follow-up consultation will be launched in the coming months. The Upper Tribunal’s decision does not match the government’s aim of encouraging investment in renewable energy.

The full text of the government’s corporate tax roadmap can be found here.

Photo by Karsten Würth on Unsplash

Long freeze on individual savings accounts

Written by admin on . Posted in Budget, Wealth. No Comments on Long freeze on individual savings accounts

Hidden away in the October Budget announcements was the freezing of individual savings accounts (ISA) annual subscription limits until 5 April 2030. Good news that there is no intention to remove this valuable tax-free savings option, but bad news given the fiscal drag involved.

The main £20,000 ISA allowance has been in place since 6 April 2017 and will remain unchanged for a further five tax years.

Other subscription limits

The following annual subscription limits are also going to be frozen until 5 April 2030:

  Subscription limit
Lifetime ISAs £4,000
Junior ISAs £9,000
Child trust funds (CTFs) £9,000

The subscription limit of £20,000 applies across the four main adult ISAs each tax year – the cash ISA, the stocks and shares ISA, the innovative finance ISA and the Lifetime ISA. Although the Lifetime ISA has a £4,000 subscription limit, this is still part of the overall £20,000 allowance.

There were concerns that the Chancellor was going to impose an overall limit on the amount of ISA saving, but the mooted lifetime cap of £500,000 did not materialise. There are currently over 4,000 ISA savers with ISA pots worth more than £1 million.

There were plans to introduce a UK ISA (or British ISA) with an additional £5,000 allowance, but the Chancellor has announced this idea will not proceed.

Fractional interests

Despite previously saying the complete opposite, HMRC have confirmed that fractional interests – commonly known as fractional shares – can be held within a stocks or shares ISA or a CTF invested in shares:

  • The shares of some US tech companies – such as Apple and Microsoft – can cost £100s. The availability of fractional interests will help regular savers acquire such shares.
  • The change will not come in immediately, but, subject to complying with the new regulations, existing fractional interests may be retained.

ISA managers will be required to remove any currently held fractional interests that are not eligible under the new regulations. HMRC’s basic guide to ISAs can be found here.

Photo by Diane Helentjaris on Unsplash

Umbrella companies back in the spotlight

Written by admin on . Posted in Employment Tax, IR35, PAYE. No Comments on Umbrella companies back in the spotlight

Umbrella companies are often used to employ workers on behalf of recruitment agencies and end clients. However, HMRC is making changes from April 2026 to deal with umbrella companies who don’t comply with their tax obligations.

HMRC analysis shows that around 40% of umbrella companies engaging workers for 2022/23 failed to comply with their tax obligations.

It is relatively easy to create an umbrella company, so the individuals behind non-compliant businesses can quickly establish new companies and relaunch them into the umbrella company market.

Change in responsibility

From April 2026, responsibility for accounting for PAYE and national insurance contributions (NICs; including employer NICs) will move from the umbrella company to the recruitment agency that supplies the worker to the end client. Where there is no agency in a labour supply chain, responsibility will sit with the end client:

  • Recruitment agencies and end clients will still be able to contract with umbrella companies exactly the same as they do now.
  • However, if the umbrella company fails to remit the correct amount of tax and NICs to HMRC, the recruiter or the end client will in future be liable for any shortfall.
  • Workers should benefit, since, by avoiding being a party to non-compliant tax arrangements, they will not end up facing large, unexpected tax bills.

The logic behind the change in responsibility is that recruitment agencies and end clients can generally choose who they want to work with, so in future they will be careful not to deal with illegitimate operators.

Going forward

Smaller employment agencies will probably want to continue outsourcing the payroll function to umbrella companies. Given the potential cost of using a non-compliant company, agencies – and maybe end clients – should be more careful than ever in undertaking due diligence checks and/or having legal indemnities in place.

While the changes won’t take place until April 2026, it is advisable for updated systems should be in place well before then. Contracts will need to be scrutinised and fee arrangements re-evaluated.

HMRC’s policy paper explaining how it will tackle non-compliance in the umbrella company market can be found here.

New company size thresholds from April 2025

Written by admin on . Posted in Companies House, Company Director, Incorporation. No Comments on New company size thresholds from April 2025

Thresholds defining company sizes have not changed since 2016, but revised thresholds are now set to be introduced from 6 April 2025. Companies House intends to roll out their new identity verification requirements for directors and people with significant control (PSCs) by late 2025.

Static reporting thresholds, along with a couple of years of relatively high inflation, will have drawn more companies into reporting requirements that may not be appropriate for them.

Threshold sizes

The company size thresholds are expected to increase by approximately 50%, although there will be no change for the average number of employees. The new thresholds – with current thresholds bracketed – will be:

  Micro-entity Small company Medium-sized company
Turnover £1 million (£632,000) £15 million (£10.2 million) £54 million (£36 million)
Balance Sheet £500,000 (£316,000) £7.5 million (£5.1 million) £27 million (£18 million)
Average number of employees 10 50 500

To qualify as a micro-entity, small or medium-sized company, a company must normally not exceed two of the three relevant criteria above.

As a result of the redefinition exercise:

  • The increased thresholds will see more than 100,000 small companies reclassified as micro-entities.
  • Micro-entities benefit from reduced reporting requirements, although lenders may require more detailed information in order to assess a company’s creditworthiness.
  • Small companies may qualify for audit exemption; companies that were in danger of moving to a medium-sized classification might now retain this exemption.

Growing companies may find it preferable to maintain their current reporting requirements, even if increased thresholds hold out the offer of a temporary step down to a lower regime. This is to avoid disrupting their current reporting systems for a change taking place over one or two years.

Identity verification

The plan is that by autumn 2025, directors and PSCs will have to verify their identities at the point a new company is incorporated. Verification for existing companies will then take place over the following 12 months when a company’s confirmation statement is filed. This transition could be quite burdensome for many companies.

Compliance activity against those who have failed to verify their identity is expected to commence by the end of 2026.

Companies House accounts guidance can be found here.

Photo by @Chrissy Langston on Unsplash