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Heads Up: New Reporting Requirements for Dividend Data

Written by admin on . Posted in Company Director, Corporation Tax, Director Disqualification, Dividends, self-assessment. No Comments on Heads Up: New Reporting Requirements for Dividend Data

Starting with the 2025/26 tax year, directors of close companies (owner-managed companies) will need to separate the dividend income received from their companies. This change will have an impact on almost 900,000 directors.

In very broad terms, a close company is a company that is under the control of its directors or five or fewer shareholders.

At present, directors report just the total dividend income figure, which means HMRC can’t tell which dividends a director receives from their own company or from other sources. By separating out dividends, HMRC will be able to see the total remuneration package received by an owner-manager. This helps them to focus their compliance activities.

Disclosure

From 6 April 2025, directors of close companies will have to disclose:

  • name of the company and its registration number;
  • percentage shareholding in the company; and
  • amount of dividend income received from the company for the tax year.

The question on the tax return about whether an individual is a director of a close company will be changed from voluntary to mandatory.

In regard to the percentage shareholding, this will be the highest percentage held during the tax year. For some directors, providing this information will not be straightforward; for example, where a company has different classes of share.

Employee hours data

On a more positive note, the proposal that employers would have to report the actual hours worked by each employee has been shelved. The implementation date had already been put back from April 2025 to April 2026.

The Government has recognised that requesting this information as part of the real-time reporting process would have been unduly complex, costly and burdensome for businesses. The cost of the initial implementation alone was forecast to be nearly £60 million.

The starting point for determining whether a company is ‘close’ or not can be found here.

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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.

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The Autumn Budget – a brave new tax world

Written by admin on . Posted in Budget, Capital Gains Tax, Corporation Tax, Income Tax, Inheritance Tax, National Insurance Contributions. No Comments on The Autumn Budget – a brave new tax world

Chancellor Rachel Reeves’ first Budget was a significant one in all senses.

“…this Budget delivers a large, sustained increase in spending, taxation, and borrowing.”

So said the Office for Budget Responsibility (OBR) in the first paragraph of its overview of the Autumn Budget. The numbers are indeed large:

  • spending is up by almost £70 billion a year over the next five years;
  • taxation will rise by £36 billion a year; and
  • borrowing will still be above £70 billion a year in 2029/30.

The Chancellor’s tax-raising opportunities were constrained by the Labour manifesto pledges to hold the rates of income tax, VAT, corporation tax and national insurance contributions (NICs) – only for employees, although other interpretations are available. The result was that other taxes had to carry the burden of providing extra funds for the Treasury:

  • Over half the additional revenue came from changes to employer’s NICs from 2025/26. These saw the class 1 employer rate rise from 13.8% to 15.0%, and the starting point for payments fall from £9,100 of annual earnings to £5,000. The impact of this was mitigated slightly by a £5,500 increase to £10,500 in the employment allowance – effectively an employer NIC credit.
  • The main capital gains tax rates have increased from 10% to 18% (for non-taxpayers and basic rate taxpayers) and from 20% to 24% (for higher and additional rate taxpayers). The rate for business assets disposal relief will rise from 10% to 14% in 2025/26 and then 18% in the following tax year, with the maximum amount of lifetime relievable gain staying at £1 million.
  • Inheritance tax (IHT) relief for businesses and agricultural property will be cut back from April 2026, with the relief for qualifying shares listed on the Alternative Investment Market halved to 50%.
  • Death benefits from pensions will be brought into IHT from 2027/28, although there were none of the other tax changes that had been rumoured in the weeks before the Budget. Notably full income tax relief on contributions remains and employer contributions continue to be free of NICs.

If you could be affected by any of these changes (or further changes not mentioned in this update), make sure that you seek advice. The sooner you are prepared for this new, higher tax environment, the better.

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Employment Tax: Deductibility of training costs

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HMRC has recently published guidance to provide greater clarity about the tax deductibility of training costs for the self-employed. Apart from updating current skills, costs are also deductible if they provide new skills or knowledge to support the business.

What costs count?

Training costs must relate to the existing business, including:

  • Keeping pace with technological advances and changes in industry practice; and
  • Training which is ancillary to a person’s main trade, such as digital skills or bookkeeping.

HMRC has provided various examples, such as a potter who takes courses on e-commerce and website development with the aim of making online sales. Although the courses have nothing to do with pottery, the costs should be deductible as they are helping a move into online selling.

Similarly deductible would be the costs for a writer who takes a course on drawing illustrations with the aim of illustrating his or her own books. Again, the new skills will be used to improve an existing business.

Despite the changes, the training costs deductibility rules for the self-employed are still stricter than they are for employers.

What costs don’t count?

There is no deduction for training costs that allow a person to start a new business or to expand into a new, unrelated, area of business. For example:

  • A make-up artist takes tattooing courses with the aim of opening their own tattoo studio. The training costs are unrelated to the make-up business, so they are not deductible.
  • An unemployed person completes a course to become an approved driving instructor. There is no deduction for the training costs as new skills are being acquired that will help the person start a business which does not already exist.

The changes date back to a 2018 consultation, so don’t expect further relaxation of the rules anytime soon.

The full list of examples provided by HMRC can be found on the government website.

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The increasing cost of incorporating a company

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Perhaps not as widely known as the much publicised changes to company law is the fact that due to an increase in charges levied by Companies House, fees associated with incorporating and maintaining a company will rise from 1 May 2024.

Companies House has explained that fees are set on a cost recovery basis – meaning that the increases are intended to solely cover the cost of the services they deliver without making a profit.

Incorporation

Currently, the cost of registering a company with Companies House ranges from £10 to £40, depending on the channel used ie postal or online application. with fees increasing across-the-board from registration to exit, The increase in costs will include the following fees:

  • Online registration for a business or limited liability partnership: this is normally completed within 24 hours at the cost of £12. However, online registration fees will rise to £50, an uplift of 300%.
  • Same-day incorporation: the fee for this service is going up from £30 to £78.
  • Voluntary striking off: When a company is no longer required, voluntary striking off will now incur a fee of £33; it is currently £8.
  • Overseas entities: the largest increases apply to overseas entities who need to register with Companies House. The registration fee goes up from £100 to £234, with the removal fee increasing to £706 from £400.

Many people set up a new company through a company formation agent. Their most basic offerings only add a small margin to the Companies House charge. This means the fees charged by agents are going to see similar increases come 1 May.

Confirmation statements

Every company, including dormant companies, must file a confirmation statement at least once a year. The cost is currently £13 and rising to £34. This fee, at least, covers a 12-month period. It’s paid with the first filing during the period with no further charge for any subsequent filings during the same period.

For a full list of Companies House’s current fees visit the government website and for an update on price increases.

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R&D tax relief schemes set to merge, but concerns remain

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The two existing research and development (R&D) tax relief schemes are set to merge, although the newly created scheme will be similar to the R&D expenditure credit currently claimed mainly by large companies.

Although the merger will remove the complexities when companies move between schemes, there will invariably be some who significantly lose out as a result of the changes.

The merged scheme and other changes will apply in relation to accounting periods beginning on or after 1 April 2024.

R&D expenditure credit (RDEC)

Along with a deduction for the R&D expenditure itself, the RDEC provides for a 20% standalone credit. Since the credit is taxable, it is worth £15,000 for every £100,000 spent on R&D assuming the main rate of corporation tax applies.

  • For loss-making companies, the expenditure credit can lead to a repayment.
  • When calculating the repayment, the notional tax rate applied will in future be the profit rate of corporation tax of 19%.

If not used to reduce the current year’s corporation tax liability, the expenditure credit – before any alternative use – is capped according to the amount of PAYE and national insurance contributions paid in respect of R&D workers. In future, the more generous cap from the SME scheme will be used.

R&D-intensive SMEs

Despite the merger, loss-making R&D-intensive small or medium-sized enterprises (SMEs) will still be able to claim a 14.5% repayable credit under the existing SME scheme.

  • Given there is an 86% uplift, this works out to a cash repayment of £26,970 for every £100,000 of qualifying R&D expenditure.
  • R&D intensity is calculated as the proportion of an SME’s qualifying R&D expenditure compared to total spending. The intensity threshold is to be reduced from 40% to 30%.

Also, a one-year grace period will be introduced for companies that fall below the 30% threshold.

HMRC’s guide to the RDEC as it currently applies can be found here.

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Mitigating rising corporation tax rates

Written by admin on . Posted in Company Director, Corporation Tax, Pensions, Wealth. No Comments on Mitigating rising corporation tax rates

New HMRC statistics have shed some light on how many companies are affected by the recent hike in corporation tax rates. Just over 1.5 million companies paid corporation tax for the financial year to 31 March 2022, but only 7% fell above the £50,000 small profits threshold.

Although fewer than 100,000 companies are likely to be facing the 26.5% marginal rate of corporation tax where profits fall between £50,000 and £250,000, they will be mainly owner-managed companies with owners keen to mitigate the tax increase.

For a company with a 31 March year end and profits of £200,000, this year’s corporation tax bill is going to be £11,250 higher than last year.

Director’s self-invested personal pension (SIPP)

Even if a director has not previously been in favour of making sizable pension contributions, there can now be a compelling case for doing so.

  • With a marginal tax rate of 26.5%, investing the maximum £60,000 into a SIPP will save corporation tax of £15,900.
  • Once the director reaches 55, 25% of the pension fund can be withdrawn tax free, but virtually immediately if a director is already 55.
  • There will be an overall tax saving if the tax rate eventually paid on pension withdrawals – taking into account the tax-free element – is less than 26.5%.

Even if there is no overall tax advantage as such, there will still be a timing benefit. The current year’s corporation tax bill is cut, but the tax cost does not apply until the director receives their pension income.

Mitigating cost and risk

By choosing a low-cost provider, the annual cost of maintaining a SIPP can be kept to a minimum.

If there are only a few years until retirement, a director might not want to be exposed to stock market volatility. This risk can be avoided by investing in fixed-term cash deposit accounts.

A basic guide to SIPPs can be found here.

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Fraud countermeasure drives R&D tax relief changes

Written by admin on . Posted in Corporation Tax, R&D, Tax. No Comments on Fraud countermeasure drives R&D tax relief changes

The level of fraudulent claims being made for research and development (R&D) tax relief has prompted HMRC to introduce a new procedure: companies must provide detailed information ahead of making their claim.

HMRC figures show that nearly 20% of claims for R&D tax relief are fraudulent, so it is no surprise they are tightening up on the claim process. Non-compliance is a particular problem when it comes to small value claims, with nearly 80% of claims for less than £10,000 being suspect.

The new requirement will mean having to submit an additional information form to HMRC to support a claim for R&D tax relief or for expenditure credit.

This new form is a separate requirement to the claim notification form a company must submit to HMRC in advance of a claim for R&D tax relief. Notification applies for accounting periods beginning on or after 1 April 2023.

Submitting the new form

The additional information form must be sent to HMRC before the company’s corporation tax return is filed. If the tax return is filed without the additional information being provided, HMRC will simply remove the claim for R&D tax relief from the company’s tax return.

  • HMRC has set up an online portal for submitting the additional information form.
  • The new process will allow HMRC quickly to assess the validity of a claim, especially the level of expertise of those involved in preparing the claim.
  • The form requires detailed information on the R&D project, including a breakdown of the costs involved. For SMEs with just one to three projects, a full description of each project is required.

HMRC now require a considerable amount of additional information to be submitted, and this will be a challenge for SMEs. Companies should therefore start preparing for their R&D tax relief claims as far in advance as possible to avoid any last minute surprises.

HMRC guidance about the new requirements can be found here.

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Government’s tax take on growth trajectory

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Analysis of the projected outcomes of the government’s tax policies show an expected increase to the number of higher rate personal taxpayers, with the corporate tax yield expected to grow substantially.

Income tax

The default policy for income tax has generally been to increase thresholds in line with inflation. This is currently not happening, in particular for the personal allowance and the basic rate band, which are frozen at 2021/22 levels until 2027/28. The latest costing of these two threshold measures will mean:

  • Additional tax receipts of £13.1 billion for 2023/24, with over £20 billion in additional receipts for each of the four following years.
  • Some 2.2 million taxpayers having to pay tax for 2023/24 who would not otherwise have had to do so, with an extra 1.3 million having to pay higher rate tax.

The exception to the frozen rule is the additional rate threshold, which was cut from 2023/24, pushing more taxpayers into that higher bracket. Not surprisingly, income tax now accounts for 28% of the government’s tax take, up 2% from a few years ago.

VAT registration

The VAT registration threshold has stayed at £85,000 since April 2017, so it should come as no surprise that there are now around 300,000 registrations annually, although a disproportionate number of traders are avoiding registration by keeping turnover just below £85,000.

Corporation tax

The government’s yield from corporation tax was just over 8% in 2021/22, but the new main rate of 25% means this is expected to increase to about 10%. In actual figures, this is an increase from £68 billion to £112 billion.

Although there are around 1.5 million SMEs, they only contribute 45% of the total collected corporation tax. The other 55% comes from 18,000 large companies.

By 2027/28, the tax burden is forecast to reach a post-war high of 37.7% of GDP, with the highest ratio of corporation tax receipts to GDP since this tax was introduced nearly 60 years ago. Keeping on top of tax planning and how businesses and individuals can minimise their tax burden is more important than ever.

The Office for Budget Responsibility’s detailed economic and fiscal outlook can be found here.

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