Welcome to our regular monthly collection of news and announcements that impact accountants and their clients.
With less than six weeks until Christmas, you’ll continue to be busy on their behalf – which is why we created our accountants hub so you’ll have access to the most important and accurate insolvency information whenever you need it.
But you can’t read everything and be everywhere at once, so we collect the most interesting and important business and insolvency news stories every month along with new blogs on a range of topics each and every week.
We’re always keen to hear what you think so email us at ask@businessrescueexpert.co.uk because we really want to write what you want to read!
Interest Rates Cut to 4.75%
The Bank of England’s Monetary Policy Committee (MPC) voted to reduce interest rates to 4.75% earlier this week by a margin of eight to one.
Three months after the bank voted to reduce them for the first time since March 2020, they were reduced again by 0.25%.
A statement from the MPC said: “There has been continued progress in disinflation, particularly as previous external shocks have abated, although remaining domestic inflationary pressures are resolving more slowly.”
The background to the much expected move was inflation falling to 1.7% in September from 2.2% the previous month.
The Payroll Site closing at the end of the financial year
Payroll software provider The Payroll Site has announced that they are closing down in April 2025 with the service available for the 2024/25 tax year and to process year end accounts including P60s.
Managing director Steven Tucker cited declining customer numbers and increasing burdens of running the service. He said that they had chosen to close in an orderly manner, giving sufficient notice for customers to prepare rather than waiting for the business to encounter serious financial stress.
Founded in 2004 with the aim of “making payroll simple for small business” the site won multiple awards however an influx of legislation has made the payroll software market increasingly complex and demanding with many competitors moving into the cloud payroll space in the intervening years.
Changes to UK size thresholds to proceed
A change to the thresholds that determine the size of a company which was announced in March 2024 by the previous Conservative government is being taken forward by the new Labour government.
Legislation is expected to be laid before Parliament before the end of the year and is expected to come into force on April 6th 2025.
The previous size thresholds had been in place since 2015 and static thresholds mean that more companies are being drawn into reporting requirements that may not be proportionate, especially given the effects of inflation since 2015 and 2020.
The current company size thresholds are made up of the following:
| Two out of three of: | Micro | Small | Medium | Large |
| Annual Turnover (£) | £632,000 or less | £10.2 million or less | £36 million or less | Over £36 million |
| Balance Sheet Turnover (£) | £316,000 or less | £5.1 million or less | £18 million or less | Over £18 million |
| Average Number of Employees | Ten or less | Fifty or less | 250 or less | More than 250 |
The new thresholds are expected to be increased by 50% as follows:
| Two out of three of: | Micro | Small | Medium | Large |
| Annual Turnover (£) | £1 million or less | £15 million or less | £54 million or less | Over £54 million |
| Balance Sheet Total (£) | £500,000 or less | £7.5 million or less | £27 million or less | Over £27 million |
| Average Number of Employees | Ten or less | 50 or less | 250 or less | More than 250 |
Many companies currently classed as medium-sized will be able to move down to the small category. This will potentially enable them to apply a less rigorous financial reporting regime (eg FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, including Section 1A Small Entities).
The government estimates that this will save companies more than £240 million a year from less rigorous reporting regimes and audit exemptions.
There will also be changes to directors’ reports in non-financial reporting with several categories being removed.
Not every recommendation is being carried forward by the new government however. Medium-sized businesses would not have their headcount criteria doubled to 500.
The government also confirmed that they would launch a consultation in 2025 on the Future of Corporate Reporting aimed at simplifying and modernising non-financial reporting to better meet business and investor needs.
Corporation Tax Roadmap unveiled
In order to provide a degree of transparency and certainty to future financial planning, the government has set out its intentions for corporation tax for the next five years as promised in last month’s budget statement.
In the roadmap document, the government has confirmed that it will make no changes to the following elements during the life of this parliament:
- Maintain small profits rates of corporation tax, marginal relief and associated thresholds
- Territorial scope and structure of the UK corporation tax regime, such as exemptions for substantial shareholding disposals and dividend income
- Rates of writing down allowances and the availability of the annual investment allowance and the structures and buildings allowance
- Rates of relief under the merged research and development (R&D) tax relief regime and the enhanced support for R&D-intensive small and medium-sized enterprises (SMEs)
- The current overall approach to the patent box and taxation of intangible fixed assets
- The availability of the audio-visual and the video game expenditure credit
The following areas will be consulted on and may see changes:
- Potential extension of full expensing relief to assets bought for onward leasing or hiring
- Relief for pre-development costs incurred in renewable energy and major infrastructure projects
- Widening the use of advance clearances for R&D tax relief and for investors in major projects
- Land mediation relief (including its effectiveness)
- Reforms to the UK’s rules on transfer pricing, permanent establishments and diverted profits tax
- Opportunities for simplification or rationalisation of the rules for cross-border activities following the introduction of the pillar two rules, and removal of the digital services tax once the pillar one global solution is in place
- Modernisation of the administration of the corporation tax system (potentially involving further digitalisation) with further details to be provided in Spring 2025
- The bank levy and bank corporation tax surcharge
- The scope of what types of expenditure qualify for capital allowances
- Levels of error and fraud in the R&D tax relief space which HMRC will tackle through the introduction of the R&D expert advisory panel and the R&D disclosure facility. The government has published a document setting out the shape and scale of the error and fraud in claims for R&D tax relief alongside the roadmap.
Frank Haskew, Head of Taxation Strategy at ICAEW said: “We welcome the certainty that the roadmap provides by promising no significant changes to the structure of the corporation tax system and protecting key reliefs and allowances.
“We also look forward to discussing with the government and HMRC many of the areas open for consultation, such as relief for pre-development expenditure and advance clearance mechanisms for R&D and other investments which are facilities we have been calling for in our budget representations.
“However, we would also have liked the government to look at the business tax landscape as a whole and how the various taxes that businesses pay interact with each other, and so we are disappointed the government has not committed to a more holistic approach. We believe that greater certainty across all taxes would support the government’s growth agenda and reduce costs for business.”
How Accountants can help tackle economic crime
The Chief Investigator of the Serious Fraud Office (SFO) has praised the critical role accountants play in the fight against financial wrongdoing.
Michael Gallagher was speaking on the implications of the Economic Crime and Corporate Transparency Act at an ICAEW ethics conference.
He said that forensic accountants formed a key part of the SFO’s staff base. Their work involved collaborating with digital forensic experts, lawyers and investigators including a team dedicated to probing crypto-related transactions.
He stressed that ethics were vital for tackling a current “febrile environment” for economic crime driven by geopolitical tensions, accelerating climate change and advancing technology.
He said: “We were seen for a long time as merely a prosecution agency. We’re trying to change that image a little bit to be more proactive in working with corporates and accountants so we can get their input on what they need from us.”
Over the past four years, the SFO has recovered around £160 million of criminal proceeds on behalf of victims. SFO Deferred Prosecution Agreements have also brought in more than £1 billion for the Treasury.
Currently around 20 individuals are facing charges on fraud activities valued at more than £100 million with fraud comprising around 40% of all UK crime. Investment fraud remains a rising threat with more increases seen in false accounting, false invoicing and recovery fraud. More cases of “greenwashing” and fraudulent schemes based on green investment opportunities trended high last year and are continuing to emerge.
In parallel, he said, the exploitation, manipulation and obfuscation of data enabled by developing technology is increasing victim vulnerability.
The increasing challenges around crypto and decentralised currency enabling multiple rapid movements of funds internationally is also creating a particular challenge for money laundering investigations.
SME’s using personal finances to support their business
New research shows that directors and owners of small and medium sized businesses are increasingly resorting to their own credit cards and personal loans as banks continue to squeeze access to lending.
According to statistics from Shawbrook Finance, 71% of SME decision makers admitted using their personal finances to fund business growth this year, up from 68% in 2023.
Over half (54%) reported using personal credit cards or savings (53%) with 39% reporting taking out and using a personal loan for business purposes.
More concerningly, even those larger SMEs are also using personal finances to fund with 55% working for firms that employ 100 to 249 employees using a credit card with 49% using personal savings and 42% a loan.
Other forms of finance are increasingly being used too with 78% saying they had accessed alternative finance, up from 73% in 2023. Invoice financing has grown to 56% from 48% annually while asset finance was used by 47% of respondents up from 43%.
Nearly three-quarters of SME leaders said they were concerned about the rising costs of running their business. Neil Rudge, chief banking officer for commercial at Shawbrook said: “While it’s concerning to see an increase in the number of people dipping into their personal finances to fund business growth, it’s positive to see an increase in those accessing alternative finance as well.
“SMEs are undoubtedly the backbone of the UK economy and as the government looks to get the economy back on track, it’s crucial that this cohort is not left behind.”
HMRC warning directors about new remuneration scheme
HMRC are warning companies and directors not to be tempted to use pseudo-limited liability partnerships (LLPs) to pay directors to hide standard employment income.
A new tax avoidance scheme called “The Partnership Model” is being marketed to LLPs resulting in the non-payment of tax and National Insurance contributions (NICs).
HMRC stresses that scheme users continue to be classed as employees and payments made to them from the company should be treated as taxable employment income.
The basis of the scheme is that by signing up as an employee, they agree to have their employment contract changed or terminated in exchange for a compensation payment.
Upon entering this agreement, an LLP is created to pay the employee which allows the company to disguise employment income through the LLP in order to reduce the company’s tax and National Insurance liability.
Employees involved in the scheme may be asked to sign various documents including variation and settlement agreements (VASA), compromise, transfer, intellectual property and methodology agreements. Once signed, it grants the employee compensation payment for the termination of their employment, reduction of their pay or both. Their employment is then terminated or varied under the terms of the agreements.
Once an employee becomes a partner of an LLP, the compensation payment is treated as a capital contribution to the LLP. Under the terms of the agreements, the employee may be entitled to additional payments, which will also be treated as capital contributions.
HMRC stressed that “the employee never receives any of the payments they are entitled to. They continue to receive the same net pay as if their employment had not been terminated or changed.”
Promoters of the scheme usually ask employees to register with HMRC for self assessment tax purposes. They’re asked to submit annual self assessment returns and to authorise the promoter to act as their agent/accountant.
Promoters are liable for penalties if they fail to disclose schemes to HMRC within five days of the scheme being implemented. The initial penalty is £600 a day but could ultimately pay up to £1 million – which has happened twice recently already.
Accountants paying more for car insurance
There are lots of benefits to being an accountant but cheaper car insurance isn’t one of them as new research shows that accountants can be paying up to 17% above the national average.
According to Quotezone, accountants are in the top ten professions paying higher premiums with company directors also paying 1% more on average.
The average UK car insurance premium is £984 with the average accountant quote coming in at £1,148. The highest paying profession are warehouse workers with a 39% (£1,371) increase.