WELCOME TO HARBOUR KEY'S JULY 2026 E-NEWSLETTER
Amid the sunny weather and the football, work has continued at HK HQ.
Earlier this year, we were engaged by a new group client after previously acting for one of the businesses it had acquired. Following the acquisition, the new owners asked HK to become the group's accountant.
Over an 18-month period, the group had acquired 15 businesses, each requiring a full set of statutory accounts, integration into the group reporting structure, handovers from a range of previous accountants, and ongoing tax compliance. It was a substantial and complex project, but one that resulted in a very successful outcome. Most importantly, the client was delighted with the service and the final result.
We also held our team away day in The Cotswolds, with professional and technical training in the morning, followed by a team exercise in the afternoon around the countryside.
LABOUR PARTY LEADER - MORE TAX CHANGES?
This month we will see a new Labour Party Leader, which means a new Prime Minister. Without tempting fate, we all know who the new Prime Minister will be, and that this will also likely to result in a new Chancellor. With this forthcoming change the noise has started around possible Tax changes that will be made, with the same areas being raised, as when the Labour Party became the ruling party, Capital Gains Tax to be increased, and equalised to Income Tax rates, a Wealth Tax, an Exit Tax for those who decided to leave the UK. However, no announcements on taxes have actually been made or indications given of what is to take place. In fact, outside of the Tax increases noise from professionals/advisors etc, there are several groups close to the new potential Prime Minister, who are putting forward cases not to increase Taxes.
It feels like we are entering a similar position we had two years ago, when Labour won the election. There will be a long run into the next Budget, with lots of speculation, and this will cause distraction, and stagnation resulting in decision making, regarding spending plans and investment being delayed as everyone just waits!
Our position has always is don’t try and second guess what is going to happen by implementing any “knee jerk” planning actions. If you are going to undertake an action regardless of the Budget, then continue with these, but look to complete this where possible before the Budget. For the example, if selling a property, even if your main home, exchange contracts before the Budget. But don’t do something, just because the press says something is going to happen.
The financial investment firm Quilter, recently reported that their research showed that three in five retirees who made tax-free pension withdrawals in advance of the 2024 Budget regretted it. Many acted out of fear of Budget changes rather than actual need, and the irreversible decision to withdraw cash resulting in a higher Tax burdens and loss of compound growth. Although, this could be their warning to their clients not to cash their pensions in early, or take early tax-free sum lumps, to protect its own funds under management!
HMRC IS SHARPENING ITS SCALPEL
Without any potential Tax rate increases, we have highlighted on several occasions, HMRC activity is increasing, there is no leniency regarding Tax errors, which is supported in recent data released by accountancy group UHY Hacker Young showing a 23% surge in tax recovery per investigation, with small businesses and individuals now averaging of £24,700 per investigation (previous data showed the figure was £20,100). The increase is not so much Tax evasion, but in many professionals view, increased complexity in the UK tax system, which continues to increase.
Outside of HMRC activity, Tax risk is now high on the agenda of buyers, when it comes to selling your business, buyers are becoming more cautious, and once again tax risk is receiving far greater scrutiny. The last time tax risk was high on a buyer’s agenda, was following the aggressive tax avoidance schemes mass marketed in the noughties, which had a long tail, but now it is more about has correct advice been taken, implemented correctly, as the tax system has become more complicated. Read our blog below.
VAT PRESSURE COOKER
Continuing the theme of complexity, VAT is a minefield of complexity. The Federation of Small Businesses reports that the average small firm spends £4,500 a year just to stay compliant with its tax reporting. A common flashpoint is the quarterly VAT cycle. A strong month of sales at the end of a quarter can trigger a massive VAT liability before the cash has hit the business’s bank account. This can create a cash flow crunch resulting in some business owners to under-declare income to manage their cashflow, which works until HMRC find out, or a buyer on Due Diligence. Some businesses may be eligible to use cash accounting for VAT, on which Harbour Key can provide further advice.
However, another VAT minefield is for those businesses who believe there is no requirement to be registered for VAT. We often come across businesses, who in the main provide VAT exempt services, but also provide other services which may not be at the level of the Vatable services, but nevertheless are greater than the VAT threshold (£90,000). There are also other complications with non-VAT registered businesses buying VAT exempt supplies from overseas. See our blog below.
DATES
- Key Tax dates for the 2026 calender year.
- 31 July 2026 - Second Payment on Account.
- 31 January 2026 - Self Assessment deadline!
Should you wish to speak with us about a specific matter, or just to be a sounding board or for a chat, please do not hesitate to give us a call on 01452 713277
