Team Harbour Key enter the last month of this tax year extremely busy. We are having meetings with our corporate clients for annual pre-year end planning, 31 March being the most popular year end. In addition, we are starting to register our first tranche of clients with HMRC for making tax digital (“MTD”), which introduces quarterly reporting for self-employed individuals and landlords with taxable income above £50,000. If you are one our clients who will be entering MTD, you will be contacted shortly regarding the process.
We also have several transactions running for clients wishing to complete before the end of the tax year, to beat the increase in the Business Asset Disposal Relief (“BADR”) rate of tax from 14% to 18%.
PRE YEAR END TAX PLANNING
As we finish our tax year end, don’t forget that now is a good time to consider your own financial position and check whether you have taken full advantage of the tax reliefs and exemptions that are available, as well as prepare for the new tax year. Please see our tax checklist.
Please note our planning checklist provides a guide to the opportunities that we believe may be worth considering. There are many tax-saving measures available and steps that can be taken to improve your tax position, without significant effort. We have listed some planning points to consider which may help reduce your taxes for this tax year (ending 5 April) or prepare for the next, if implemented now. The impact of taxation is only one element in looking at your financial planning, you should also be considering such issues as your savings, investment performance, and succession planning. Always take professional advice when deciding your tax planning or investment strategy using a FCA regulated financial adviser.
SPRING STATEMENT
Last week the Chancellor delivered her Spring Statement. The Statement is not a tax raising speech, and no tax changes were announced, as we would expect. The Chancellor confirmed the focus is on economic growth, but both the Bank of England and the Office for Budget Responsibility (“OBR”) continue to have a gloomy view in the absence of a clear plan, with the OBR downgrading its growth expectations for this year. The ongoing issues in the Middle East add an extra dimension to the economic challenges, particularly on energy costs - impacting inflation.
The Chancellor says she has more fiscal headroom than in the Autumn Budget, but that is due to significant tax receipts in January 2026 (in particular Capital Gains Tax, which in the main relates to the taxpayers selling assets/businesses on the change of Government) which will soon be used up, with the announcements of extra spending on welfare, defence and education. The Chancellor will need growth in the economy to fund these increases.
There was no announced relief for BusinessRates or Student Loans; both issues had been expected to be raised in the Statement.
It will be a case of seeing if growth can be achieved with the issues in the Middle East, or if Tax increases will be required in the Autumn Budget.
DUE DILIGENCE – WHAT IT IS?
Due Diligence in a business sale is the comprehensive, post-offer investigation process where a buyer verifies the seller's financial, legal, and operational data to assess risks, validate valuation, and ensure accuracy before closing. It typically lasts 30–90 days, covering assets, liabilities, contracts, and staff, and is used to negotiate final terms or renegotiate price. One of the interesting points, that has arisen from the transactions that we have been working on over the last 18 months, is the number of clients who have referred to the level of work in dealing with due diligence. No one anticipated the level of detail required, the follow-up queries, the ongoing updates, and the tight time frame. This serves as valuable lessons for anyone looking to sell their business in future:
- Firstly, keeping business matters “clean & tidy” makes due diligence easier, and should result in no impact to business value.
- Secondly, avoid disputes & litigation where possible, and aggressive tax planning or structures. Large businesses have no appetite for taking on businesses with tax risks, or alternatively, they will ask you to fix it, generally via a tax disclosure to HMRC.
- §Thirdly, think about due diligence as the business grows, what will a buyer want to see, what is needed from a legal or regulatory perspective, or what evidence needs to be kept to demonstrate compliance with the requirements.
We have been working with a client referred to us, who on professional advice set up a dividend only share arrangement to reward senior employees, which basically is a disguised remuneration, and the buyer picked up on due diligence. To enable the sale to complete, the seller has had to make a PAYE disclosure to HMRC covering several years, and settle a significant tax liability together with interests.
We have put together a short list of the key areas of Due Diligence, and it is good practice to work to this as the business grows, making sure you have what is required in place. CLICK HERE.
TAX RECOVERED FROM INVESTIGATIONS DOUBLES
Tax recovered from investigations into largest UK businesses doubles in three years with HMRC taking a ‘more hands-on approach.’ HMRC collected £15.8bn in additional tax from 2,000 business in 2024-25, which is double the £7.1bn amount from 2021-22, down to HMRC’s ‘close contact approach’ to managing tax compliance from large businesses, revealed analysis by the National Audit Office (NAO).
The HMRC report will look at ‘tax under consideration’ for 2025, which is HMRC’s estimate of the maximum additional tax that could be collected if open compliance activity produced results. An improvement in the quality of data HMRC records on its IT systems was also recommended, which the NAO said would ‘improve its understanding of productivity’.
The NAO report supports our view and experience, in that although we don’t work with large businesses, we are seeing a continued increase in the number of tax enquiries/compliance checks being opened, as more staff and resource is put in to this area.
More recently we have seen an increase in PAYE & other employment taxes enquiries, with two clients having PAYE visits, where the HMRC officer reviews the businesses’ internal process/practices regarding expenses, employee benefits, pool cars etc, to see if there is any tax leakage. We also believe that these visits are used to risk assess the business as to other tax leakage risks, if they are not seeing robust management and practices in respect of employment taxes.
STATE PENSION
The upcoming changes to the State Pension age for men and women will see retirement age increase from 66 to 67 years, affecting payroll and National Insurance Contributions. From 6 April 2026, the increase will be phased in over the course of two years, meaning that people born between 6 April 1960 and 5 March 1961 will reach their State Pension age at 66 years and a specified number of months. HMRC is warning employers to check which staff fall into the category and can use the State Pension age calculator to find the date when an individual will reach state pension age. Once an employee reaches state pension age they no longer have to pay National Insurance Contributions (NICs), but Class 1 secondary National Insurance is still payable by the Employer.
Their National Insurance category letter has to be changed to ‘C’ in payroll software, which means NICs will no longer be deducted. HMRC stressed: ‘Employers must carry on reporting the original category letter year-to-date information separately from the updated category letter information, until the end of the tax year. The same as they would for any other mid-year category letter change.’ It is also necessary to obtain proof from the employee that they have reached State Pension age, either through a birth certificate or passport.
VAT FRAUD
We have not come across these issues yet with our own clients, but based on discussions with other accountants, we have been made aware of two VAT frauds. The first is your VAT account being hacked where the fraudsters hijack a new VAT registration by linking it to their own Government Gateway IDs to submit fake returns and divert refunds. Victims often discover the fraud when they cannot log in or find their account already registered. Immediate action is required to contact HMRC if your account is compromised. The criminals exploit the gap between a business receiving its VAT number and setting up its own online access, fraudsters change bank details via form VAT484 or online access to divert legitimate repayments to their own accounts. If you cannot link your VAT number to your Government Gateway account, it may already be compromised, and if you suspect fraud call HMRC VAT Online Services immediately at 0300 200 3701.
The second involves firms advertising on social media, advising that Ai software can review your historical VAT returns, identifying VAT repayments, charging a success fee on the amount repaid.
Times are tough, business costs are up, but please don’t fall foul to what are essentially scams. Statements like “HMRC approved” or “HMRC liaison” mean fraud, HMRC don’t approve, don’t liaise or work with anyone. We understand that HMRC have on occasion issued repayments with no checks, but at some point, they will come back for the repayment, of which 50% has been paid to the pretend advisors. Think Research & Development ("R&D") Tax Credit claims, and the level of fraud that took place in this area.
DATES
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
